THE OUTLOOK FOR MEXICO

Created: 4/25/1984

OCR scan of the original document, errors are possible

HE OUTLOOK FOR MEXICO

DISCUSSION

I KEY CHARACTERISTICS OF THE SYSTEM

Revolutionary- Ideology..

II. IMMEDIATE CHALLENGES TO THEEconomic Stringencies and Constraints

Different Approaches.

Conservative Opposition

The National Action Party

Slums

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crisis ihat Lopei Portillo acknowledged innd his nationalization of the country's private banks Ihe following month, strongly undermined the private sector

naugurated President inde la Madridrisis morethan any since the. Under conditions of harsh austerity, high unemployment anddouble- or triple-digit inflation, widespread business failures,rippling shortage af capital, the economy contracted byercentirtually all social and economic groups have had to accept declining standards of living, scale down their eipectaltons, and compete for benefitsegative sum economic environment De la Madrid has struggled to preserve social equilibrium and to restore public confidence in the politicalIn particular, he has endeavored lo distance himself from the egregious corruptionailures of Lopez Portillo and other senior officials of the last government. By pursuing an anticorruption campaign that has included the imprisonment of at least one former high official and revelations of abuses by others, and by protecting an image of fairness,and probity, the President so far has provided generally effective and popular leadership.

e la Madrid's most striking success has been Inurnaround in Mexico's international economic accounts.ittleear, austerity has brought spending In line with available resources, inflation has begun to decline, and some confidence in the government's policies has been restored. ByImports and public-sector expenditures, rabing the real costs of most goods, and making other tough adjustments ihe regime has met most of thcrequirements of the International Monetary Fundeing paid on the moteillion foreign debt, and by the endhe current account surplus reached about S4 billion. With some flexibility to increase imports of badly needed capital and intermediate goods, Meiico probably will be able to stem the decline in economic activity and may begin recovery thb year Thb progress has been achieved, moreover, without engendering any serious

ntil the foreign exchange cr'sb and economic coil*pie. Memo wasperhipuSe most unqual ified success story In the developing world. From In inception in the, the country's unique political system had provided over SO years of relative social tranquillity, political stability, andgrowrh.ine presidents haveegular succession, wielding and yielding power according to elaborate cc-rutitutiorial and informal rules that areean ol the country's myth and history. Unlike most Latin American countries, furthermore, there hive been no militaryserious coup plots, strong guerrilla or terrorist movements, or large outbursts of antiregime violence. Unlike all of them too. in Meiico the economy grew with few lean years and at impressive high ratesalf centuryI. In fact, with an average annual growth rate olercent 'during those decades, cumulative material gains in Meiico were among the highest achieved anywhere in theworld. The prospects for economic development and diversification were buoyed in the, furthermore, when Mexico's eitensive newlyoil reserves began lo be exploited.

, ressures on former President Lopet Portillo to Increase public spending became Irresistible after Mexicoet oil exporter, but the former President's tendency toward grandiose schemingsignificantly lo the disastrous boom and bust cycle that followed. Mexicoevelopment strategy in large part dependent on massive public investment of oil revenues. As public expenditures burgeoned, pushing growth rates to as highercent annually, the economy began to overneat in thenflation mounted, the peso became highly overvalued, and the competitivenessonoil exports was undermined Foreign borrow-ing was Stepped up to compensate for soaring current account deficiti even as interest rates were rising. Lopes Portillo stubbornly refused to devalue the pesond foreign exchange policies servedositive inducement to capital flight. Billions of dollars were expatriated as Meiieans deposited, invested, and spent lavishly abroad. The foreign exchange and debt

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force Traditionally, (he system has demonst/aicd resiliency and adaptability bv adjustingewco-opting newly arising dissident factions, and claiming to represent and satisfy oeariv ill rniior interest groups. The regime's total control over patron-age and the apportionment of material rewards has been per bans its mostasset in preserving its monopoly of power.

. with the Revolutionftermath, this ideologyrameworket of egalitarianthat give legitimacy to the system. Four/itrct part by and for Indians, peasants, andiitssj class generally, the Mexican Revolutionimpetus to decades cf reforms thatrealigned relationships among th* country's socialor the first time since thc Spanish conquest, the Indian peoples and their rich heritage were nourished officially as the very essence of the Meiican identity Artec Heroes were (ionised, Indian art and architecture eulted. and Indian characteristics and culture cam* to ruffise the national consciousness.

In contrast to this "revolutionary" hagiography are the many foreign intruders andccrcuutidcrs. French imperial pretenders, andinterlopers from th* Unitedof whom are seen as having injured and eiploited the rightful owners of Mexico's resources. Even more vilified than such "predatory" outsiders are the Mexican traitors who conspired with th* foreign- They are known OeeificaU* as mallfter the Indian woman who translated for Cortes. Lopez Portillo provided the most recent eiample of revolutionary demagogucry when' he nationalised the private banks and imposed tough foreign exchange controls, arguing that wadslarts. unpatriotic Mexicans who removed capital from the country, had brought on the economic crisis.

. with ihe Resolution and its aftermath, this ideologyrameworket of egalitarian Hand-ards tha: give legitimacy to ihe sysiem. Fought int by and foreasants, and the working clan generally, theate impetui to decadei a( refotsu that have realignedrnong the country's social groups. For the first lime since the Spanish conquest, the Indian peoples and their rich heritage were nourished officially aa the very essence of the Meiican identity Artec heroes -ere lionized, Indian art and architecture -raited, and Indian characteristics and culture came to suffuse the national consciousness.

n contrast to this "revolutionary" hagiography are the many foreign intruders andccetciuistadors. French imperial pretenders, andinterlopers from the Unitedot whom are seen as having injured ard etploitcd the rightful owners of Meiico's resources. Even more vilified thin such "predatory" outsiders are the Meiican traitors -ho conspired with the foreigners. They ire known specifically as mahnehti after the Indian woman who translated for Cortes. Lopei Portillo provided the most recent example of revolutionary demagog-aerye nationalized the private banks ind imposed tough foreign eichange controls, arguing that lacedofarar. unpatriotic Mexicans who removed capital from (he country, had brought on the economic crisis.

ing wide support among rhe populace. These goals, however, cannot al! be achieved simultaneously

rice. hange Stability The current priority concern of the government is lo reestablish stable prices and to strengthen the peso Traditionally, relatively stable priceshange rates facilitatec rising consumption and living standards.owever, hyperinflalion has shaved off one-lhird of real wages and has ledharp drop tn the peio Lest foreign purchasing power has had an especial!*impact on middle-class groups who. during the years of oil-fueled growth, became accustomed lo spending overval-^ed pesos fcr foreign Imury and consumer goods De la Madrid's com men:ress conference lasl October that "inflation is thc most serious orobletn facing Ihe country" indicates his continuing commitment to this key obiectiws.

inancial independence. The second impera-livc of government economic policy is llui cf adjusting domestic spending to levels that can be supported by domestic resources. De la Madrid's current austerity policies are aimed at regaining financial independence by ending the need for "massive new loans" and. honoring oast commitments. Thu has ledreatly reduced foreign borrowing program and delaying loandrawdowns when possible. De la Madrid is scaling back development projects and increasing local lues in an effort lo pay government debt and capital purchases out of domestic savings.

conomic Recovery and Sew /opr. Meiican leaders realize that economic performance must begin tc improve soon if key constituencies in thefamily" are to remain quiescent and if new employment opportunities are lo be crealed. Only with economic recovery can the conditions be created for economic mobility and openings for ambitious Meiieans of all classes who might other-is* become threats to the system.

alanced Miredexicanare in many ways as concerned about how the economy grows as how fast it does Development stralcuv has long reflected the overriding principle of economic nationalism, characterized bv protectionism, restrictions on foreign investment, and conservation ofespeciillyThese attitudes have resulted in the rapidly expanding rote ofind large public enterprises in the economy. Nevertheless, Mexico's private sector continues toihe bulk of employment and, under thc strictures imposed bv the IMF program, the private sector will

iXCNtaACr/CitcON

generate she jobs to misiv rapid expansion orlabor force.

r cache-,

conomic trends and policies during theofid bearge pact by the compromises andmong ihe basic economic objectives made by deadrid and his successor. While we proiect two approaches.believe actual policies and trends will fall somewhere between the two. In thc first case, cc la Madrid could relax austerity and reflate the economy soonesponse to growing political pressures and social unrest, but this course would probably lead to recurrent financial crises. Alternatively, he could continue toough stabilization program, followed byestrained arowrh

o make tough decisions on macroeconcmic issues even more complex for de la Madrid and his advisers, much will depend on factors beyond theiretback; in thc current world economicail in oil prices,eterioration in the international lendingbrought or.ebt default in anotherboost world interest rates, undermine demand for Mexican exports, and constrict credit availability. Under suchMexican policymakers' options would berestricted. On the ethera.orin world oilon by conflict in the Persian Culf area, fortemporarily boost Mexico's oil revenues and allowime without aggravating foreign payments problems.

lthough greater Meiico Gty has grown at lipidis now home to more thanilliontwo dozen next largest cities have expand-ed at limilar and even higher rates. The most spectac-ular growth has been in the northern tier states, wheref the country'sargest cities are locatediles of the US border (seend table0 each of these cities had grown touarterillion peopis. Duringheir average rate of growth was aboutercent higher than Mexico City's, and we estimate that together they now account forercent of the nationalhare that will increase toercent by the end of the decade if recent high rates of expansion persist. Si* of the laigestTijuana on the Pacific lo Matamoros on the Culf ofon the border with thc United States, and al) have doubled or nearly doubled In size sincewhile becoming increasingly vibrant as commercial and industrial centers and funnels for contacts with the United States.

he flow of people and economic activity Into the northern border regions has considerable political significance- Most of the growth has been the result of private-sector initiatives and of commerce and other eichange with the United States. With ihe exceptions of Hermosillo and Tampieo, which have benefited considerably from national government efforts toeconomic activity in regional development zones, the northern tier cities have seemingly grown primarilyesult of "pull" forces from the United States rather than planning in Mexico City. Monterrey. Mexico's premier center of private-sector industrial activity, has grown rapidly, while major entrepots like Ciudad Juarez. Mexicaii, and Tijuana were trim-

Tabic 2

Urbanization in Mexico

of ih<aifui Otiel

Rue IPtrttmi

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MO

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mercy. Nucvo Leon rVtJa, PUe&la Ckaid Jaaret, Cnihuihm Leon. Cujnijujio

ail Californii None Mtiicali. Bin Cjiiic*ntj Sone

Tor-ton. Cuhuili

597

289

262

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211

96

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San Lai> Pctai. Sin Luis Paioii Aqpu.'co (Dc Juireil Guerrero Vtnervi. Veraermesil'o. Sor-ma Cuernsvici. More lot

I Tri

Chilean. Simloi

Nuevo Laredo. Timiulirai

n

149

Mmmoro.ipii

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tUynoii. TimiBiinoi

Slllilio. Cojhyni

7'

Dvranto. Durinio

151

Moielii. Mk.Soj.an

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Tolvci. Mexico

CilMl ranted0Uiedti*.

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Tnt cmHW o/ li* Moioa Cry nxtropaliua IfM ii ii kin JOkso the FotUnU Deorkt; ia UMi git* much

Thj table It Undiu^d

511

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J3I

272

in

241

Z4Q

219

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194

517

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449

421

*94

'84

367

422

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7.3

from tawdry border towm into large and diverjificd entrepreneurial cenr.cn.

ong before the economic collapse Ineruioni between these border regions and Meiico City were multiplying. The formerarger share of political power, less restricted exchange with the United States,lice of the federal budget compatible with their increased importance. Thecrisis, moreover, exacerbated these tensions as the border economies were especially damaged by the devaluations of the peso, foreign exchange controb. and the sharp drop in Imports from the United States.

The NotioocJ Action

he National Action Partymeans bread in Spanish) has been growing over the lastears as the leading alternative to tbe PRI, and its gieatest gains have been In the northern border regions and In Yucatan. According to the government's count.

umber of factors seem to eaplain the growth of PAN's support The party traditionally has appealed primarily to wealthy, middle-class, business, and church-oriented constituencies. With modern ita'ion and urbanization, those sectors have became largerercentage of the total Meiicanr thc last two decades, thus accounting in part for PAN's greater popularity. In addition to this growth bv accretion of Its natural constituency, the partv has ctobably also succeeded in extending its appeal to some groups not previously inclined toward ita large share of thc ballots PAN candidates have won in recent elections have been protest votes rather than enduring eipressions of support for the opposition. PAN probably has benefited from the widespread disiatisfaetion resulting from theand (he disastrous economic policies of the last government. But. cen with (he added support of the many middle-classer Mexicans now opposed to continued PRI hegemony, theandicapped by many serious problems: the paucity of leaders with national experience; the weakness of Its infrastructure; its failure to come up with national political platformseneral perception lhat it is the party of wealthy

C. The Slums

lthough urbamxaNcn has been widelyihe rncst explosive gro-lh hai beer, in ihe colonial povulcrci. the teeming slums and squatter seltlements around the principal cities. One of these. Netrahualcovotl. on the outskirts of the capital, hai been burgeoning at an annual rate of more thanercent during the lastean or so.0 it appeared for the fint time in Meiican ccniuithe fourtft-largeit "city" in the country.h an estimated population of clewa* no longer luted separately, perhaps became (hedoes not -aat to call attention to it. Many other huge new skm settlement! like itmuihroemed on the outikirts ef most of the other cities too. eipanding in fact more rapidly In relative terms in the provinces than in the metropolitan capita! area. The extraordinary rapidity of slum expansion has resulted In new arrivals coming to be known asparachutists, who seemingly drop in silently and in such numbers as to transform completely the places -Here they alight. Even before the economic crisis, unemployment and underemployment rates in the slums were the highest in the country.

espite such conditions, however, there have been no large riots like those that have occurred in some cities in thc United States and other countries over the lastean. Rioting and bus burnings occurred in fVetrahualcoyotl1 following bus fare Increases and levels of crime have increased notably as economic conditions have deteriorated. In contrast, during the decades when the economy was growing rapidly and creating many new jobs and opportunities, the realistic expectation of betterwork, material gains, the chance to move up on the economictheto the cities, sustained their hopes, and kept them quiescent

esix&j)

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-he Mriec ol (hii EstimateadridttyOJ-e

involving!

C*n'rol Economic Dilemmas

"Kile iRcresjine

Trie merits of alternative economiclegiet, including the roln oi ihe wnt-alin guiding the economy, ind imco>ing the ceafidencr and prodoetiviiy al the ori.aie lector

How lo tela* nailonallitlc forrign trade andUMrM codei ta help ftnineeerowth while reducing irade barriers lo enhance DioduclMiy and promote IIMMl

w Krv.ee the foxieri debt Imports necessary for growth.

PoG-kol ond Sot ol Problem

How io reform ind roilaliz* the svitem andiu reach into wch rtla'l>eiv neglected areas at the slums and youth.

Dociuonj on opening the system ro opposition political parties without giving loo muchuickly.

How io ifanch the growth of Meiico City and some other large cities.

oliticalflowi downward throughorganized interest groupunions, peasant confederations, chambers ofonly the president his the final authority and legitimacy to arbitrate dispute! and apportion government favors among them. He can demand that groups comply with policies they oppose and has the power to coerce them into doing so if all else fails.

uring the year or so he has been In office, de la Madrid's performance has been generally irr.prei-sivc and his record remains unblemished by any maior failures or crises. He and his advisers have managed the economy ably, and he has praBmatlcaUy and decisively defused several potentially seriouslo the regime. Confronted on two separate occasions by striking leftist government workers, de la Madrid stood firm, and without having to resort to public demonstrations of force, compelled Ihe unions to back down. He also skillfullyrotracted confrontation in Oataca state between PRI andauthorities on the one side and membersadical new left group on the other. Thus, although prior2 he had little experience outside of finance and public administration, de la Madriddeveloped keen bureaucratic-political skillsthe many years he spent rising through the federal hierarchy. Another view, however. Is that de lahas done little to consolidate his power, that he has scat opportunities to provide decisive leadership cn key piobiems. and that he tends lo vacillate under the inflicting counsel of different advisers.

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