[Congressional Record Volume 143, Number 18 (Wednesday, February 12, 1997)]
[Extensions of Remarks]
[Pages E222-E223]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                            MEXICAN BAILOUT

                                 ______
                                 

                             HON. RON PAUL

                                of texas

                    in the house of representatives

                      Wednesday, February 12, 1997

  Mr. PAUL. Mr. Speaker, President Clinton, in his State of the Union 
Address, proudly announced that ``We should all be proud that America 
led the effort to rescue our neighbor, Mexico, from its economic 
crisis. And we should all be proud that Mexico repaid the United 
States--3 full years ahead of schedule--with half a billion dollar 
profit to us.'' The reporting of this payback and the State of the 
Union Address was all favorable, highly praising the administration. 
The bailout was bipartisan so leaders of both parties were pleased with 
the announcement. International finance, just as it is with 
international military operations, is rarely hindered by inter-party 
fights

[[Page E223]]

that get so much attention. But there are several reasons why we should 
not be too quick to congratulate the money manipulators.
  First, they merely celebrate the postponement of the day of reckoning 
of their financial Ponzi scheme. It took $50 billion in United States 
dollars to save creditors who had unwisely invested in Mexico prior to 
the crisis of 2 years ago. Much of this $50 billion also included U.S. 
credit extended through the IMF, the World Bank, and the Bank of 
International Settlements, much of which is yet to be repaid.
  Second, foreign government welfare, and there is no better name for 
it, takes money out of the productive sectors of the economy--the 
paychecks of middle-class Americans--to reward economic mismanagement 
and political corruption. Such welfare exacerbates Mexico's suffering: 
social disruption, economic stagnation, debt crises, and declines in 
real incomes.
  Third, a new fund set up under the IMF will serve to bail out the 
next Mexico in trouble. The plan calls for the establishment of a $25 
billion credit fund with the United States ponying up $3.5 billion. 
This fund is in addition to the IMF funds already available for such 
crises. Mexico has also received help from the Inter-American 
Development Fund; again, indirectly supported by United States 
taxpayers. These funds indirectly guarantee the newly-issued Mexican 
Government bonds and undermine the normal incentive for investors to 
police governments.
  As such, more confidence is now being placed in new Mexican bonds 
enabling Mexico to refinance its old loans. Of course, it is at 
slightly lower interest rates, but they are more than doubling the time 
of repayment. All investments involve some risks. The rewards of such 
risk-taking are appropriately realized by investors as loans are 
repaid. American taxpayers should not, however, be forced to subsidize 
the Wall Street financier any time such entrepreneurial ventures are 
unprofitable. The true test of the professed confidence in Mexico will 
come from the level of private investment into the productive sectors 
of the economy.
  Fourth, the Fed is allowed to hold Mexican bonds and use them as 
collateral for our own Federal Reserve Notes. It does so, even though 
it will not admit it, and refuses to reveal just how much it holds. It 
is quite possible that the newly issued Mexican bonds will find their 
way into the Fed's holdings. How far down the road we have traveled 
from constitutional money when we are backing the dollar not with gold 
but with Mexican bonds!
  Fifth, a likely motivation for this fanfare regarding the repayment 
of the loans, and the so-called profits engendered, is to get the 
United States Congress to go along with using this money to pay our 
back dues to the United Nations. How about paying our so-called U.N. 
back dues with our Mexican bond holdings?
  The use of the Exchange Stabilization Fund to bail out the peso was 
illegal and unconstitutional, and yet now we have a precedent not only 
established but praised for its great success. This precedent 
encourages political currency manipulation over sound fiscal and 
monetary policies as well as establishes the United States as lender of 
last resort for all governments with bad policies.
  President Clinton claims that ``We stand at another moment of change 
and choice--and another time to be farsighted, to bring America 50 more 
years of security and prosperity.'' He earlier told us the ``era of big 
government is over,'' but calls for full burden sharing through the IMF 
in a multilateral way with the Mexico agreement. We need to end this 
shell game of masking economic mismanagement by circumventing both the 
Constitution and Congress.
  We must stand firm in our opposition to the establishment of new 
extra-governmental agreements that will reward governments with 
irresponsible policies which, at the same time, punish their own people 
and erode U.S. sovereignty. Such policies take us one step further from 
a constitutional rule of law, and institutionalize the United States as 
the world's lender of last resort--all at the expense of the American 
taxpayer.
  Political and economic factors can override, only in the short run, 
the subtle reality that the fiat nature of the dollar guarantees its 
inherent weakness and steady depreciation. This new easy credit scheme 
that the Government creates by fiat only expands the World Dollar Base 
leading to U.S. dollar depreciation and reduced buying power.
  In essence, the bailout of Mexico and the financing of the payback 
with interest, to the sheer delight of the politicians and their Wall 
Street constituents, were done on the back of the United States dollar 
and the United States taxpayer. The real consequence, however, will not 
be felt until dollar confidence is lost which will surely come and be 
accompanied by rapid inflation and high interest rates.

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