When It Rains, It Pours: Mexico's Bank Nationalization and the Debt Crisis of 1982
Mexico's external debt crisis starting in August 1982 was accompanied, one month later, by the nationalization of its banking system. While Mexico's government had to accelerate the negotiations with its main creditors, a major internal conflict had to be averted to avoid a deeper confrontation with bankers and entrepreneurs. The literature has largely treated the debt crisis and the bank nationalization as two parallel, yet unrelated events. In this paper, we analyze the financial market reactions to nationalization, and focus on investors, commercial banks, and international organizations' attitudes to the governments' political crisis. We find that nationalization hampered the default resolution, given an increase in the perceived risk of the government being unable to assume the liabilities of Mexican banks. This fact also hindered the country's economic recovery.
