The feasibility of alternative IMF-type stabilization programs in Mexico, 1983–1987

Abstract

In November 1982, Mexico announced an agreement with the International Monetary Fund (IMF) on a program to ease the country's large foreign debt. Mexico may recieve nearly $4 billion worth of credit if the government reduces the deficit, raises taxes and curbs imports. This article investigates whether an IMF program like this can work in Mexico without a serious and immediate economic contraction. A model is constructed to examine the impact of government fiscal activity under alternative stabilization programs. The analysis suggests a critical element for success is the ability and willingness to raise tax revenues.