In recent years international banks and multilateral organisations such as the World Bank and the International Monetary Fund (IMF) have declassified and made available to researchers a series of documents on the financial globalisation process, whose starting point came in the 1970s, and the subsequent Latin American foreign debt crisis of 1982. This has prompted a series of new historical studies that review the literature written on these topics in the final decades of the last century. The relations that foreign banks and multilateral institutions upheld with the military dictatorships of the period have been among the most discussed topics from the points of view of both political history and financial history. In this context, the analysis carried out by Sebastian Alvarez, the focus of which is the internationalisation of Mexican banks, opens up a new and appealing avenue of research.
Traditional studies on Latin America's external debt are concentrated on the supply and demand of credit. Academics who analyse the problem of credit supply understand Latin American indebtedness as part of international banks’ process of financial internationalisation and excess liquidity at a time when developed countries were experiencing a recessive cycle in their economies. Scholars who place emphasis on demand study the dynamics of the economic policies that led the countries in the region to finance public spending through external borrowing. Those who seek to build a bridge between both viewpoints study how the financial needs of international banks and Latin American governments stimulated the model of state-led development in the region. The most recent studies draw from this third vision to add fresh nuance to the analysis of multilateral organisations, international banks and military dictatorships. Alvarez's book makes a key contribution by concentrating on the study of banks from debtor countries, and on their contribution to the process of financial globalisation as well as the negotiations around Latin American foreign debt.
The book follows the history of the internationalisation process undergone by the six main Mexican commercial banks, four of them private and the remaining two state-operated, based on three themes that constitute the pillars of the author's argument. The first theme concerns the reasons behind the motivations of Mexican banks for embarking upon financial internationalisation, as well as the implications that these incursions have for the local economy in Mexico. Mexican banks operated with fixed interest rates; but in an economy marked by inflationary trends, to be able to compete with international banks in the local financial market, they needed more capital. Participation in banking consortiums based in London allowed these Mexican banks to obtain the funds they needed to lend capital to local private companies and to the government of their country.
The second aspect, and one of the most important contributions of the book, is an analytical description of the mechanisms implemented by Mexican banks so that they could act as intermediaries between the foreign supply of capital and the internal demand that came from the government and local companies. Alvarez carefully analyses how Mexican banks first formed part of financial consortiums in London, and later went on to establish branches in the main financial centres of the world. Notably, these branches were only authorised to borrow, but not to receive deposits or to establish commercial operations in the cities where they were established. This was a very fragile design because the branches received short-term loans in US dollars and at a floating interest rate, even though their clients in Mexico operated in pesos and with caps on interest rates. Furthermore, most of the banks’ private and public clients did not operate in export-oriented sectors. Therefore, the currency risk was very high; any sudden devaluation of the Mexican peso could potentially endanger the country's commercial banks, as indeed occurred at the beginning of 1982.
The third dimension, which, again, can be considered one of the most important in the book, is a reflection on the effects that the internationalisation process of Mexican-owned banks in the country's financial system had on the negotiating capacity of the Mexican government vis-à-vis its international creditors. Analyses of why Latin American governments agreed to implement harsh restoration programmes during the foreign debt crisis tend to foreground exogenous factors. For example, it is often argued that, in the 1980s, unlike during previous crises, US and international organisations acted as global lenders of last resort, successfully pressuring Latin American governments into complying with debt restructuring programmes. A second stance sometimes adopted is that Latin American political and economic elites were much more integrated than was the case in 1930, with the result that many Latin American professionals circulated around the upper echelons of international banks, multilateral organisations and national governments. All this served to create a kind of consensus regarding the policies that ought to be applied. A third explanation often ventured by scholars has to do with the capacity of the new global financial system to withhold or cut short-term loans to governments or private companies. To these explanations, Alvarez adds another local one: the overexposure of Mexican banks during the financial crisis considerably reduced the government's capacity in relation to its foreign creditors. Indeed, this endangered the entire financial system, especially when, as the author points out, the Banco de México supported the process for the internationalisation of private banking. It is exactly this proposal that furnishes us with new perspectives for future studies on the nationalisation of the Mexican banking sector during the foreign debt crisis.
Alvarez's study is based on a complex and meticulous reconstruction of the processes he delves into, which draws on new sources taken from the corporate archives of banks based in the United Kingdom, the New York Federal Reserve, the IMF, Banco de México (the Mexican central bank) and Banamex. His work shows us the new analytical possibilities that are opened up through consultation of these sets of documentary material for a critical review of the history of the foreign debt crisis of the 1980s.
As noted earlier, one of the most important contributions of this book is its analysis of the internationalisation of private banking. This is a very illuminating topic to the extent that more research is needed on the role that private Latin American companies played in the unfolding of external debt crises. As such, this work is a contribution to not only the financial history of the region but also its business history.
