**Policy, Researcl, and External Affairs**

# **Country Operations**

# **WFS 424**

I his paper is a prodluct ol tlhc Country Operationis Division, Latin America and the Caribbean Re. onal Olfice, Country Department 11. Copies are available frec 1romm LtCe World Bank, 1818 If Sirect NW, Washinoton DC 2(A33. Please contact Margaret Stroude, roomI 18-1 63, extension 38831 (33 pages sK ith figures **and** tables plus _2I_ pagcs **ot annex).** Mexico's suspension ot ldebt service payments in August 1982 ushercdi in tlhc interniational debt crisis. In two consecutive debt rcstructurinri packages, in 1984 and 1987. Mexico bcgan vigorous structural rct'orm unider thc so-called Baker plan. Miexico s cxpericence vividly denioiistrates the strength ofthat plan an; d tile reasons lor its cv cnualt Failure ---- thc fact thatl it wlas inherently a short-term process.

In December 19S8, Mcxico's Prcsidcnt Salinas annriouniced that extenral creditor-s vcre 10 COnItribIte to _a1 meIdiUml-IClI_ SOIlution. In Marchi NS'). _tte_ nc. tiL-.S. TreasUr -k SeCretar;\ Bdi'r , el ti'. civ l Citimi/ed th IIsicaiall '.ord debt relicF in a sIpcchI thalt openle2d t **h** e I.l 1or theI C _I'9 det (IC_ re\trnctLri **a1rl.** erenlnt th1at \ a1 n Wi l anaer. **_!11cd\_** ' /S _hlere._ Thatt anreeret.l oflfercd commerciil creditors the choic btxt \kcen exvehantnine old debt in,airumrct s for nce%' inistrumilents i' olv irli debt xrelict do'. er inrtcrest rates or prillncipall b Nit a;lli'% seeLtrC _d._ ith coil a.eral: **nr** unsecurc( instrumrilits itWOnLt debt rciiet. buit '.t it a ev. nio11ton omilillitmlieln **t** lliltlcd.

w ho in thlc end proflitcd most Irom the ofticial resources devoted to the deal: Msexico or its commercial creditors? He concludies: Mlexico made elftficieint use ot tile official f'undcs available lor debt reduction. Tlhc market value of' lth claims before enhancement dccli lcd by close to tile full amiloulit ot tthe value ofl the additional foreign ofticial resourccs devoted to thc packaec. TIhc rate ot rctuni on ltlc use on offiicial resources far exceecis thie initerest rate at \0hich dtei' **%ere** extcnide(l.

TIhe market \aluc after errhan&'enient as the samt as the market \. alue ol th.e outltldlillng claims before the dCaIl so MC\I icos cornmicrciail cre(litors not at fiir dil . 'I[lie crldit **erdiallcellnclit b\ ain** large :ii e ulp for thlc dieht relic. fil nlt) no eill t thlt tire oficiail cred(itors' mione\ hbenefited Me\ico rather tlan its commercial creditors. 'It'lc World Bank, the IMF. and thte (Gocninlcnt of Ja'p,n ('AhInch pro'0\. ided _tiIe_ official lrsoulrcs) aICii'.Ce(d thlcir ohjevctivc of helping Mexico: theC additional re sourc (sldid _tIt_ aiccrue to the creditors, 'i. rich man'. feared and soImeC (iccme(d inevitalhc.

.z\ctve idehates o tire rlcer;ts ol thiis packae _reV_ oftell Confused.na _Ill Lill_ C\tCnsiVC CCOnollic nalsi si .Lin \Wijrrbrergen addrcsses tife Luestionl: lhail . oil the blasis ol availab!le ct.\ idice. this pCke cstablishcidlIc haksis tor sustairabie _ ro'.tf iii Mlc\ico.

! i I'8i' **0!' 'A** 4eii: l'.,ir **L!:a's A** tilt: **iX. .11** **_Pk'11 !!_** ' **.1 Ti:. 1:" ,** > ; ; . !. .; **," !.O ; ); )-** ni1r **_t:.:'IT!_** .s1l **_'!!_** : **13 WJ** 1il.ll':1'