In an Uncertain World by Robert Rubin, Jacob Weisberg Page B

economic situation looked more stable by the end of the summer. But unemployment was growing, real wages had fallen significantly, and bank balance sheets were severely impaired. Chafing under the duress—and encouraged by signs that the program was taking hold—the Mexican government moved prematurely to lower interest rates. Markets resumed their slide, but the Mexicans quickly reacted and tightened policy to halt the slide.
    Despite another rocky period in November, by the end of 1995 the program was taking hold. Investors started to put some money in; foreign exchange reserves started to build up; exchange rates stabilized; interest rates came down a little bit. Everything just started to work. The private sector had begun lending Mexico money again. By the beginning of 1996, the Mexican economy was growing again. The Zedillo government began to repay the U.S. and IMF loans, rolling them over into less conditional private-sector debt.
    The speed of the response was remarkable. The 1982 crisis led to what has been called a “lost decade” of negative growth, financial instability, and political and social unrest throughout Latin America. The 1995 crisis caused real suffering on the part of the Mexican poor and middle class—and real wages were very slow to recover—but only one year of economic growth was lost. After the 1982 crisis, Mexico took seven years to regain access to capital markets. In 1995, it took seven months.
    In August 1996, Mexico prepaid $7 billion of the $10.5 billion still outstanding from the United States and IMF. When the Zedillo government completed the repayment in January 1997, more than three years ahead of schedule, an anonymous aide of mine was quoted in
The New York Times
as saying, “This was Bob Rubin’s Bosnia. And today he got the troops out.” Mexico paid us $1.4 billion dollars in interest and left the ESF with a profit of $580 million—the excess over what our money would have earned in U.S. Treasury notes. Senator D’Amato, who had already called the program a “failure,” put out a one-line press release saying he was “pleased” our program had been successful—thanks to “vigilant congressional oversight.”
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    IT SEEMS TO ME that the Mexican crisis has much to teach us about the global economy, new and heightened risks that our country is likely to confront in the future, and the challenges we face in trying to deal with these hazards. These challenges are complicated by volatile financial markets and by our own political processes. I’ve drawn out many of those reflections in the context of my narrative, but a few final observations depend on the whole story.
    The first lesson is that our ability to address economic crises beyond our borders is limited. The money we lent to Mexico could not have had the desired effect without the policy choices the Mexican government made. This was the crucial element, both because of the effects of individual policies—especially on interest rates—and because of the confidence engendered by the more amorphous cumulative sense that the Mexicans were serious about getting their act together.
    As an episode in public policy making, our decision making in the face of a highly uncertain situation and considerable political pressure showed that the probabilistic thinking that I internalized so deeply in the financial world had real applicability in Washington. And that process was ongoing, as we reevaluated options and policies when the facts changed on the ground in Mexico and in the financial markets. I think, too, that our work demonstrated the value of robust and open intellectual interchange in making government decisions.
    Yet in other ways the episode showed me just how challenging decision making is in the context of government. Good decisions are much more difficult to make when disagreement is not just about means but about objectives. The private