Clinton's Bailout Sends Wrong Message on Economic Reform

The recent $49.8 billion bail-out of Mexico by President Clinton has sparked a mixed reaction in the markets and the economy. While the short-term effects have shown a positive response, the long-term implications of the bail-out are not as promising. The bail-out, which included $20 billion from the Exchange Stabilization Fund and additional funds from international institutions, has been hailed as a display of decisive leadership by President Clinton.

However, critics argue that the bail-out sends the message that unsound economic policies carry no penalty. The Mexican economy, while fundamentally sound, still has a significant portion of its economy controlled by the government or government-influenced entities. The bail-out has propped up the peso's price at artificially high levels, and the sudden and destabilizing fall of the peso has created a threat to Wall Street investors.

The bail-out has also prevented the Mexican government from implementing much-needed economic reforms and submitting to the discipline of the marketplace. By choosing to prop up the economy through wage-and-price controls and an international bail-out, President Clinton and the international banking community have taken a temporary but illusory solution instead of working towards sustainable growth based on sound economic fundamentals.

Key Takeaways:

The bailout of Mexico by President Clinton has sent a message that unsound economic policies carry no penalty.
70% of the American people opposed the loan guarantees, making it a tough sell for President Clinton.
$20 billion was issued from the Exchange Stabilization Fund, and international institutions contributed to the remaining $29.8 billion.
The bailout has propped up the peso's price at artificially high levels, masking underlying economic issues.
The Mexican economy still has a significant portion of its economy controlled by the government or government-influenced entities.
The sudden and destabilizing fall of the peso has created a threat to Wall Street investors.
Sir James Goldsmith, an investor in Mexico, incurred a significant loss from the peso's devaluation.
The bailout has prevented the Mexican government from implementing much-needed economic reforms.

Statistics:

$40 billion: The initial amount of loan guarantees requested by President Clinton
70%: The percentage of Americans who opposed the loan guarantees
$20 billion: The amount issued from the Exchange Stabilization Fund
$49.8 billion: The total amount of the bail-out package
$29.8 billion: The remaining bail-out amount contributed by international institutions

Sources:

The Orange County Register, "Editorial: Clinton's make-believe bail-out," February 1, 1995 (no author mentioned)