ABSTRACT
In Brothers’ opinion, “revision of repression” should be Mexico’s first priority. The government should strengthen prudential supervision and regulation and address problems relating to the preferential credit regime and distressed debtor-creditor relationships. The agreed-upon rate became, in fact, a mechanism for subsidizing commercial banks, with an unfavorable impact on government finances at a time when considerable effort was being made to achieve a major fiscal correction. A sufficiently large market for government securities and reduction in the fiscal deficit were important prerequisites for financial liberalization: without them, pressures for continued reliance on interest rate ceilings and high reserve requirements to obtain necessary financial resources would have been irresistible. A flexible and competitive financial system is also required to foster structural changes in the economy. The financial system can play a very important role in fostering and supporting structural changes through its influence on the mobilization of resources.
