1. Argentina/Mexico Case Study [GCP Brazil: Modulo 2]

2. Class assignment: Comparison of Argentine and Mexican approaches to financial liberalization Argentine panel –Summarize the key features of the Argentine program of financial reform and liberalization –Analysis of the consequences of the Argentine approach for the structure and development of the Argentine financial system –Criticism of the Argentine approach at the start of the 1990s –Criticism of the Argentine approach before and after financial crisis Mexican panel –Summarize the key features of the Mexican program of financial reform and liberalization –Analysis of the consequences of the Mexican approach for the structure and development of the Mexican financial system –Criticism of the Mexican approach at the start of the 1990s –Criticism of the Mexican approach before and after financial crisis

3. Strategies of development and the design of financial transactions Foreign Banks Local BanksGovernment participation Structure of Financial System Financial Development Profitability of Financial Firms Orthodox WC (“conv”) Approach Privatization; traditional private law banks and securities markets Restructuring and consolidation competition and cooperation Sale of SOBs; elimination of classic forms of “financial repression” Large foreign sector; segmented portfolios and players Weak domestic FM Development Low Firm financing Foreign Banks Yes Domestic banks Mixed East Asian approach Mixed pub/priv financial inst. + markets Privileged players in domestic markets Mechanisms of coordination and strategic direction Specialized banks; targeted credit; “mob” of S/I In practice, yes Mixed Controlled Liberalization --markets --banks Strategic partnership and investment Continued reliance on SOBs; new JVs and curb market Mechanisms of coordination and strategic direction Dualism and diversity around the edges Recent experiments not successful ?? China, Korea before early 90s ? Alternative strategies/ trajectories of reform?

4. Introduction to the Mexican Case Study Political and Economic Background/ Sequence of Reforms Initial ConditionsBasic Program of Reform Policies and Arrangements – Local Markets Policies and Arrangements – Global Markets 1982-1988Financial Crisis, 1982 Capital controls, sovereign debt default, nationalization of banking system Initial small-scale privatizations, (non-financial); reduced restrictions on domestic banks; creation of domestic money market Gradual “normalization” – debt restructuring, liberalization of controls, qualified opening to foreign capital 1988-1994Emergence from financial crisis Orthodox WC reforms, including privatization, de- regulation, opening to global markets Abolition of reserves, restriction and credit controls; privatization of banking system (local players); tax reform; monetary and fiscal reform; reduction in public sector Unification of exchange rate (fixed then crawling peg); removal of capital controls; increasing openness to foreign capital, especial portfolio; NAFTA (1994)

5. Introduction to the Mexican Case Study Political and Economic Background/Sequence of Reforms (cont’d) Initial ConditionsBasic Program of Reform Policies and Arrangements – Local Markets Policies and Arrangements – Global Markets Years following Tequila Crisis Balance of payments/financia l crisis; collapse of domestic banking system; severe economic distress; US-led program of financial support from global markets and institutions Restructuring of internal and external financial obligations; re- structuring and bail-out of domestic banking system; *re- affirmation of orthodox program of reform….. Restructuring of internal and external debt; re- structuring and bail-out of the banking system; removal of restrictions on foreign ownership in the banking & financial system Move to floating exchange rate regime; expanding membership in global institutions [WTO, OECD, etc.] further opening of the capital account in area of FDI Recent Reforms 1998-2006 Stabilization with little growth; selective access to global capital; continuing weakness in local credit markets and few new areas of economic growth Further opening to FDI in domestic financial system; further integration of global and local markets through adherence to legal and regulatory “best practice” Sale of major local banks to foreign fin institutions; adoption of second generation reforms in the area of corporate governance, creditors rights, fin regulation Pension reforms; credit laws, financial group laws; development bank extensions…. (local markets)

6. Basic Macro-economic and Financial Conditions Domestic macro- economic conditions Domestic financial conditions Global market conditions 1982-1988 Economic and financial crisis; increase in interest rates/inflation; lowering of growth & real wages, increased poverty, unemployment Nationalization of banks; restructuring of credits; contraction of monetary and financial system Moratorium of sovereign debt; closure of global markets 1988-1994Stabilization and consumption-led growth, fueled by inflows of foreign capital; reduction in public spending Financial deepening in both credit and asset markets; privatization of banks, reduction of public-sector lending programs; development of internal financial – especially government bond - market Resolution of sovereign debt – Mexican Brady Bond program; re- opening of markets to Mexican issuers, large inflows of trade, FDI, & esp. portfolio capital Immediate post-tequila period Economic and financial crisis – banking, currency and financial markets; Collapse of currency, banking and credit markets U.S. led bail-out by markets and IFIs; surprising quick re- opening of global markets 1998-2006 Orthodox monetary and fiscal policy (3 rd world) fx stability and low inflation Currency stability, partial recovery of banking and financial markets Segmented access to global markets; renewed inflow of foreign capital