Upon hearing that the meeting wouldn't be until next Monday, Correns became anxious. Before Zelens could finish speaking, he interrupted, his voice shrill, "Four more days? What is the President doing?"
"The rebellion has not been quelled and is even escalating. Currently, suppressing the rebellion is the President's top priority. The senior generals of the three armed forces have gathered in the Presidential Office to discuss countermeasures, so there is really no way to deal with foreign exchange matters right now. In the next couple of days, you should have a good talk with the Ministry of Finance and come up with a solution!" Zelensky was also at a loss.
In October 1993, The Wall Street Journal invited Mexican Finance Minister Ceres to give a speech at the Second Inter-American Conference held in New York.
Almost all the CEOs, bankers, investors, and journalists attending the meeting were encouraged by the reform achievements of the Mexican government described by Silas and the bright prospects that the North American Free Trade Agreement (NAFTA) would bring to Mexico.
No one knew that the indigenous farmers in Chiapas, Mexico, were making final preparations for an uprising, nor were they aware that some of the problems in the Mexican economy were becoming increasingly apparent.
In January 1994, riots broke out suddenly and have yet to subside, showing signs of expansion. Recently, the government learned that the riots would spread to other states, meaning that the government forces' efforts to suppress them could be considered a failure.
If this news spreads, it will surely cause a huge shock, even more so than the news of the assassinations of the Institutional Revolutionary Party's presidential candidates.
At that time, the whole country will be in chaos, and even the new regime may be overthrown.
The president is currently extremely busy, having held a meeting with high-ranking military officials that lasted over six hours. Therefore, even with the dramatic fluctuations in exchange rates, he has no time to pay attention.
As the highest-ranking official in the country, Correns was naturally well aware of the situation in Chiapas. Upon hearing Zelens's words, he understood that it was unlikely they would meet again anytime soon, so he suppressed his anxiety and hung up Zelens's phone in frustration.
After pondering for a long time in his office, Correns finally made a call to the Finance Minister. He hadn't originally planned to contact Silas immediately, given the lack of a superior-subordinate relationship between them and their disagreements over foreign exchange reserves. However, the situation was urgent, and he had no choice but to swallow his pride and inform the high-ranking official about the exchange rate changes, hoping to obtain some assistance from the Treasury Department.
Because there is a large deficit in the account.
To maintain a trade balance, Mexico needs to fill its capital account gap, and the best way to do this is to issue bonds to attract dollar inflows. Currently, the total amount of dollar-denominated bonds is three to four hundred billion, equivalent to half of Mexico's total dollar capital.
The money was held in a Mexican bank to pay off its debt to the United States. Currens needed to consult with the Treasury Department to have the central bank release the funds, in order to preserve the peso's value in a critical situation.
“Silas…”
Before Currens could state his purpose, Silas interjected, "I know what you're going to say, but there's no room for negotiation. U.S. bonds have been overbought in the past few months, and stock prices continue to fall. Also, there's a lot of pressure on the Treasury Department."
Silas is right.
Many overseas investors sold off Mexican government bonds early on due to concerns about the political situation in Mexico.
As a result, the Treasury had to invest billions of dollars in government bonds to maintain their normal price levels.
Correns was aware of this.
But he didn't expect Silas to use that as an excuse.
After all, Mexico has tens of billions of dollars in its national treasury, plus its own dollars, totaling nearly two hundred billion dollars.
However, Mexican commercial banks have lent out a large amount of US dollars.
Currens cursed inwardly, but he also understood that, given the current situation, it was impossible for them to get money from the finance department. The only way was to discuss the possibility of devaluation with Silas.
“Devaluation? Almost certain!” Silas remained unfazed. “We are discussing the issue of currency devaluation internally. With our current currency reserves, we can fully cope. We just need to wait and see how low the exchange rate will fall.”
The Treasury is open to a depreciation of the currency, as they can use their currency to exchange for more pesos, thus making their fiscal situation more comfortable.
Although they will need to pay more pesos in the future to cover the interest on their dollar-denominated debt, they can issue new government bonds to make up for it if dollars continue to flow into Mexico.
From beginning to end, they never imagined that the Mexican peso would become a freely floating currency as its exchange rate fell. If that were to happen, the consequences would be unimaginable. They might very well lose their dollar reserves and current fiscal gains.
If this country liberalizes the peso, it will inevitably depreciate drastically. At that time, the US dollar will flow out of the country like crazy, the bond market will collapse first, followed by the stock market, and the treasury will face a huge deficit. In short, the situation will enter a terrible vicious cycle.
Silas was also unaware of the current exchange rate situation; he only knew that Mexico's foreign exchange reserves could still maintain a certain exchange rate.
“Things aren’t as simple as you think!” Collins gave a bitter laugh. “I think we might be being targeted by hedge funds. I heard there were huge sell orders for pesos in the IMM transactions.”
Silas didn't know much about financial derivatives, and he couldn't help but ask, "What's wrong? Is the foreign exchange market very unstable right now?"
Collins coughed lightly, his voice tinged with pain, "These past two days, our currency has been flowing in continuously, which is astonishing. As you've seen, recently, dollar capital has been fleeing the country. Although the amount is not large, the rate of outflow in the last two months has already exceeded the total of the previous seven months!"
"What?" Silas's heart skipped a beat, and he immediately realized that this was a serious matter. "Have you reported this to the president?"
"Is that even a question? However, the president doesn't have time for this right now. He just asked us to give him a draft, and we can make a decision when he has time. I think your assistant will pass this message on to you soon. My opinion is that we should seize the time to hold a meeting, have some preliminary discussions, and then develop a feasible plan."
"Is the situation that bad?" Hearing Correns say so solemnly, Silas's expression also became serious. After a moment of contemplation, he said, "Tomorrow morning, I will bring officials from several departments, consultants, and financial experts to see you."
“There are no financial experts in this world,” Currens said bitterly. “At this point, the opinion of any professional cannot influence the situation.”
......
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