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Is a Mexican Standoff Inevitable?
| Article
# : |
10869 |
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Section : |
CURRENT ISSUES
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| Issue
Date : |
7 / 1986 |
3,847 Words |
| Author
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M. Delal Baer
M. Delal Baer is a research associate of the Georgetown Center
for Strategic and International Studies' Mexico Project in
Washington, D.C. |
Four years into the debt crisis, a solution to Mexico's financial woes appears as distant as when the crisis first emerged.
During the early phases of the crisis, it was assumed that the problem was one of temporary liquidity and that budgetary adjustments would correct the situation. The search for a solution was characterized by cooperation and consensus on the part of debtors, multilateral financial institutions, and commercial banks.
The solution models adopted four years ago now seem frayed and inadequate. Latin American nations appear no closer to being able to meet their debt obligations, and in the case of Mexico, precipitous declines in oil prices have made the prospects for repayment bleak.
Indeed, payments on principal are hardly contemplated as Mexico borrows and struggles to meet interest payments alone. It is now clear that the strategies heretofore pursued have done little more than manage the problem and postpone the ultimate day of reckoning.
At this critical juncture, when creative strategies that address the root causes of the crisis are desperately needed, a dangerous lack of consensus between debtors and creditors is emerging.
On the one hand, Latin American leaders, economically and politically strapped by four years of austerity, are searching for relief. The ease with which political capital can be made out of defying the commercial creditors increasingly presents struggling leaders with a tempting path to popularity.
On the other hand, creditors are increasingly reluctant to invest more resources without rigorous assurances of repayment. As debtors and creditors move into the second phase of the debt crisis, the lack of consensus as to how to proceed could lead to a dangerous standoff. The longer this standoff continues, the more political and social pressures accumulating in the Latin American environment will complicate the search for a final resolution.
The Prisoner's Dilemma
Mexico and its creditors are currently locked in a position known to professional strategists as "the prisoner's dilemma."
The dilemma
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