For the second time in six years the United States is riding to the rescue of its troubled southern neighbor, preparing to loan Mexico $3.5 billion to help it cope with new financial problems caused by dropping oil prices and capital flight. The decision is a good one in the short run, but hard choices still lie ahead if the Mexican economy is to get back on its feet for good.
The emergency loan is the largest the United States has ever extended to a debtor nation. Technically it is a "bridge loan," a temporary infusion of funds to tide Mexico over while it negotiates new credits from the International Monetary Fund and the World Bank. Those two agencies are leading the effort to see Mexico through a financial crisis that began in 1982, when its government announced that it was on the brink of default. Back then, the U.S. Treasury contributed $1.8 billion to an emergency Mexican loan package put together by the IMF.
Since then the Mexican government has tried to work its way back to financial health, with only limited success. President Miguel de la Madrid imposed a painful austerity program on the country which included a devaluation of the peso, cutting the value of a Mexican workers' wages by 40% and closing down government enterprises that mean the loss of thousands of jobs. More recently, De la Madrid imposed wage-and-price controls that have finally brought inflation down from 160% a year at the height of the crisis to 1% per month, according to the latest statistics.