A.- POLICIES OF ECONOMIC RETRENCHMENT, COUPLED BY RADICAL NATIONALISM.

B.- MINISTER OF FINANCE ANTONIO CARRILLO FLORES WELL KNOWN IN WORLD BANK AND US FINANCIAL SECTORS.

C.- BEGINNINGS OF THE RECESSIONARY SLIDE.....

D.- QUESTIONS RAISED AGAINST EXPANDING FDI

*.- MILDLY OVERVALUED PESO,

*.- WORLD ECONOMIC SLOWDOWN

*.- RISING DEFICIT...PRECIPITATED FEARS OF CAPITAL FLIGHT.

*.- BANK OF MEXICO COULDN'T BACK THE PESO.

HENCE...NEW PARITY 12.50 PESO = 1 US $....DEVALUATION OF 30.8% DEVALUATION PRECIPITATED ECONOMIC DEVELOPMENT THRUST...PREVENTED CAPITAL OUTFLOW....PRECIPITATED A NEW PERIOD OF GROWTH THAT LASTED TILL 1969...REFEREED TO "STABILIZING DEVELOPMENT" CHARACTERISED BY..

*.- FISCAL/MONETARY PRUDENCE

*.- STABLE PRICE LEVELS.

 A.- DEVELOPMENT PERIOD....1958-1970

FOLLOWING INITIAL SLOWDOWN DUE TO INVESTMENT SLOWDOWN AND MILD INTERNATIONAL RECESSION.... CAUSED EXPORT STAGNATION, BofP WEAKNESSES..

*.- INDUSTRIALISATION/DEVELOPMENT GOALS WERE MAINTAINED...

*.- MODERN AGRICULTURAL DEVELOPMENT

*.- EXPANSION OF THE TOURIST INDUSTRY

*.- CHANGES IN FINANCIAL/BANKING SYSTEMS

*.- SKILL UPGRADING THRU' EXPANSION OF EDUCATION

*.- EXPANSION IN HEALTH AND WELFARE SYSTEMS.

GLOBAL EVENTS:

*.- DEEPENING COLD WAR.....

*.- CUBAN REVOLUTION....INSPIRING REVIVAL OF REVOLUTIONARY RHETORIC

*.- HEIGHTENED TENSION WITH LOPEZ ADMIN. AND ITS PRO-US POLITICO-ECONOMIC STRATEGY/ AND ALSO IN CONJUNCTION WITH MULTILATERAL RELATIONS WITH US FINANCIAL INSTITUTIONS.

*.- ESSENTIAL INSTRUMENT - CHANNELLING OF PRIVATE AND PUBLIC CAPITAL TO ELECTED GOVERNMENTS WHOSE ECONOMIC POLICIES MET US APPROVAL.

*.- MODERATE ECONOMIC NATIONALISM

*.- LAND REFORM PROGS.

*.- STATE-LED ISI

*.- REDUCTION OF INCOME INEQUALITIES.

FOR MEXICO...THE BASIS FOR EXT. LOAN POLICIES WAS ESTABLISHED THRU'

1.- ALLIANCE FOR PROGRESS COMMITTEE OF 9.

2.- WORLD BANK EVALUATION MISSION.

ESTABLISHED NET INFLOW OF $150 MIL....

LOOMING PROBLEMS....

A.- LIMITATIONS OF ISI....OVERPRODUCTION..OR....

UNDERCONSUMPTION..... MARKET SIZE LIMITATIONS....?

B.- INFLATION AND OVERVALUATION OF CURRENCY

D.- EMERGENCE OF GUSTAVO ORDAZ (1964-70) HIGHLY REPRESSIVE.....BY 1968 REPRESSION...PROTEST...AND MORE REPRESSION.....SERIES OF CONFRONTATIONS WITH STUDENTS -RESULTED IN MASSACRE OF 2 OCT. 1968 - IN A DISTRICT OF MEXICO.

N.B...ABSENCE OF COUP IN MEXICO - UNLIKE MANY LACs .. THIS DUE TO STRUCTURE OF PRI....CORPORATIST INCORPORATING THE TRADE UNIONS AND THE ARMY. SO...DISSIDENT MOVEMENT NEUTRALISED.

*.- CAPITAL-INTENSIVE EXPORT ORIENTATED AGR.----> RURAL- URBAN MIGRATION.

*.- HIGH BIRTH RATES + LOWER MORTALITY = POP. EXPLOSION.

*.- RAPID INDUSTRIALISATION: CAPITAL INTENSIVE GROWTH.

*.- MASS OF MARGINALISED PEASANTRY IN URBAN AREAS

1968...SAW BREAKDOWN OF THE CONSENSUS OF POLICIES AROUND PRI MONOPOLY STATUS IN MEXICAN POLITICS.

*.- AVR. ANN. GROWTH RATE...6.6%

*.- " " PER CAPITA INCREASE...3.3%

*.- DESPITE IN.WAGE, PROFIT-SHARING LEGISLATION...INCOME INEQUALITIES PERSISTED AND INTENSIFIED.

ADMIN OF LUIS ECHEVERRIA..SEEN AS RESPONSIBLE FOR PRESIDING OVER ECONOMIC DESTABILISATION FOLLOWING ATTEMPTS AT RESPONDING TO:

*.- THE EVENTS OF 1968,

*.- THE GROWING POPULARITY OF POPULISM\PRO- DISTRIBUTIVE POLICIES IN LACs.

*.- PRO- 3RD WORLD ORIENTATION OF ADMINSTRATION.

*.- SUPPORT FOR ALLENDE's GOV. IN CHILE.

AFTER 1971.....ECONOMIC EXPANSION BASED ON: DISCOVERY LARGE OIL RESERVES IN 1971/72 = 70 BIL. BARRELS, WITH ADDITIONAL RESERVES OF 200 BIL.

THE INFLUX OF PETRODOLLARS LED TO....

*.- EXPANSION OF STATE\PRIVATE SECTOR

*.- INFLATIONARY PRESSURES.

*.- SUCKING IN IMPORTS.

*.- 12% RISE IN COST OF LIVING

*.- DEFICIT OF 2.4% OF GDP

DESPITE OIL PRODUCER STATUS...BY 1973..

HIGH RATE OF GROWTH----> INCREASE IN DOMESTIC ENERGY CONSUMPTION-----> SLOW DEV. OF PEMEX -----> OIL IMPORTS OF 700,000 B/D: OIL SHOCK OF 1973 INCREASED PRESSURE ON DEFICIT.

ECONOMIC EXPANSION + DEFEND 12.50 PESO = 1$ PARITY ----> HI. BORROWING FROM EURODOLLAR AND PETRODOLLAR MARKETS.......CRISIS...

*.- EXTERNAL DEBT $4 BIL. (1970) ----> 21.6 (1976)]

*.-PRIVATE SECTOR DEBT AT $6.3 BI..

*.- SHARE OF S-TERM BORROWING INCREASED

LOSS OF CONFIDENCE AND DOLLAR FLIGHT.....

ALSO..VERY LITTLE INCOME DISTRIBUTION....COMPARED TO 1950s..

TO SUM UP.....IN THE PERIOD 1970-76....SAW THE PERSISTENCE OF AN OVERVALUED CURRENCY...THE INABILITY OF MEXICAN ECONOMY TO SUPPLY THE DOMESTIC MARKET WITH THE BASIC MANUFACTURED GOODS IT NEED.....PLUS THE RELATIVE FALL IN WORLD COMMODITY PRICES...CAUSED IMPORTS TO POUR INTO THE COUNTRY FURTHER AGGRAVATING THE BALANCE OF PAYMENTS...FEEDING A CYCLE OF RISING FOREIGN DEBT ....IN TURN FEEDING INFLATION...WHICH FURTHER UNDERMINED THE PESO...LEADING TO MASSIVE CAPITAL FLIGHT BY INVESTORS.

a.- LARGE DEPOSITS FOUND IN 1972-73 OFFSHORE AND INLAND:

BENEFITS APPEARING.

b.- PORTILLO ARRANGEMENT WITH IMF TO TIDY EXCHANGE /DEFICIT CRISIS.

c.- INFLUX OF OIL REVENUE...FUELLED MILD EXPANSION STRATEGY 1978-82 ( DEVELOPMENT PLAN ).

d.- BOOM BASED ON I) HIGHER OIL INCOME II) FURTHER BORROWING.

e.- VAST PUBLIC SECTOR PROJECTS/ELECTRICAL EXPANSION/PETROLEUM INDUSTRY EXPANSION PRIORITY/PORT DEVELOPMENT/REBUILDING OF URBAN- TRANSPORT INFRASTRUCTURE.

PERENNIAL PROBLEMS.....

*.- AGG. INVESTMENT ROSE BY 16.8% - 1978-82....

*.- AGG. CONSUMPTION INCREASED BY 8.3% PER ANNUM*.- *.- EXPANSION-----> INFLUX OF IMPORTS INEVITABLE.

*.- CRUDE OUTPUT ---> 2.7 MIL B/D - EXPORTS INCREASE FROM $400 MIL (1974) ----> $2000(MIL) 1978.

*.- IMPORTS ROSE BY 49.1% ANN. AVERAGE.

SECOND OIL SHOCK...1979-80; OIL INCOME INCREASED TO $9.4 BIL IN 1980...FUELLING FURTHER UNPRECEDENTED EXPANSION OF THE ECONOMY...THE "MIRACULOUS GROWTH RATE OF 7%.

E.G....BY 1982....

*.- PEMEX BORROWED $10 BIL. (1981)

*.- STATE SPENDING...UP 61.5% (1981)

*.- " " " " 36.0% (1980)

THIS MASKED STRUCTURAL WEAKNESSES IN THE ECONOMY...

*.- DECLINE OF 3% IN MANUFACTURING SECTOR.

*.- INDUSTRIAL EXPORTS GREW BY < 4%

*.- VOL. IMPORTS INCREASED

THUS.....BY 1980..

*.- DEFICIT INCREASED TO 6.5% OF GDP.

*.- INFLATION AT 35%

*.- FOLLOWING DROP IN OIL PRICES...YET ANOTHER CRISIS LOOMED.

RECOURSE TO TRADITIONAL REMEDY...EXTERNAL CREDIT TO FINANCE IMPORTS AND DEFEND PESO PARITY.

*.- LARGE SHORT-TERM LOANS = $20 BIL. BORROWING TO COVER DEFICIT + DEFEND PESO PARITY. UNSUCCESSFUL....

*.- MASSIVE OUTFLOW OF CAPITAL PRIOR TO CURRENCY DEVAL.

*.- LOSS OF CONFIDENCE BLOCK ON FOREIGN LOANS.

*.- NATIONALISATION OF BANKS-----> IN AN ATTEMPT TO CONTROLLING SITUATION

WHEN MIGUEL DE LA MADRID...(1982-1988) TOOK OVER...

*.- INFLATION > 100%

*.- INT. PAYMENTS = 40% OF EXPORT EARNINGS...

*.- WORLD CAPITAL MARKETS ABSOLUTE LOSS OF CONFIDENCE.

*.- DOMESTIC FLIGHT OF CAPITAL.

MEXICO SUSPENDED INT. PAYMENTS ON FOREIGN DEBT OF $85.5 BIL.

BURDEN OF READJUSTMENT......PAID BY THE POOR AND THE WORKING CLASS.....DURING THE PERIOD OF READJUSTMENT...

*.- WAGES UP BY 40%

*.- PRICES UP BY 100%..!!

*.- REDUCTION OF TRANSPORT AND STAPLES SUBSIDIES..DRIVING UP COSTS.

PLIGHT MADE WORSE BY THE EARTHQUAKE OF 1985...GOV. INCOMPETENCE IN HANDLING OF IT.

READJUSTMENT POLICY.....CUT PUBLIC SPENDING + NEGOTIATE WITH IMF TO RESCHEDULE DEBTS.

IMF ADJUSTMENT POLICY....ADDRESSED

*.- PUBLIC SECTOR DEBT = 17% OF GDP.

*.- REDUCTION OF SUBSIDIES

*.- INVESTMENT POSTPONED

*.- REDUCTION IN WAGES/SALARIES.

REAL ECONOMY DECLINED SHARPLY IN 1983...

PAYMENTS TO MEXICO UNDER THE IMF AGREEMENT

----> $3 BIL ----1983

---> $48 " ----1984

N.B. DESPITE HIGH LEVELS OF GROWTH + REDUCTION IN IMPORTS + INCREASE IN OIL & NON-OIL EXPORTS ...DEBT SERVICING REMAINED HIGH THROUGHOUT.

FOLLOWING ADJUSTMENT ----> MILD GROWTH IN 84/85......

OVER THE IMF AGREED LEVELS...I.E. 2.5% RISE IN PRIVATE CONSUMPTION.

THUS...BY MID-1985....

*.-PESO DEVALUED BY ANOTHER 19%...PLUS SET ON A DAILY ADJUSTING SCALE.

*.- CUT IN PUBLIC EXPENDITURE

*.- DOWN-SIZING PUBLIC SECTOR EMPLOYMENT.

*.- JOINING GATT - ABOLISHING LARGE No. OF TARIFFS

HENCE...ECONOMIC SLOWDOWN--->INVESTMENT DROP---->GDP DECLINE.

1986/87....

DROP IN OIL PRICES....FROM $22 ---->$10 ----> NET REDUCTION OF INCOME OF $8 BIL --->GDP DOWN 4% + INFLATION OF 74% ---

----REAL PER CAPITA INCOME DOWN BY 14% COMPARED WITH 1980.

HENCE----> PRESSURE TOWARDS BORROWING..

*.- $12 BIL IN LOANS OBTAINED IN MARCH 1987.

50% BY CREDITOR BANKS; 50% BY MULTILATERAL AGENCIES.

*.- THIS LED TO MODERATE RECOVERY...

BEGINNINGS OF PRIVATISATION AND DEREGULATION....AS PRICE FOR US UNDERWRITING OF MEXICAN DEBT...BofP DEFICIT..

*.- ABOLISHING OF 1200 STATE ENTERPRISES

*.- ABOLISHING OF MOST IMPORT LICENSES

*.- PLEDGE TO MAINTAIN FISCAL AUSTERITY

*.- RATIONALISATION OF IMPORT TARIFFS.

*.- PRIVATISATION OF MAJOR STATE ENTERPRISES

*.- CUTTING PUBLIC SPENDING.

*.- ENTER NEGOTIATION RE: NAFTA.

*.- PURSUIT OF NEO-LIBERAL MONETARIST ECONOMIC STRATEGY.

THUS...

FEB. 1990....PRIVATISATION OF STEEL COMPANIES

MAY """".... """"""""""" " BANKS NATIONALISED BY PORTILLO.

MAJOR POLITICAL CHANGES.....RESULTED FROM PRIVATISATION AND DEREGULATION OF THE MEXICAN STATE - PREDICATED UPON PRI MONOPOLY.

a.- FRAGMENTATION OF ALLIED UNIONS..E.G. PEASANTS UNION

JOINED THE PRD PARTY - ( PARTY OF DEMOCRATIC REV.)

b.- WITH EMERGENCE OF INDEPENDENT UNIONS - CONF. OF LABOUR UNIONS (CTM) - LOST MONOPOLY.

THUS MY EARLY 90S...MEXICAN STATE...

*.- CRIPPLE BY FOREIGN DEBT.

*.- COMMITTED TO DEREGULATION + LIBERALISATION.

CHALLENGING THE VERY FOUNDATIONS AND ASPIRATIONS OF "THE REVOLUTION"....MAINTENANCE AND EXTENSION OF SOCIAL WELFARE AND EQUITABLE DISTRIBUTION OF WEALTH.

THE 1994 CRISIS...HAD A LONG GESTATION PERIOD GOING BACK TO THE LATE SEVENTIES....AND REFLECTING THE ONGOING STRUCTURAL PROBLEMS WITH THE MEXICAN ECONOMY WHICH IN TURN REFLECT THE SPECIFIC SOCIO-ECONOMIC ALLIANCE\COALITION\CONFLUENCE OF FORCES UNDERPINNING THE MEXICAN POLITICAL ECONOMY..

THE PERENNIAL PROBLEM RESTATED....

ATTEMPT TO MAINTAIN AND PROMOTE GROWTH THRU'; USING EXCHANGE RATE ANCHOR - SUPPORTED BY RESTRAINED FISCAL AND MONETARY POLICIES...

( WORLD BANK - TRENDS IN DEVELOPING ECONOMIES, 1996 )

RISK: WITH ECONOMIC EXPANSION ----> INCREASE IN IMPORTS

---->EXCHANGE RATE POLICY ------>CURRENCY APPRECIATION---> IMPORTS CHEAPER + EXPORTS MORE EXPENSIVE -----> INCREASE IN DEFICIT-----> FOREIGN BORROWING TO FINANCE DEFICIT.

FOR SOME TIME.....IT SEEMED TO BE WORKING..BY 1993...

*.- INFLATION DOWN TO 8%

*.- FISCAL DEFICITS ELIMINATED

*.- GDP GROWTH FROM: 0% (1982-88) TO, 4% (1989-91).

*.- REAL EXCHANGE RATE APPRECIATED BY 30% (1989-93)

*.- SURGE OF CAPITAL INFLOWS - TO COVER THE DEFICIT.

*.- INCREASE FOREIGN SAVINGS...DROP IN DOMESTIC SAVINGS

*.- LOW PRODUCTIVITY IMPROVEMENTS.

*.- TRADE AND FINANCIAL LIBERALISATION CONTINUED.

*.- PRIVATISATION\DEREGULATION\TAX REFORM

CONTINUED.

*.- DIDN'T GO FAR ENOUGH..! PRIVATE INFRASTRUCTURAL DEV/FINANCIAL MARKETS DEV./LABOUR MARKETS/ INSTITUTIONAL FRAMEWORKS UNDERPINNING FINANCIAL MARKETS...ETC.

SLOW DOMESTIC GROWTH + LOW PRODUCTIVITY GROWTH + LOW DOM. SAVING + APPRECIATING CURRENCY RATE = EXPANSION OF CURRENT ACCOUNT DEFICIT 3% GDP IN 1989-90; TO 7% GDP IN 1992-94.

DROP IN NET CAPITAL INFLOWS OF: $29 BIL - 1993

OF: $10 BIL - 1994

DEFICIT OF; $23 BIL....HENCE FALL IN RESERVES OF $19 BIL.

GOV...ATTEMPT TO SHIFT DOMESTIC PUBLIC DEBT FRO PESO-BASED SECURITITES..TO DOLLAR BASED SECURITIES...

GOV.DEFENDED PESOS.....LOST RESERVES...CAPITAL OUTFLOW....INTRODUCED....EXCHANGE RATE BANDS....THE CONVERSION TO DOLLAR-BASED SECURITIES CREATED ADDITIONAL LIABILITIES OF $30 BIL.

IN DECEMBER 1994...WITH RESERVES DOWN TO $6.00... GOV. FLOATED THE PESO.....PLUS ANNOUNCED MAJOR PACKAGE OF REFORMS.....

SUPPORTED BY US++IMF ---> $50 BIL. 20$ - US; $12.1 SDR-IMF.

*.- STABILISE THE ECONOMY

*.- FLOAT THE PESO

*.- TIGHTENING OF MOMENTARY/FISCAL POLICY

*.- WAGE RESTRAINTS

*.- DEAL WITH PROBLEMS OF BANKING SYSTEM...PRIVATISATION..!?

BY MARCH 1995......YET ANOTHER RECOVERY...!!

*.- DEFICIT DOWN FROM $18.5 BIL.-94; SURPLUS OF $7.4 3/95 *.- 50% DEPRECIATION OF PESO..20/12/94 - 12/95...

*.- EXPORTS ROSE BY 31% IN 1995, IMPORTS DECLINE BY 8.5%

*.- CURRENT ACCOUNT NEAR BALANCE FROM DEFICIT OF 8% OF GDP IN 1994.

*.- INFLATION..FROM 8% 1\1995 - TO 2.5 PER MONTH LAST QUARTER.

*.- RESERVES RECOVERED TO $17.5 BIL. BY 1996.

A.- RECOVERY AT WHAT COST?

B.- WHAT OF THE FUTURE..?

C.- WITH DEREGULATION AND PRIVATISATION: WHAT OF MEXICAN SOVEREIGNTY..?

D.- INCREASING DEMOCRATISATION... SHRINKING DEMOCRATIC DOMAIN.

*.- DEBT-FOR-EQUITY EXCHANGES.....THE CASE OF G.M. TEXAS.

*.- AGRICULTURAL SECTOR IN CHIHUAHUA - MEXICO

*.- ECONOMIC GROWTH AND THE MAQUILADORAS.