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As Rubin and Summers explained, the economic...
11:32, 2010-Mar-7
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As Rubin and Summers explained, the economic collapse of Mexico could have severe consequences for the United StatesFirst, Mexico was our third-largest trading partnerIf it couldnt buy our products, American companies and employees would be hurtSecond, economic dislocation in Mexico could lead to a 30 percent increase in illegal immigration, or half a million more people each yearThird, an impoverished Mexico would almost certainly become more vulnerable to increased activity by illegal drug cartels, which were already sending large quantities of narcotics across the border into the United StatesFinally, a default by Mexico could have a damaging impact on other countries, by shaking investors confidence in emerging markets in the rest of Latin America, Central Europe, Russia, South Africa, and other countries we were trying to help modernize and prosperSince about 40 percent of American exports went to developing countries, our economy could be hurt badly
Rubin and Summers recommended that we ask the Congress to approve $25 billion in loans to allow Mexico to pay its debt on schedule and retain the confidence of creditors and investors, in return for Mexicos commitment to financial reforms and more timely reporting on its financial condition, in order to prevent this from happening againThey warned, however, that risks were attached to their gucci handbags discount recommendationMexico might fail anyway and we could lose whatever money we had extendedIf the policy succeeded, it could create the problem economists call moral hazardMexico was on the brink of collapse not only because of flawed government policies and weak institutions, but also because investors had continued to finance its operations long past the point of prudenceBy giving the money to Mexico to repay wealthy investors for unwise decisions, we might create an expectation that such decisions were risk free
The risks were compounded by the fact that most Americans didnt understand the consequences to the American economy of a Mexican defaultMost congressional Democrats would think the bailout proved that NAFTA was ill advised in the first placeAnd many of the newly elected Republicans, especially in the House, didnt share the Speakers enthusiasm for international affairsA surprising number of them didnt even have passportsThey wanted to restrict immigration from Mexico, not send billions of dollars there
After I listened to the presentation, I asked a couple of questions, then said we had to go forward with the loanI thought the decision was clear-cut, but not all my advisors agreedThose who wanted to speed my political recovery after the crushing midterm defeat thought I was nuts, or, as we say in Arkansas, three bricks shy of a full loadWhen George Stephanopoulos heard chanel shopping bag Treasurys $25 billion figure for the loan, he thought Rubin and Summers must have meant $25 million; he thought I was about to shoot myself in the footPanetta favored the loan, but warned that if Mexico didnt repay us, it could cost me the election in 1996
The risks were considerable, but I had confidence in Mexicos new president, Ernesto Zedillo, an economist with a doctorate from Yale who had stepped into the breach when his partys original candidate for president, Luis Colosio, was assassinatedIf anybody could bring Mexico back, Zedillo could
Besides, we simply couldnt stand aside and let Mexico fail without trying to helpIn addition to the economic problems it would cause both for us and for the Mexicans, we would be sending a terrible signal of selfishness and shortsightedness throughout Latin AmericaThere was a long history of Latin American resentment of America as arrogant and insensitive to their interests and problemsWhenever America reached out in genuine friendshipwith FDRs Good Neighbor Policy, JFKs Alliance for Progress, and President Carters return of the Panama Canalwe did betterDuring the Cold War, when we supported the overthrow of democratically elected leaders, backed dictators, and tolerated their human rights abuses, we got the reaction we deserved
I called the congressional leaders to the White House, explained the situation, and asked omega watches for their supportAll of them pledged it, including Bob Dole and Newt Gingrich, who aptly described the Mexico problem as the first crisis of the twenty-first centuryAs Rubin and Summers made the rounds on Capitol Hill, we picked up support from Senator Paul Sarbanes of Maryland, Senator Chris Dodd, and Republican senator Bob Bennett of Utah, a highly intelligent, old-fashioned conservative who quickly grasped the consequences of inaction and would stick with us throughout the crisisSeveral governors were also supportive, including Bill Weld of Massachusetts, who had a great interest in Mexico, and George WBush of Texas, whose state, along with California, would be hardest hit if the Mexican economy collapsed
Despite the merits of the case and the support of Alan Greenspan, it became obvious by the end of the month that we werent doing well in CongressAnti-NAFTA Democrats were sure the aid package was a step too far, and the new Republican members were in open revolt
By the end of the month, Rubin and Summers had begun to con-sider acting unilaterally, by providing the money to Mexico out of the Exchange Stabilization FundThe fund was created in 1934, when America took the dollar off the gold standard, and was used to minimize currency fluctuations; it had about $35 billion and could be used by the Treasury secretary with the Presidents approvalOn the cheapest replica speedy louis vuitton real leather twenty-eighth, the need for American action took on even greater urgency when the Mexican finance minister called Rubin and told him default was imminent, with more than a billion dollars worth of tesobonos coming due the following week
The matter came to a head on Monday night, January 30Mexicos reserves were down to $2 billion, and the value of the peso had dropped another 10 percent during the dayThat evening, Rubin and Summers came to the White House to see Leon Panetta and Sandy Berger, who was handling the issue for the National Security CouncilIn blunt terms, Rubin told them, Mexico has about forty-eight hours to liveGingrich called to say he couldnt pass the aid package for another two weeks, if at allDole had already said the same thingThey had tried, as had Tom Daschle and Dick Gephardt, but the opposition was too strong
I returned to the White House from a fund-raiser at about 11 pand went to Leons office to hear the grim messageRubin and Summers briefly restated the consequences of a Mexican default, then said we needed only $20 billion in loan guarantees, not $25 billion, because International Monetary Fund director Michel Camdessus had put together almost $18 billion in aid that the IMF would extend if the United States acted; combined with smaller contributions from other countries and the World Bank, that brought the total aid package to just under $40 new prada replica handbags billi
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