NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Role of Bank Restructuring in Recovering from Crises: Mexico 1995-98

Anne Krueger, Aaron Tornell

NBER Working Paper No. 7042
Issued in March 1999
NBER Program(s):   IFM

In this paper we analyze the evolution of the Mexican economy between 1995 and 1998. The remarkable quick recovery seen in aggregate activity has not been uniform across the economy. The tradable sector has grown strongly, while the non-tradable sector has recuperated only sluggishly. This asymmetric response is intimately linked with the severe credit crunch that Mexico has experienced since 1995. Although fresh domestic bank lending dried up, tradable firms obtained financing in the international capital market. This was not the case in the non-tradable sector. A phenomenon that has gone hand in hand with the credit crunch is the steady increase in the share of non-performing loans. We analyze the reasons for this increase, the rationale for the partial bailout policy adopted in 1995, and we investigate why this policy stance did not solve the banking problem. An important lesson is that non-performing loans are unlikely to disappear on their own, even under a high GDP growth scenario. Furthermore, the existence of non-performing loans presents an obstacle for the banking system to adequately perform its functions. This raises the question of whether an alternative strategy under which all non-performing loans were recognized at once and the fiscal costs were all paid up-front would have been preferable.

download in pdf format
   (469 K)

email paper

A non-technical summary of this paper is available in the September 1999 NBER digest.  You can sign up to receive the NBER Digest by email.

This paper is available as PDF (469 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w7042

Users who downloaded this paper also downloaded these:
Claessens, Klingebiel, and Laeven w8386 Financial Restructuring in Banking and Corporate Sector Crises: What Policies to Pursue?
Edwards and Savastano w6516 The Morning After: The Mexican Peso in the Aftermath of the 1994 Currency Crisis
Goldberg, Dages, and Kinney w7714 Foreign and Domestic Bank Participation in Emerging Markets: Lessons from Mexico and Argentina
Sachs, Tornell, and Velasco w5142 The Collapse of the Mexican Peso: What Have We Learned?
Edwards w6334 The Mexican Peso Crisis? How Much Did We Know? When Did We Know It?
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us