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Why Not Default?$
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Jerome Roos

Print publication date: 2019

Print ISBN-13: 9780691180106

Published to Princeton Scholarship Online: May 2019

DOI: 10.23943/princeton/9780691180106.001.0001

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The IMF’s “Triumphant Return” in the 1980s

The IMF’s “Triumphant Return” in the 1980s

Chapter:
(p.137) Nine The IMF’s “Triumphant Return” in the 1980s
Source:
Why Not Default?
Author(s):

Jerome Roos

Publisher:
Princeton University Press
DOI:10.23943/princeton/9780691180106.003.0010

This chapter discusses how the second enforcement mechanism of official-sector intervention operated in practice. It shows how the large exposures of the big Wall Street banks to Mexico's highly concentrated debt greatly increased the risk of financial contagion, thus moving the U.S. government to intervene on its own banks' behalf and push for active IMF involvement. By coordinating the lending decisions of the private banks and disbursing emergency loans under strict policy conditionality, the Fund assumed a leading role as an international crisis manager and lender of last resort, serving both as a fiscal disciplinarian of the debtor governments and as the informal head of the private creditors' cartel. In this way, the creditors managed to keep the Mexican government in the lending game while at the same time freeing up domestic resources for foreign debt servicing. This not only prevented a disorderly default but also maximized the likelihood of full repayment.

Keywords:   Latin America, financial crisis, debt crisis, Mexico, International Monetary Fund, IMF, foreign debt servicing

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