THE OLD STRATEGY
Cameron, Maxwell & Grinspun, Ricardo
THE DE LA MADRID-SALINAS REFORMS CAN BE seen as a response to problems created by the Mexican model of import-substitution industrialization (ISI) that governed policymaking during the post-war...
...The small size of the domestic market severely limited industrial growth...
...The oil boom made the international financial markets optimistic about Mexico's future growth...
...The strategy of ISI, which was widely pursued in Latin America at that time, created a significant manufacturing sector, but one that was inefficient and protected, dependent on imported capital goods and technical assistance, capital-intensive, and heavily subsidized by the public sector...
...Congress, Office of Technology Assessment, U.S.-Mexico Trade: Pulling Together or Pulling Apart...
...Under President Luis Echeverria (1970-1976) these problems showed up as growing public deficits, high inflation, inequality in the distribution of income and balance-ofpayments disequilibria...
...THE DE LA MADRID-SALINAS REFORMS CAN BE seen as a response to problems created by the Mexican model of import-substitution industrialization (ISI) that governed policymaking during the post-war period...
...These policies resulted in rural and urban unemployment, accelerated migration to the cities, a large informal economy, and the persistence of income inequality...
...In 1976 Mexico had been forced to approach the International Monetary Fund (IMF) for a stand-by agreement to stabilize the economy...
...He avoided making the necessary adjustment of the economy after the discovery of huge deposits of petroleum coincided fortuitously with oil price hikes caused by the formation of the OPEC cartel...
...2 As the international environment became increasingly adverse-with the decline in the price of oil and other exports, global recession, high real interest rates, and protectionism in the developed countries, Mexico announced in August, 1982 that it was unable to service the interest on its international debt obligations...
...153-4...
...Between 1978 and 1981 Mexico's annual growth rate was over 8...
...Estimates for the decade as a whole range up to $80 billion...
...Central-Bank loans to the private sector caused the money supply to grow and the currency to weaken...
...Artificially low prices for food staples impoverished the rural sector and subsidized urban wages...
...ITE-545 (Washington, DC: U.S...
...Under L6pez Portillo state-owned enterprises grew, the ministries of Finance and Treasury (traditional mainstays of financial orthodoxy) were weak, and the alliance between the PRI and the private sector broke down...
...3. Robert Kaufman, "Economic Orthodoxy and Political Change in Mexico: The Stabilization and Adjustment Policies of the De la Madrid Administration," in Barbara Stallings and Robert Kaufman, eds., Debt and Democracy in Latin America (Boulder: Westview Press, 1989), p. 114...
...President Jos6 L6pez Portillo (1976-1982) ignored the signs of impending crisis...
...2. More than $11 billion left the country in 1981, and perhaps $40 billion during the period 1980-84...
...1. Rosa Albina Garavito and Augusto Bolivar, Mixico en la dicada de los ochenta: la modernizacidn en cifras (Mexico: UAM-Azcapotzalco, 1990), p. 117, and Judith A. Teichman, Policymaking in Mexico: From Boom to Crisis (Boston: Allen & Unwin, 1988), pp...
...As a result, the Mexican foreign debt more than doubled between 1978 and 1983, while the current-account deficit reached a record $12.5 billion in 1981.' However, these funds were not used productively, creating the basis for the crisis in the early 1980s...
...An overvalued peso cheapened imports of capital goods for manufacturing, and consumer goods for affluent groups, and hurt agricultural exports...
...Skewed income distribution meant only the middle and upper classes had significant purchasing power...
...The decisive policy shift took place when Miguel De la Madrid took office...
...Oil revenue allowed Mexico to overborrow because the international banks did not believe that an oil exporter could become an insolvent debtor...
...An inevitable devaluation of the peso was postponed, and capital flight ensued as investors sought safe-havens for their capital...
...While Mexico City and othercities grew, and the urban middle class aspired to European lifestyles, the shantytowns and rural areas remained poor and underdeveloped...
...Government Printing Office, October 1992), p. 68...
...Expansionary policies resulted in inflation and social unrest as the economy overheated and struggles over income distribution intensified...
...De la Madrid's government embodied "a strong political resurgence of the technocratic factions associated with the Treasury and the Central Bank, a sharply diminished role for politicos connected with the PRI and the labor movement, and the virtual elimination of structuralist and neo-Keynesian economists from top levels of government...
...The next month, L6pez Portillo nationalized the Mexican banks...
...L6pez Portillo paid off the IMF and returned to expansionary policies...
...Thus, capital flight and loss of reserves occurred simultaneously...
Vol. 26 • February 1993 • No. 4
