Brady Restructuring, 1989
In what he calls a “productive exchange” that took nearly a year to complete, former finance minister Pedro Aspe, under then Mexican president Carlos Salinas, credits teamwork between Mexico and the US Treasury for reaching Latin America’s first Brady bond restructuring. Under the finalized Brady agreement, banks holding $48.1 billion in medium and long-term commercial public debt converted those obligations using one or a combination of options involving haircuts on principal or interest.
The Brady bond exchange is our sovereign deal of the quarter century for its extraordinary size, the precedent it set for others and, arguably, for marking an end to Latin America’s lost decade. Many more Latin sovereigns followed, with the Brady bonds’ long tenors granting them respite from intense debt servicing schedules, and the space necessary to fix fundamental economic problems.
Aspe says the restructuring experience taught Mexico that governments should never allow their economies to reach such high levels of indebtedness. And it served a good lesson to banks that sovereign debt is complicated.
“The US and Mexican treasuries came out with a plan that was successful,” says Aspe. “And that success meant that the other countries joined. Mexico paid all of its Brady bonds and the Mexican economy looks much better. We learned the hard way, but that was the true origins of why we have an open economy, Nafta and an independent central bank.” LF