"Will Mexico Make It?" Business Week, October 1, 1984, pp. 74-88.
…on the surface Mexico appears to have made remarkable
progress since its near-default on its $80 billion foreign debt brought the
international financial community to the brink of disaster. Turning the screws
on just about everybody, President Miguel de la Madrid has reined in inflation,
slashed imports and public spending, and boosted exports. Under a grinding
austerity program real wages have dropped 30% in two years. Mexico did it all
without triggering a social explosion or ever threatening to default.
Additionally, the US has a vested interest in this recovery that Mexico is now (1984) experiencing. Because US companies own $26 billion of the debt there is considerable interest in progress. The problem is that the only real vehicle for that progress, foreign investment, is lagging. Capital flight could prove to be the Achilles’ heal of the recovery.
Analysts still doubt if a Mexico felt to the free market will survive. The austerity programs were instituted when there was significant growth in the economy. Now that the economy is weaker, many wonder if they can be continued. Some advocate the use of the government to stabilize and grow the economy. But that might lead to the inflation and policies that launched this crisis.
The real concern is not as much with Mexico; it is with the
other Latin American countries that do not have Mexico’s strenghths. In particular, Brazil and Argentina look
like they will not be able to implement the austerity that Mexico was able
to. In the end, “The lessons gained in Mexico may in the end turn out not to be lessons at
all.”
~M
att
C uller