The December Mistake

You pick up the history of a country as the years go by, some of it through interest, some of it you just stumble across. Most people are aware of the 1985 earthquake which killed thousands. I only recently became aware of two other disasters, although these were both non natural. In 1992 the streets of Guadalajara exploded with such force that buses were thrown on top of 2 storey buildings. Yes, the streets exploded. Kilometres of them. Technically, it was the sewage system underneath, that has become filled with gasoline, that exploded. As there is only the one petrol company in Mexico, Pemex, it seems logical to point the finger at them. They have though, of course, always insisted that it wasn’t their fault. More than 200 people were killed, with hundreds more injured and thousands homeless.

Then there was the San Juanico explosion, where spherical gas containers exploded, one after the other. All 54 of them I believe, after one had leaked and ignited. A staggering death toll of 500 plus, with an estimated 5,000 to 7,000 more severely injured.

But it’s the third non natural disaster I find most interesting at the moment. There were no ‘direct’ deaths from this catastrophe. Stop me if this story sounds familiar…

It started with some very lax banking regulations and the banks themselves developing a sudden taste for lending lots of money out, plenty of it to higher risk borrowers. Interest rates were low after all. But all good things must come to an end, and when the currency of the country dropped (through devaluation as well as market forces) and interest rates rose, lots of people found themselves unable to repay their loans. Liquidity in the system dried up and the banks all started to teeter on the edge of bankruptcy.

Of course, banks can’t be allowed to go bankrupt, so they were pretty much all nationalised. And Bill Clinton’s US government and others kindly bailed out the Mexican financial system to the tune of $50 billion. It really does sound familiar doesn’t it! Well the US, UK and others clearly didn’t learn from Mexico’s mistake, but happily Mexico did. It became known, as the title of the post suggests, as the December Mistake – President Zedillo’s devaluation being the most oft blamed factor. Most people agree however that his predecessor, Salinas, bears by far the greater responsibility.

Mexico won’t escape unscathed from the current crisis, but the banks have solid capitalisation and liquidity here, so should be ok. Maybe it would be better if the biggest banks in Mexico weren’t owned by US, British and Spanish banks, just at the moment, of course…!

If you want some good news, the banks were all privatised again a few years later, and the $50 billion repaid ahead of schedule quite some time ago. Let’s hope the US et al come out the other side just as well.

Presidents Clinton and Zedillo


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