When it rains, it pours: Mexico's bank nationalization and the debt crisis of 1982

How are expropriations related to governments' debt defaults? The literature has shown that expropriation episodes and debt defaults have rarely coincided, suggesting that each event resulted from a different set of factors. The aim of this article is twofold. First, I analyze expropriation-default relationships in the years previous to the debt crisis of 1982. I show that while expropriation and default episodes did not always coincide, countries that expropriated at least once during the period were also those that defaulted more often. I observe that countries that expropriated had worse macroeconomic indicators than countries that did not. Second, I focus on the case of Mexico, when its announcement of a debt moratorium in August 1982 was followed, less than one month later, by the nationalization of its banking system. Both events were outcomes of an acute economic crisis. The nationalization announcement aggravated the crisis, because an agreement with the IMF seemed increasingly uncertain. I provide evidence from the largely overlooked bond market (on which the government never defaulted) that shows that investors reacted negatively to the bank nationalization. Finally, I present original, published, and unpublished primary sources to demonstrate that commercial banks, as well as international organizations, expressed misgivings about the bank nationalization. This fact may have hindered the country's economic recovery through the deterioration of public confidence and a decline in foreign investment.