Debt Crisis and Options for Development Strategy

Mexicos debt crisis is once again coming into an alarming situation after at least a decade of the same crisis. Although Mexico had already experienced this debit crisis in 1982, it had not reached a critical stage when it is now. Presently, Mexico is unable to meet her interest payments on the $80 billion debts the country currently has. This has prompted the countrys creditors to reschedule loans and devise good plans to reduce the fast crushing Mexicos debt burden. Such strategies include austerity strategy that was imposed by the International Monetary Fund (IMF).

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However, despite these efforts by the creditors to curb the debt burden, the current debt situation in Mexico has mushroomed to over 98 billion and this means that the country is again facing a possible default of $1.8 billion interest that is due on June 2016.

Another plan that is tipped to correctly pull the country out of debt quagmire and assure it of a clean road to prosperity is the Reagan Administration. This plan is in contrast with the IMFs prescription. Mexicos Treasury Secretary James Baker has given the proposal by the Reagan Administration a green light by proposing a $20 billion in new private loans and $ 9 billion in the New International Organizations loans to Mexicos debtor countries and this is likely to make the country adopt to market-oriented economic reforms.

According to James Bakers plan, the IMF, the Reign Administration, private bankers and the World Bank officials has to work hand in hand to curb the debt burden out of countrys shoulders. Of course there is optimism that these parties will join heads and fashion some short-term arrangement to help the country out of the difficult debt that is facing them other that mere words without action. Therefore, the Reagan administration has to develop the growth-oriented market plan that will eliminate Mexico out of the debt crisis that is yet to explode. This is because if they still buy time, the Bakers plans of curbing structural economic deficiency in the country will end up turning into deficiency in internal economic policies that will result into not only economic shocks but also political shocks. According to the Reagan Administrations counsel, the most immediate action should be the 50% drop in oil prices because last year the country had a sharp revenue from her oil exports. This drop is crucial because oil export is one of the countrys critical foreign exchange earnings and this make it so difficult for Mexico to meet its debt obligations due to massive state intervention into the economy, huge public sector and restrictive trade and investment policies. Positive changes have been witness in recent years after budget cuts were made.

There is also plans to close various money-losing state industries and to sell private sector as a strategy to ease the debt burden in Mexico. This is because some investment rules have been too relaxed act on the problem and so free trade has been put into consideration. Also, there are special factories near United States border that is governed by special investment laws which have been seen to prosper. However, these changes have been too small to overcome Mexicos current economic woes.

Over the last three years, IMF austere plan has squeezed hard currency of Mexico for debt payments but this has also failed to transform the economy growth to something better. Therefore, the Reagan Administration should be keen to support IMF plans that leads to economic growth but ignore those that have only contributed to the economic constraints. For that matter, the Reagan Administration should not be too concerned about the losses that Mexicos creditors have suffered because the U.S banking system is still out of danger of collapsing. This means that those bankers can handle their debt situations on their own by depending of their business principles rather than the help of from the government.

The Reagan Administration should also encourage to accelerative structural economic adjustments and accurate market-oriented reforms. These can be achieved by deregulating the economy, reducing the size of the public sector and cutting taxes. Since Mexicans deserve a conducive opportunity to work and to prosper their needs, the debt crisis that they currently experience offer a good chance to change direction and follow market-oriented policies that have seen many countries develop after economically. It only through free market strategy that the country will create new productive, improve labor efficiency and improve business for the country to spur real.