The genesis of the 1982 crisis

The Genesis of the 1982 Crisis.
In this article the author, Lustig Nora, makes a reference about the facts that originated the 1982 crisis. The author takes us into the situations and the decisions previous and during the ’82 crisis.
The point of the article is to provide us tools that allow us, the readers, make an analysis of what happened during the years 1970s up to mid-1980s.
According toseveral authors, the Mexican’s economy performed really well during the 1950s and 1970s. In words of the author Mexico produced capital annual growth rates from 3 to 4 per cent with an annual inflation of 3%.
The annual growth was high and the inflation was minimum, which influences in the reason why government, privacy investments and the society were confidence about the situation that is wellknown as “the golden years”.
Mexico has an inward character. That means the rapid growth of the industry in México and the import substitution and domestic demand against external products. Several studies show that during 1950s industry per cent of total output was 21.5; in the 1960s the per cent grow up to 24 and, finally, in the 1970s it reached a 29.4%.
During 1960s and 1970s macroeconomicpolicies seemed to be enough. There was a lot of investment and minimum external borrowing. There was the reason the government increased it spending, and begun to produce a fiscal mismanagement.
So in the middle 1970s the good performance of México economy ended and that happen for two mainly reasons. First, as pointed on the last paragraph, the enormous government spending was accompanied byminimum government revenues. This means that the government was spending too much, but it was recollecting very little.
Second reason was the decisions and actions followed by the president in turn, Luis Echeverria, provoked a negative reaction in the business community and, in consequence, the loss of confidence from the investors to the Mexican economy.
As solution, Echeverria increased theintervention of the state in the macroeconomic variables such as foreign change and oil prices. But also, the president increases the public force in order to “relieve” social disturbing. The most infame of all was that of October second in Tlaltelolco, were hundreds of students were killed or disappear.
Echeverria actions lead the country into a lot of spending. Thus this period saw a largeinvestment in infrastructure, health and education; but also México experimented the rising of the fiscal deficit and the external debt. Just in the years of 1971 through 1975 the balance of payments jumped from $.9 US billions to $4.4 US billions.
Followed, for the first time in 22 years, the peso was allowed to float in the stock market. A 40% devaluation on the peso followed. But there was hope forthe Mexican, as this happen, PEMEX was making the announcement of new oil reserves. Government first action was tried to equilibrate economy with the income produced by the oil sale.
Echeverria term ended with the country in it most critical situation ever. On December first, 1976, José López Portillo took the presidential office, beginning an era where México was able to growth at unprecedentlyrates.
First action of the new president was making a statement where he confirmed the discovery of massive oil reserves and decided to use the reserves to foster Mexico´s growth. In words of the president: “We must administer the abundance”. Such idea lead to high expectations of future revenues fomented a rising in the fiscal deficit.
The problem was that either Mexican or internationalforecast could not predict the reality. A price of oil was expected to remain high and what happens was exactly the inverse. According to the author, if oil price had followed the pattern that forecast pointed, México would never had experience the crisis of 1982.
López Portillo office decision was to keep spending. That results in the growth of the fiscal deficit. The government, again, was spending...