The 1980s Mexican Political Economy
Reinterpreted through the Hypothesis of Financialization
Violeta Rodríguez
Social pact measures as a means to lower the participation
of the domestic non-financial private sector

From a revenue perspective, the reduction in local industry's scale of operations, brought about by the privatization of public companies, resulted in falling employment figures and a drop in real gains of the non-financial private sector, in addition to the lowering of salaries in real terms. In terms of the latter two variables mentioned, the downward trend was also influenced by the price fixing and salaries implemented by the government through its social pact strategy as an inflationary control measure.

Although a long tradition exists in Mexico whereby salaries are determined through a pact directed by the government and based on inflation (Table 8), this strategy truly became a core component of Mexico's economic policy with the Pacto de Solidaridad Económica (1987-1988)40 and the Pacto para la Estabilidad y el Crecimiento Económico (1989-1993).41 This strategy not only influenced salaries but also enabled the government to set most prices without having to shoulder the responsibility involved in officially determining them, given the implication that businessman would accept to adhere to the inflationary target in their decisions to increase the prices of the goods they produced. Despite the fact that these Pacts ceased forming part of Mexico's economic policy in 1994, salaries are still indexed to inflation (Figure 9).

Redistribution of the government's budget as a means
to increase the financial sector's assets

The redistribution of the budget that led to an increase in the assets of the financial sector and a decrease in those of the non-financial private sector was the result of the policies for balanced public finances and the strengthening of non-oil revenue that the Mexican government implemented from the early 1980s, which created three trends that have characterized the recent budgetary performance and that have aided Mexico's financialization process.42

The first of these trends is the sustained reduction in public spending, specifically that which creates revenue flows for non-financial agents, such as that allocated for investment that creates infrastructure and jobs (Figure 10).

The second trend is the sustained growth in public expenditure which is most likely to be converted into the financial system's working capital or source of profit, and which is currently the main destination for public expenditure (Figure 11).

This expenditure includes the financial cost and amortization of the debt, social security contributions, and holdings and contributions to federal entities (Figure 12). The first of these components, unlike the other two, has historically been part of the budget that ends up in the hands of the (domestic or foreign) banks.

As Mexico's pension system reform progressed from the end of the 1980s, social security contributions became one of the financial sector's largest sources of working capital and profit, to the extent of replacing foreign investment (Figure 13). This reform not only meant that the funds of these systems were to be managed by financial institutions, but that these institutions were allowed to acquire financial instruments (even with variable interest rates). These funds were therefore used by banks to offer to the private sector loans that were ultimately backed by these pension funds (Figure 14).

For their part, contributions to federal entities became one of the most promising sources of bank financing, ever since Mexico's states were granted permission to issue public debt backed by federal revenue.

The third trend is the increase in less progressive taxes and tariffs (Figure 15), which have been under the control of the non-financial private sector, especially the increase in tariffs of basic goods still produced by the government (e.g. gasoline and electricity); also, indirect charges such as special taxes on production and services.

40 Op. cit., 1988: 11-14

41 Message from the 1994 Government Report.

42 Manríquez, I. and V. Rodríguez (2011) give a detailed description of these trends. To consult and download the tables and figures related to this paper, please visit