Black December (c) The International Bank for Reconstruction and Development / The World Bank Black December Black December Banking Instability, the Mexican Crisis, and Its Effect on Argentina Valerio F. García WORLD BANK LATIN AMERICAN AND CARIBBEAN STUDIES Viewpoints Copyright © 1997 The International Bank for Reconstruction and Development/The World Bank 1818 H Street, N.W. Washington, D.C. 20433, U.S.A. All rights reserved Manufactured in the United States of America First printing June 1997 This publication is part of the World Bank Latin American and Caribbean Studies series. Although these publications do not represent World Bank policy, they are intended to be thought−provoking and worthy of discussion, and they are designed to open a dialogue to explore creative solutions to pressing problems. Comments on this paper are welcome and will be published on the LAC Home Page, which is part of the World Bank's site on the World Wide Web. Please send comments via e−mail to
[email protected] or via post to LAC External Affairs, The World Bank, 1818 H Street, N.W., Washington, D.C. 20433, U.S.A. The findings, interpretations, and conclusions expressed in this paper are entirely those of the author(s) and should not be attributed in any manner to the World Bank, to its affiliated organizations, or to members of its Board of Executive Directors or the countries they represent. The World Bank does not guarantee the accuracy of the data included in this publication and accepts no responsibility whatsoever for any consequence of their use. The boundaries, colors, denominations, and other information shown on any map in this volume do not imply on the part of the World Bank Group any judgment on the legal status of any territory or the endorsement or acceptance of such boundaries. The material in this publication is copyrighted. Requests for permission to reproduce portions of it should be sent to the Office of the Publisher at the address shown in the copyright notice above. The World Bank encourages dissemination of its work and will normally give permission promptly and, when the reproduction is for noncommercial purposes, without asking a fee. Permission to copy portions for classroom use is granted through the Copyright Clearance Center, Inc., Suite 910, 222 Rosewood Drive, Danvers, Massachusetts 01923, U.S.A. ISBN: 0−8213−3960−5 Cover: The painting on the cover, El Adorador Solar by Mexican artist Pedro Coronel, was provided by Christie's. Permission to reproduce it was granted by the Society of Mexican Authors of the Plastic Arts. Black December 1 (c) The International Bank for Reconstruction and Development / The World Bank Black December Valeriano F. García is principal economist in the Office of the Chief Economist in the Latin America and the Caribbean Regional Office of the World Bank. The author wishes to acknowledge helpful comments made by Saul Lizondo and V. Hugo Juan−Ramon. He also thanks Suman Bery, Jorge Canales, Allan Meltzer, and Guillermo Perry for their useful suggestions. Library of Congress Cataloging−in−Publication Data García, Valeriano F. Black December : banking instability, the Mexican crisis, and its effect on Argentina / by Valeriano F. García. p. cm. "April 1997." ISBN 0−8213−3960−5 1. Banks and banking—Latin America. 2. Capital movements—Latin America. 3. Balance of payments—Latin America. 4. Financial crisis—Mexico. 5. Mexico—Economic conditions—1994− 6. Argentina—Economic conditions—1983− I. Title. HG2710.5.A6G37 1997 330.982'064—dc21 97−19841 CIP Contents Introduction link Banking Blues link Capital Inflows link Changing Capital Flows and the Real Exchange Rate li