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Mexico: Current Account
Country Study > Chapter 3 > The Economy > Balance of Payments > Current Account

CURRENT ACCOUNT


From the mid-1970s through the early 1980s, Mexico faced persistent balance-of-payments problems resulting from the government's efforts to defend the overvalued peso while incurring massive external debts. By the late 1970s, oil prices had begun to fall, and international interest rates rose sharply, throwing Mexico's external payments so far out of balance that by mid-1982 the country could no longer service its external debt. The government was forced to declare a unilateral moratorium on debt service, devalue the peso, and drastically reduce public spending. By 1985 these measures had brought the current account back into surplus and eliminated the government's fiscal deficit, but at the cost of foregone economic growth and a sharp deterioration in the capital account. Throughout the early and mid-1980s, Mexico suffered a net capital outflow as a result of external debt service, high domestic capital flight, and weak foreign investment.

International oil prices collapsed in 1986, pushing Mexico's current account back into deficit. Meanwhile, debt-equity exchanges and capital repatriation produced a significant capital inflow and brought the capital account back into surplus. The external account balance was again reversed in 1987, as higher oil prices, increased nonoil revenue, a new commercial bank loan, and continued capital repatriation generated a US$4 billion current-account surplus, while heavy debt service obligations forced the capital account into a US$2.5 billion deficit.

Mexico's trade deficit rose sharply between 1989 and 1994, pushing the current account deeply into deficit. The current-account deficit ballooned from US$4 billion in 1989 to US$29 billion in 1994. Capital inflows were adequate to cover the current-account deficit through 1993, but began to falter in response to a series of political crises in 1994. The dramatic improvement in Mexico's trade balance between 1994 and 1995 enabled the current-account deficit to fall to US$654 million in 1995 and to be nearly eliminated by early 1996. This development increased the likelihood that the new peso would be strengthened by capital inflows, especially portfolio investment.




Last Updated: June 1996


Editor's Note: Country Studies included here were published between 1988 and 1998. The Country study for Mexico was first published in 1996. Where available, the data has been updated through 2008. The date at the bottom of each section will indicate the time period of the data. Information on some countries may no longer be up to date. See the "Research Completed" date at the beginning of each study on the Title Page or the "Data as of" date at the end of each section of text. This information is included due to its comprehensiveness and for historical purposes.

Note that current information from the CIA World Factbook, U.S. Department of State Background Notes, Australia's Department of Foreign Affairs and Trade Country Briefs, the UK's Foreign and Commonwealth Office's Country Profiles, and the World Bank can be found on Factba.se.

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