The state-led development strategy relies on public-sector investment, still heavily skewed toward agriculture, to integrate the national economy. The government expropriates all foreign oil operations and nationalizes the oil and petrochemicals industry in 1938, winning President Cárdenas widespread praise within Mexico. The country enjoys strong economic growth and low external debt.
Mexico supplies the World War II Allies with war equipment and its own population with consumer goods. This marks Mexico's transition from a primarily agricultural economy to an industrial one. The government owns and operates most strategic industries, including energy, transportation, communications, and some manufacturing. The National Finance Bank is reorganized to foster industrial expansion.
The government continues its inward-looking development strategy of import substitution. The peso is undervalued, and state credit is available through several state-owned development banks to foster industrial development. Government increases its involvement in the economy and invests in major infrastructure improvements, paying little attention to the demands of labor and rural populations.
The economy continues to grow with government support. Its strength brings increased foreign investment and control by foreign, mainly U.S. interests. In a nationalistic strategy, the government buys many foreign utility concessions in 1960. Government policy shifts from an urban focus to a rural one, with massive land redistribution and new land made available for small-scale production.
Government spending increases rapidly in an ominous sign of things to come. Business interests once again receive priority. Manufacturing is the government's dominant growth sector. Electric power and mining companies are nationalized. The government encourages the establishment of maquiladora (assembly) plants along the border to offer foreign investors proximity to the U.S. and low labor costs.
Fiscal mismanagement undermines economic growth. With the discovery of oil reserves, Mexico ends its policies of stabilization and embarks on a massive public spending program. Low real interest rates discourage domestic savings. Government's anti-business stance deters foreign investment. Warning signs of an impending financial and economic crisis are swept under the rug.
Mexico becomes one of the world's largest producers of oil, and one of its leading debtors as the government goes on a borrowing spree. Creditors are easily found given Mexico's immense oil revenues. The government assumes ownership of hundreds of unprofitable firms, but the government's spending habits and the collapse of commodity markets put the economy into recession.
The economy contracts. High interest rates, falling oil prices, and rising inflation put Mexico near bankruptcy. Mexico's inability to service its debt sparks a global crisis, and emerging markets are cut off from international capital. To stem massive capital flight, President Portillo plans to nationalize private banks. The U.S. Treasury and Federal Reserve Board intervene with a rescue package.
Austerity measures, imposed in part by the IMF, reverse economic growth trends but fail to restore sustainable growth rates. The stringent economic stabilization program helps reduce fiscal deficit and restores export growth, but at the cost of unemployment and lower real wages. Two-thirds of foreign investment are concentrated in the maquiladora areas along the U.S. border.
Mexico reaches an agreement with external creditors on debt reduction and restructuring. Government ends restrictions on foreign ownership of business and promotes privatization. Commercial banks begin to be re-privatized. Import substitution gives way to participation in global free trade. As a result of these measures, Mexico sees a brief economic upturn that slows again in the early '90s.
The barely stable economy suffers another blow with the devaluation of the peso in 1994. Investor panic causes Mexico's stock exchange to plummet, setting off a domino effect in the rest of Latin America. A U.S.$ 20 billion bailout and increased exports through the North American Free Trade Agreement (NAFTA) help stabilize the economy and bring about signs of recovery in 1996.
Mexico's GDP grows at a steady rate for three consecutive years. Significant oil revenues in 2000 enable the government to repay its debt to the IMF, but at the same time the United States's economic slowdown deals a blow to the Mexican economy, and growth stagnates. The positive effects of trade liberalization, privatization, and increased competition have weakened.
Macroeconomic management earns the plaudits of the U.S. and international lenders. But the global slowdown hurts the increasingly trade-oriented economy, limiting growth to 3 percent or less. Job creation falls short of President Fox's promises, eroding his popularity. He proposes tax reforms to fund social programs, but many fear that the poor remain highly vulnerable.
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