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THROWBACK SIGNAL | January 31, 1995, President Clinton Authorizes a $20 Billion Loan to Mexico

On this day in 1995, President Bill Clinton authorizes a $20 billion loan to Mexico.

As the value of the peso hit an all-time low, Clinton sidestepped Congress’ rejection of an earlier $50 billion loan proposal and exercised his executive power. Claiming that he was acting in the national interest and that national security was at stake, he authorized the Treasury Department to issue a loan through the Exchange Stabilization Fund. This was the first time the fund had been used to help stabilize a foreign currency. Clinton justified his decision by arguing that if the peso continued to fall, Mexico’s economy would crash and in turn negatively impact the United States. He warned that an insolvent Mexico might result in an influx of illegal immigration into the U.S., threatening American jobs and border security. Furthermore, he predicted that U.S. exports to Mexico would dwindle, disrupting the U.S. economy.

Critics of Clinton’s policy dismissed these gloomy scenarios and resented what they saw as a rescue of Mexico from its own inept financial management and a bailout of Wall Street investment in unreliable Mexican bonds. Republican leaders agreed with conservative Pat Buchanan’s assessment of the loan as “daylight robbery of the nation’s wealth. [It is money] the American taxpayers will never see again.” Other members of Congress complained that Clinton’s bypass of the legislature was an abuse of executive power, stressing that decisions that threatened to increase the U.S. budget deficit should remain in the jurisdiction of Congress.

The public fear of bailouts was understandable. In 1989, following the widespread failure of deregulated savings and loan companies in 1986, Congress enacted the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA). This act required American taxpayers to contribute to the bailout of the Federal Savings and Loan Insurance Corporation (FSLIC). The resulting cost to taxpayers was estimated at $124 billion in 1999.

Critics of the loan to Mexico echoed opponents of the North American Free Trade Agreement (NAFTA), which was established by President George H.W. Bush and supported by Clinton. They argued that Clinton’s vision of a global economy would lead to an unacceptable trade deficit as American imports greatly outnumbered exports, widening the gap between economic classes and eliminating U.S. jobs.

In subsequent years, Mexico paid off the loan along with $500 million in interest, though its economy was still far from robust. In 1997, Clinton revisited his decision and concluded, “some said we should not get involved, that the money would never be repaid, that Mexico should fend for itself. They were wrong. Today the American people can be proud that we did the right thing by Mexico and the right thing for the United States, and the right thing to protect global prosperity.”

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Copyright 2015 SIGNAL. Permission to use portions of this article is granted provided appropriate credits are given to www.signalng.com and other relevant sources.

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