Business Week International Readers Report
THE PESO SCARE: ANY LESSONS LEARNED? (int'l edition)
Regarding "The vacuum at the top is getting downright scary" (International Business, Feb. 27), you say that I think the Mexican economy is on the verge of exploding into pieces. I did, in fact, say that, but only in the context of the rates of interest of 55% to 75%, which it seems the country has been forced to accept as a condition for the $20 billion loan agreement. I agree that the rate of interest in pesos should be high to discourage inflation. But 35%, that is, 10 or 15 points above the expected inflation rate, is more than enough.
We should not lose sight of the fact that this devaluation took place when there was no deficit in the public finances, the level of inflation was of one digit, and the Mexican economy was more open. All this is a great accomplishment of the federal government. To force Mexican industry to accept loans at an annual rate of 75% is equivalent to provoking unemployment and widespread bankruptcy.
Dean, Pan American Institute of Higher Business Studies
"Lessons from the peso scare" (Editorials, Feb. 13) misses the point: Mexico's growing imbalance was allowed to continue for a very long time. What's necessary is not a system for bailing out countries following collapse from inappropriate economic policies but a system for timely identification of imbalances so that changes can be made and market forces can impose their own discipline.
Howard G. Schaefer