The Post-Nafta Mexican Peso Crisis: Bailout or Aid? Isolationism or Globalization?
AbstractThis essay discusses the events of the 1994/1995 Mexican peso crisis, subsequent U.S. Congressional/Executive debate over sending U.S. financial aid, and executive action. The United States had entered the North American Free Trade Agreement (NAFTA) one year earlier, and investors and politicians were hailing it as a great success. The United States seemed positioned to be the financial leader of the new post-cold-war era. But beginning on December 20, 1994 when Mexico decided to no longer support the peso against the dollar, the pesoâ€™s value dropped over 50%. This devaluation hurt Mexico, international investors, and the legitimacy of the NAFTA and trade liberalization. Those in support of the NAFTA felt the side effects of inaction in response could possibly reach neighboring countries, and result in an economic crisis. President Clinton could ill afford to sit idly by. However, the 104th Congress was sympathetic towards the anti-NAFTA labor-left and the anti-NAFTA protectionist-right. The recently elected â€œContract with Americaâ€ Republicans were elected on an agenda of government reduction not increased spending. This essay examines events leading to the devaluation, subsequent debates, and the Presidentâ€™s action. It concludes that if the United States is to maintain its economic dominance it must continue towards liberalized trade and globalization, and withstand the protectionist and labor movementâ€™s desire to move towards isolationism.
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