The 1980s Mexican Political Economy
Reinterpreted through the Hypothesis of Financialization
Violeta Rodríguez
External Public Debt

Since Mexico was forced to take on external debt at the beginning of the 1980s through issuing securities, in order to counteract the balance of payments deficit that it had accrued since the 1970s, and also to modernize its financial system, the country began to run a deficit with its reserve funds; the same applied to the government’s flow of funds and financial assets.

Mexico could not overturn this deficit throughout the 1980s, because the maturity dates of the external debt in securities were less than those of the external debt of the past, falling out of synchronization with the recovery of the profits of the productive process, and also since the capacity of this process to recover profits was reduced given that the scale of production fell (see Figure 5); on the contrary, the aforementioned costs of the external debt in securities grew steadily, causing the amount to increase.10

THE ROLE OF MONETARY AND EXCHANGE-RATE POLICY IN PROMOTING THE PROFITABILITY OF FINANCE OPERATIONS

Monetary and exchange-rate policy applied during the stage of conflictive capitalism in the 1980s, apart from ushering in and valuating the investment that began Mexico’s process of financialization, made financial operations profitable. Linked to this, the International Reserve management guaranteed the availability of sufficient liquid currencies to pay for investments in the foreign currency received by Mexico and also the yield generated by said investment.

Strengthening Performance of Finance Operations

Specifically, monetary policy implied that the government would pay to set up the infrastructure required by the financial market to operate according to international standards; it would “decree” a growing supply and demand even in excess of said market and, ultimately, it would create, promote and make finance transaction market practices a routine affair. Meanwhile, the exchange-rate and International Reserve management policy not only encouraged a trend toward a higher exchange rate, and as a result, toward profits from financial investments in foreign currencies within the domestic economy, but also guaranteed immediate payment of that profit in foreign currency.

Economic Policies Implemented with Public Funds
to Pay for Launching Finance Capital in Mexico

Since the mid-1970s Mexico set about a government-led modernization of its financial infrastructure. This reached its apogee during the period of the banks’ nationalization, because at that time the public administration could use substantial resources and unlimited institutional power to that end—specifically to recapitalize and update infrastructure,11 organization and administration12 of banking (see Table 1). In 1989, having virtually completed this task, an integral reform of the relevant legislation was decreed. This included the explicit permission for institutions in the sector to form financial groups,13 thus beginning the foreignization of Mexico’s financial system.

The final stage in the process of financial modernization, however, came with the June 1990 amendment of Articles 28 and 123 of the Mexican Constitution which allowed for the private sector to offer banking and credit services.14 On that basis, in September 1990, the government issued guidelines for the disincorporation of full-service banking15 and, in 1991, it sold to the private sector shares in nine commercial banking institutions.16 By 1992, 18 of the 19 commercial banks had been privatized.17 With this sale, the social wealth accumulated through the government budget and used to finance the debt left to Mexico following the modernization of the banking institutions, became the source of funds that paid the businessmen who acquired the privatized banks, as well as their costs for setting up in the finance sector.

10 Rodríguez (2011) provides the statistical and analytic basis for this conclusion.

11 See Banco de México. Informe Anual, 1982: 98-99 and 1983: 38.

12 The government began this policy in 1974 by enacting the Securities Market Law (Ley del Mercado de Valores) and amending the Credit Institutions Law (Ley de Instituciones de Crédito), as referred to in Op. cit., 1974: 25.

13 Op. cit., 1989: 34-35.

14 This finding implied the enactment, in July, of the Credit Institutions Law (Ley de Instituciones de Crédito) and the Law for the Regulation of Financial Groups (Ley para Regular las Agrupaciones Financieras), together with the amendments to the Securities Market Law (Ley del Mercado de Valores).

15 Op. cit.,1990: 47 and 48.

16 Op. cit., 1991: 179.

17 Op. cit., 1992: 207.