Mexico: US planned bailout before NAFTA vote

According to a Feb. 8 article in the online magazine Salon, officials of the Federal Reserve, the de facto central bank of the US, were planning to arrange for a bailout of the Mexican peso in November 1993 to ensure that the North American Free Trade Agreement (NAFTA) would be ratified by the House of Representatives. While the US media and government officials—including Federal Reserve Board of Governors member Jon LaWare—were assuring Congress and the public of Mexico's financial stability, top Reserve officials were concerned that the peso might be facing a devaluation. In a Nov. 9 conference call that one official described as "of a sensitive international nature," Fed leaders discussed arranging a US-sponsored bailout if the currency failed.

Participants in the conference call were explicit about their concern that instability in the peso could affect the upcoming vote NAFTA. Fed official Richard Syron said he was normally "skeptical" about bailouts. "But it seems to me that if one were to look for a case that falls out of the traditional norm… this would be the one. It is one where in some sense the United States is in the process of entering into this treaty and a lot of confusion has been created about it. It is an extraordinarily political issue." He added that "[t]here are a lot of things going on here that are not fundamental economics." The officials didn't actually set up a bailout mechanism, but they discussed the possibility with Mexican officials, and the next day the peso stabilized. The House approved NAFTA on Nov. 17, and the peso maintained its value for a little more than a year. It finally collapsed starting on Dec. 20, 1994, and Mexico required a US-sponsored bailout of about $40 billion in January 1995.

US president Barack Obama is currently seeking fast-track authority to get congressional approval for the Trans-Pacific Partnership (TPP), a new trade agreement among 12 Pacific Rim nations, including Mexico and Chile, which opponents describe as "NAFTA on steroids." However, the New York Times reported on Feb. 15 that the administration now feels it won't be able to win fast-track authority for another unpopular trade pact at least until after the November elections. (Salon, Feb. 8; NYT, Feb. 15)

From Weekly News Update on the Americas, February 16.