U.s. Foreign Trade Agreements

1394 WordsJun 14, 20166 Pages
The late 1980s and early 1990s marked an age of reform and liberalization in Mexico. After a long period of economic turmoil and isolation behind its borders, Mexico began to allow foreign capital and foreign direct investment (FDI) to flow into its economy, and the external debt that had been hanging over Mexico’s head since the 1982 balance of payments (BOP) crisis was finally restructured. With the signing of the North Atlantic Free Trade Agreement (NAFTA) on January 1, 1994, a trilateral trade bloc was created in North America between Mexico, the United States, and Canada. Foreign trade restrictions were eliminated and commercial agreements with other countries were negotiated, consolidating Mexico’s integration into international…show more content…
Nevertheless, many bankers were willing to pay up to three times the banks’ book values in a purchase due to the PRI and Salinas administration’s tactics and the design of the banking system itself. First, the administration signaled to potential investors that it would aggressively limit competition in the banking industry, essentially creating the lure of an oligopoly. Second, the PRI was able to control accounting rules over the years to blur the true value of bank assets and to manipulate the treatment of loans and past-due interest in the favor of government. Third, the investors were able to craft a deal in which they did not have to put up their own capital for the investment. In fact, they often borrowed the funds for the purchase from the very banks they were buying. This series of government decisions nearly guaranteed that the banks would engage in risky behavior. Because the bankers had little capital at risk, they had little incentive to lend money in a judicious manner. Bank credit thus grew at a swift pace as banks began to compete with little regard for the riskiness of extended credit; however, the rapid growth in lending was not matched with a growth in deposits. From 1992 to 1994, loans exceeded deposits by approximately 20%, and the difference was funded through interbank lending, largely from foreign banks in foreign currency which was now allowed under the new
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