The subject of this paper is the agreement reached on July 23, 1989 which offered commercial creditors the choice to exchange old debt instruments for new instruments involving debt relief, but partially secured with collateral; or for unsecured instruments without debt relief, but with a new money commitment attached. This paper outlines the main course of economic developments in Mexico leading up to the agreement. It also provides an overview of the economic considerations underlying the structure of the agreement finally reached, and a detailed description of that agreement. The paper also assesses the amount of debt relief, and asks the question whether this amount of debt relief represents a good return on the resources devoted to the deal. It provides an assessment of the market value of all outstanding commercial claims on Mexico before and after the deal by third parties and by Mexico itself, to creditors choosing one of the debt relief options. The paper looks at the likely impact on the recovery of economic growth in Mexico by first assessing the impact of the deal on Mexico's financing gap and then by using a quantitative framework developed for this purpose to assess the likely impact of the deal on Mexico's prospects for a recovery of economic growth.
