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DEBTINTHE1990s/191

In 19 9 3-94, almost every financial commentator, along with a great
number of reputable economists, backed the World Bank and IMF's
self-satisfied claims that Latin America was in the midst of a fully-
fledged economic recovery (they were similarly complacent with
respect to the Southeast Asian 'dragons' right up until June 1997,
even though the crisis there had already begun in April 1997). They
pointed out that significant funds were making their way back into
Latin America- and this, they said, showed that the lost decade of the
1980s was over. After leaving his job as an IMF administrator, and
only a few months before the Mexican crisis of December 1994,
Jacques de Groote told the Belgian daily Le Soir (28 March 1994):

There are countless success stories. The best example is Mexico. In

October 1982, this country was hit by a ma] or debt crisis. The ] oint

action of the IMF and World Bank quickly got the country on its

feet again, got its balance of payments back in shape in exchange

for a limited and short-term drop in the population's wages. Today,

investment has returned to Mexico and the World Bank is running

a programme that aims to diversify production. ... In fact, all the

countries of Latin America ... are doing very well economically.

In fact, these investment flows were (and are) volatile. They were
primarily attracted to these countries for two reasons: first, a policy
of high interest rates pursued by the IMF's best pupils (Brazil, Mexico,
Argentina, to name a few) and an unprecedented wave of privatisa­
tions (large state-owned companies sold for a song). In order to
sweeten the pot, the government declared a fiscal amnesty for all
nationals repatriating capital that had been invested abroad. It was
misguided to expect that this huge mass of capital on the lookout for
a juicy rate of return could ever get Latin American economies back
on track by rejuvenating privatised companies with new money. All
along, the Mexican trade deficit was getting worse and worse; and
this ultimately shook private investors' confidence and led them pro­
gressively to withdraw their money throughout 1994. Stock market
shares were sold off; Mexico plunged into crisis once again. To avoid
a similar fate, the governments of Brazil and Argentina have been
pursuing an aggressive policy of high interest rates in an attempt to
keep investment from going elsewhere. The Mexican government
has been doing the same.