Using his executive powers, President Bill Clinton, on this day in 1995, approved a $20 billion loan from the U.S. Treasury to Mexico after Congress had rejected providing a $50 billion bailout to America‘s southern neighbor.
As the Mexican economy crumbled, the peso plunged to an all-time low. Fearing that political and economic unrest south of the border would imperil U.S. security, the president authorized the bailout, despite criticism on Capitol Hill.
Clinton issued the loan through the Federal Reserve’s Exchange Stabilization Fund, marking the first time the fund had been used to help stabilize a foreign currency. In justifying his action, Clinton warned that an insolvent Mexico could lead to an influx of illegal immigration into the United States, threatening American jobs and undermining border security.
Furthermore, he predicted that, unless he acted, American exports to Mexico would dwindle, disrupting the U.S. economy.
Critics dismissed Clinton’s gloomy scenario and resented what they saw as a rescue of Mexico from its inept financial management. They also saw it as an indirect bailout of Wall Street firms that had invested, perhaps imprudently, in Mexican bonds.
Most Republican leaders agreed with conservative commentator 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,” Buchanan said. Some legislators also complained that Clinton’s decision to bypass the legislative process constituted an abuse of executive power.
Critics of the loan to Mexico echoed opponents of the North American Free Trade Agreement, which was negotiated under President George H.W. Bush and shepherded into law by Clinton. They argued that Clinton’s vision of a global economy would lead to an unacceptable trade deficit as American imports outnumbered exports, widening the gap between economic classes and eliminating well-paid U.S. jobs.
As it turned out, Mexico repaid the loan three years ahead of schedule, along with $500 million in interest. This event was marked by a celebration at the White House on Jan. 16, 1997, presided over by Clinton and Robert Rubin, the Treasury secretary. The return of the funds also released Mexico from the tight economic controls that had been imposed by Washington.
“Two years ago, helping our friend and neighbor in a time of need was quite controversial,” Clinton noted. “Some said that we should not get involved, that the money would never be repaid, that Mexico should fend for itself,” he added. “'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.”
The president did not name those opponents, who, in addition to Buchanan, included Ross Perot and Sen. Alfonse D’Amato (R-N.Y.).
President Ernesto Zedillo declared that the government had made a “bold step toward the economic recovery of Mexico.”