The Mexican Crisis Anticipation Essay Example for Free

The Mexican Crisis Anticipation Essay The reading â€Å"The Mexican Crisis Anticipation At Micro-Level deals with the emergence of crisis into Mexico and how it was anticipated by the firms at the micro level through making adjustments into their capital structure. The writer(s) is of the view that the Mexico mad rapid economic growth during the period of late 1980s and early 1900s as the trade as well as financial liberalization has allowed the growth to take place at more robust pace. The Writer(s) has successfully demonstrated the fact that with the financial liberalization, the credit supply to the economy increased the exposure of banks to potentially risky projects as due to availability of easy credit, the quality of credit was compromised for earning more and more as banks started to shift their focus to being more market oriented rather than risk oriented. However, as the political conflict in the country started to begin, the economy of the country started to feel the heat too as due to widening the external current account deficit as well as political instability forced economic conditions to take a U-turn as most of the economic indicators started to show adverse trends. The basic assumptions of the writer(s) are based on the studies which indicated that the crisis was not anticipated by most of the economic entities such as policy makers, banks and economic analysts who often based their analysis on the macroeconomic changes that took place during the period. However, most of the studies done so far on the issue dealt with the macroeconomic aspect of the crisis and failed to integrate the anticipating of crisis at the firm level. The writer(s) attempted to fill that gap by focusing on the anticipation of the crisis at the micro level by the firm through changes into their capital structure to reflect the economic changes taking place within the economy. While concluding the study, writer(s) argued that most of the firms did not anticipate such economic downturn, and it was something unexpected for them. At the micro level, there were not so many changes to reflect the changing attitude of the firms to reflect more fully the prevalent economic conditions therefore they did not try to change their capital structure. Three Questions One of the fundamental questions which need to ask is whether the firm at micro level can anticipate such an economic change or not? Since Mexican economy was largely dependent upon the external flows therefore the reliance of the economy on the local firms was less. Further due to the size of the firms, it was practically impossible for such firms to typically assess the impacts of changing economic trends due to lack of expertise in predicting such a behavior. The nature of SMEs indicates that at their individual level, they are nothing more than the expertise and skill of their owners. Therefore, if the owners are not well versed with the skill of assessing the change in the economic variables than it becomes more difficult to determine whether the firms have the ability to anticipate such changes? Lastly, authors have completely failed to assess the anticipation of such an impact through variables other than capital structure. It may be difficult for firms to change their capital structure within short period of time given the fact that economic conditions were showing declining trends. Therefore, changing capital structure in such times may have added to the overall risk of the firms.