Mexico

Inflation, at 17 percent, was higher in 1998 than the 12 percent that had been projected at the beginning of the year. The increased inflation rate was largely a consequence of the devaluation of the peso towards the end of 1997. Inflation, currency devaluation, decreased oil revenues for the national government, and other factors combined to cause the national government to reduce the subsidization of the price of the tortilla, the country's principal staple, in 1998. This action has further weakened support for the tight fiscal policy implemented by the national government (Fineren, 1998).

The shock to the Mexican economy delivered by the economic crisis in Brazil in late-1998 was doubly unfortunate in that it hit the Mexican economy at a time when Mexico already was in the midst of a planned slowdown in economic growth and because the country had already been hit by the unexpected and precipitous drop in the world price of oil. As a consequence, in early-1999, Mexican stock prices have dropped more than five-percent on average, the peso have lost more than 25 percent of its exchange value, and interest rates have risen dramatically (Trotta, 1999). All of these economic shocks have cause a currency flight from Mexico that began in the last-half of 1998 and which continues in early-1999. Deposits by Mexican nationals in American banks increased Olson, M., Jr. (1996 Spring). Big bills left on the sidewalk: Why some nations are rich and others poor.

Journal of Economic Perspectives, 10, 3-24. Trotta, D. (1999 January 13). Mexican economy comes down with Brazilian flu. Reuters New Wire, 1. Mexico's national debt has decreased dramatically since the peso crash of 1994; however, at the end of 1998, the country's total debt remained at 20.9 percent of gross domestic product (GDP). A summary of Mexico's recent debt record is presented in Table 1, which may be found on the following page.

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