The 1980s Mexican Political Economy
Reinterpreted through the Hypothesis of Financialization
Violeta Rodríguez
Economic policy measures that paved the way for increasing participation in the distribution of domestic assets to the finance sector

Mexico’s other 1980s financialization-related economic policies involved helping reduce the participation of non-financial agents in distributing domestic assets, specifically with measures that involved strategies for the privatization of public companies, social pacts, free trade and, in general, for balanced public finances and foreign trade.

The privatization of public companies and the adjustment of official prices
as instruments that reduced the non-financial sector’s participation

Although price liberalization had already begun by 1977 in the automotive sector,33 it was only in the 1980s that the government fully developed this policy. In 1980, price freezes were lifted on various basic products, and two years later, on gasoline and diesel, with a price increase on all government companies’ goods and services 34in order to bring them into line with market levels.35

Despite the inflationary impact caused by these increases36 during the subsequent two years,37 the government accelerated this policy in 1986, as it considered the aforesaid impact to have lessened the previous year.38 Thus the government succeeded in definitively canceling official prices in 1992,39 leaving within its control only the prices of goods labeled as a priority (licensed services and some products in the basket of basic goods, such as tortillas and sugar) and those that the government was still in charge of producing (electricity, water, oil and derivative products).

The readjustment of official prices to their market levels made public companies profitable, and therefore the government had no difficulty in privatizing them—a job it completed in 1988. In the medium term, however, most of these privatized companies interrupted their operations and passed into foreigners’ hands. As a result, the privatizing strategy encouraged purchasing from abroad (see Figure 7), with a focus on consumer goods, while less was spent on domestic products. The free trade policy initiatives diluted the negative effect that this increase tended to have on financial gains.

Free trade as a means to prevent increasing transfers of flows
of funds and financial assets to non-financial agents

Since the early 1980s the Mexican government vigorously pursued a free trade strategy in order to raise Mexico’s exports to the level that the need for imported goods into the local economy had reached, in order to even up its balance of trade. The most important practical effect of this balance, from a financialization perspective, was that it implied that domestic non-financial agents would stop using the means of payment in their power to pay the external deficit, and would use them instead to pay their banking debt.

Mexico’s free trade initiative began with the tariffication of hitherto restricted imports with a non-quantitative instrument called prior permission (Table 5). This was followed by the country’s joining of global forums to negotiate and subsequently sign trade and investment agreements (Table 6). Through these agreements, Mexico gradually reduced its tariffs to zero and used government funds to subsidize its non-oil exports and foreign investment; it also brought its taxation system into line with that of its trade partners (Table 7). But the most important effect, from the perspective of Mexico’s financialization, was that the government-led trade negotiations Mexico could therefore establish the amounts and prices of most of its acquisitions and sales to other countries, and manage these variables so that they remained at levels compatible with the balanced current account (Figure 8).

33 Banco de México. Op. cit., 1977: 28.

34 Op. cit., 1982: 22 and 35-36.

35 Op. cit., p. 40.

36 Op. cit., p. 15.

37 Op. cit., 1983: 59 and 1984: 51.

38 Op. cit., 1985: 56.

39 Op. cit., 1992: 109.