Mexican Peso Case

Mexican Peso Case - Negotiations between Mexico and the...

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Negotiations between Mexico and the IMF 1 'Another tough negotiation,' Mr. Williams thought to himself. As the IMF official assigned to negotiate the loan agreement with the Mexican government, he had just been notified that there would be a meeting Wednesday (October 23, 1982) with the Mexican Treasury Secretary Jesus Silva Herzog and Central Bank Director Carlos Tello Marcias in Washington D.C. It was an unexpected meeting, and Mr. Williams knew it would be a key one in the development of an agreement between the IMF and Mexico to help that country through its current international payments difficulties. Williams had served as the head of several IMF delegations to countries seeking IMF support in their attempts to correct international payments problems. In most of the negotiations between the IMF and a country, the IMF demanded substantial changes in government policies as a condition of access to IMF funds. But each delegation was left with some discretion as to the exact mix of changes in policies required by the IMF, and the style of negotiation varied from country to country. He reflected on how much these rules had changed over the years he had been with the IMF. Mr. Williams reviewed in his head all the considerations that are part of the IMF conditionality. He found that for many developing countries the IMF demanded a program for viable payments for balance of payments account deficits; this had to be sustained by incoming capital. Whatever policies the country selected, it was better if it were on terms compatible with the developmental ideas of the country. These payments positions also lacked restrictions on trade and payments that could add to, not correct, the existing distortions if enforced. This corrective strategy allows for an economy to move toward sustained growth and avoid "purely deflationary policies that may have a delirious effect on investment and fail to encourage the required shift of resources to the external sector.” Mr. Williams, looking at the information his staff had prepared for him, reviewed the new criteria of conditionality. This new set of IMF guidelines incorporates "consultation clauses, the phasing of purchases, and the injunction that objective indicators for monitoring performance (or "performance criteria") be limited only to those variables necessary to ensure achievement of the objectives of Fund supported programs (IMF Survey)." More specifically however, he quoted the revised guidelines as follows: Emphasis on the need to encourage members to adopt corrective measures at an early stage of their balance of payments difficulties; Recognition that many cases require periods of adjustment longer than those normally associated with a stand-by arrangement; Adoption of flexible approach for the treatment of external borrowing in adjustment programs; and Stress on the necessity to pay due regard to the domestic social and political objectives, economic priorities, and the circumstances of members, including the causes of their payments problems. Mr. de Larosiere, IMF Managing Director, also stressed in an address to a symposium of the European
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Mexican Peso Case - Negotiations between Mexico and the...

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