On September 22, Mexicans learned that Treasury Secretary Lopez Portillo would be their next president. As was the case with Echeverria, the candidate had been born in Mexico City and had received a law degree from the National University. Also like Echeverria, he had never held elective office. Lopez Portillo had practiced law until age forty and then had begun a career in public service.
Lopez Portillo’s presidential campaign was unique in that he faced no opposition. Two of the recognized opposition political parties supported the PRI presidential candidate, as they usually did. The only other registered opposition party, the PAN, became deadlocked and did not present a presidential candidate.
On December 1, 1976, Lopez Portillo took office in the midst of uncertainty, capital flight, inflation, and political and economic crisis. In his inaugural address, the new president announced that Mexico had to unite, heal its wounds, and move on as one. Absent from the speech was Echeverria’s reformist rhetoric. Rather, Lopez Portillo attempted to regain the support of the business community by announcing an “alliance for production” between the public and private sectors. The president of the American Chamber of Commerce in Mexico declared the inaugural address reflected “the kind of philosophy that businessmen can understand.”15
Lopez Portillo drastically cut government spending, thus winning the approval not only of domestic businessmen but also of international financiers. A 1979 article in Fortune declared:
Many financial experts in the U. S. and Mexico are so impressed by the way he has restored
Confidence that they believe Mexico could have come out of the 1976 crisis even without oil,
Though the climb would have been slower and more halting.16
Early in the Lopez Portillo administration, it was becoming increasingly apparent that absolute political control and political legitimacy were incompatible. Several factors, such as the economic crisis under Echeverria, the lack of an opposition presidential candidate in 1976, and the lingering memory of 1968 tarnished the regime’s legitimacy. In response, in 1977, there was an another political reform.17
The number of electoral districts was increased to 300, each of which would be represented by a member of the Chamber of Deputies, elected much as members of the U. S. House of Representatives are elected. One hundred additional seats in the Chamber were allocated to opposition parties, even if they did not win a plurality in any single electoral district. Rather, the one hundred seats were allocated among the opposition parties based on the proportion of the vote they received nationwide.
Since the law was directed at image building, not democracy, it had many flaws that observers were quick to point out. The opposition was only guaranteed one hundred seats in the 400-member Chamber of Deputies, leaving the PRI firmly in control of that body. Elections to select senators and state and municipal officials remained unaffected. The PRI continued to dominate the Federal Election Commission—which organized elections—and to receive overwhelming financial support from the government that was unavailable to other parties. Finally, Congress was not the arena where major political decisions were made.18
By mid-term, Lopez Portillo found himself free of the IMF-mandated belt-tightening that had characterizing his first years in office. Early in his term, it became apparent that Mexico’s oil reserves were among the largest in the world. Rather than waiting for increased oil sales to produce revenue that could finance an expansion of production capacity, Mexico began to borrow abroad. International commercial banks, bulging with Arab petrodollars, were only too glad to finance this accelerated oil development. As billions of dollars were loaned, it appeared that at long last Mexico could have it all—rapid economic growth and general social programs. Lopez Portillo used oil revenue (or money borrowed in anticipation of oil revenue) to build new refineries, pipelines, tanker facilities, and petrochemical plants. The government undertook an ambitious program to stimulate food production and extended superhighways and Mexico City’s subway system. A nuclear power plant, power lines to rural areas, and rural health centers were also built. Airports, tourist facilities, and the steel industry were expanded. As historian Enrique Krauze noted, “Everything was to be modernized by the end of the sexenio [presidential term].” Lopez Portillo’s borrowing to increase oil production capacity and to stimulate economic growth is understandable since so many Mexicans were poor and in need of jobs. Future income seemed unlimited as oil prices increased from $14.30 a barrel in 1979 to $33.60 in 1981.19
Between 1978 and 1981, economic growth averaged 8.4 percent a year. Massive government investment led to rapid economic growth, which induced foreign and domestic corporations to invest. Increased employment, investment, and demand had a ripple effect throughout the economy. The whole nation was caught up in what can only be described as “oil fever.” Lopez Portillo declared that in the future Mexico’s biggest economic problem would be the “management of abundance.” Even normally skeptical essayist and novelist Carlos Fuentes fell victim to oil fever and in 1980 declared oil exports would “give to Mexico, for the first time in its history, something precious— international financial independence.”20
In 1980, with the political reform accomplished and an oil-induced economic boom under way, pundits were proclaiming Lopez Portillo’s presidency to be the most successful in decades. Then, almost overnight, that illusion vanished.
Beginning in mid-1981, world oil prices plummeted due to a combination of energy conservation in the developed world, OPEC members cheating on production quotas, and a worldwide recession. As a result of the recession, prices for Mexico’s other major exports, such as silver, cotton, lead, coffee, and shrimp, also fell. In response to the fall in commodity prices, foreign lending ceased. Unfortunately for Mexico, just as world commodity prices were plummeting, the United States raised interest rates to combat inflation at home. This increased the interest Mexico paid on its variable-rate loans, costing it $2 billion in 1982 alone. As individuals and businesses observed the plunge in oil prices and the increase in U. S. interest rates, they began move their money out of Mexico in anticipation of an economic crisis. This produced a self-fulfilling prophecy— private actors sent money out of Mexico, producing a shortage of dollars. To address this shortage, the government borrowed at ever higher interest rates, thus increasing the risk of financial crisis. As the risk of financial crisis rose, more capital left Mexico. In 1981 and 1982, capital flight totaled $20 billion.21
Even though orthodox economic doctrine would have indicated a devaluation of the peso, Lopez Portillo viewed such a move as surrendering to his enemies. In a speech on February 5, 1982, he said he would “defend the peso like a dog.” Thirteen days later the peso was devalued, and its value plunged from twenty-seven to thirty-seven to the dollar. Rather than solving the economic crisis, the devaluation led to increased capital flight because speculators felt that the peso had not been devalued enough and they no longer trusted those formulating financial policy. As the government was running out of dollars, it decreed that deposits in dollar accounts in Mexican banks would only be repaid in pesos at a below-market rate. This thinly veiled confiscation hit the middle class especially hard. (The truly wealthy deposited their dollars in foreign accounts.) A second devaluation in August lowered the value of the peso by another 50 percent. By the end of 1982, the Mexican currency was trading at 157 to the dollar.22
In August, Mexico grabbed headlines around the world when it announced that it could not service its $80 billion foreign debt, the largest among the developing countries. Loans to Mexico by the nine largest U. S. banks equaled 44 percent of their capital. The U. S. government, loath to see its own banks and the Mexican economy go under, stepped in. Paul Volcker, chairman of the U. S. Federal Reserve, cobbled together a rescue package to avoid the damage to the international monetary system that an outright default by a major debtor nation would produce. The complex rescue package involved an immediate $2.5 billion payment by the U. S. government, followed by an additional $1.85 billion from the U. S. Federal Reserve and European central banks. This tided Mexico over until November, when the IMF reached an agreement with Mexico on a $4 billion loan.23
In his September 1982 state of the nation address, Lopez Portillo stunned the nation by announcing the nationalization of Mexico’s private banks. He justified this unprecedented move by declaring:
A group of Mexicans, led, counseled, and supported by the private banks, has taken more money out of the country than all the empires that have exploited us since the beginning of our history ... We have to organize to save our productive structure and provide it with financial resources to move forward. We have to end the unjust, pernicious cycle of capital flight, devaluation, and inflation that especially harms workers, jobs, and the firms which create employment.24
The bank nationalization was a desperate attempt to deflect criticism from the economic crisis, neutralize the restless left, and reassert the PRI’s revolutionary credentials. Architects of the nationalization sought to break the power of financial-industrial conglomerates, increase state control over investment, improve the state’s financial position, and reduce capital flight. While the nationalization failed to meet its intended goals, it did greatly increase the economic role of government, which began to allocate credit and manage the numerous industrial and commercial firms that the banks had owned.25
Lopez Portillo’s 1982 bank nationalization produced a qualitative change in relations between business and government. For the first time since the Revolution, owners of capital abandoned closed-door negotiations with the political elite and sought political power for themselves. Owners of small and medium-sized businesses, especially in the north, felt that the bank nationalization indicated the danger of a presidency whose powers were unchecked by the political system— constrained neither by opposition political parties nor by Congress.26
The Mexican public soon concluded that debt default, bank nationalization, and the devaluation— which led to 98.9 percent inflation in 1982—constituted a prima facie case of government economic incompetence. That year the economy shrank by 0.5 percent, the first such decline since the Great Depression of the 1930s.27
Inflation reduced buying power, the lack of credit halted job creation, and the budget crisis lowered social spending, including subsidies for bread, corn, electricity, and gasoline. The PAN, the Catholic Church, and private media joined the business elite in attacking the bank nationalization. The Lopez Portillo administration was the swan song of the activist post-revolutionary state—a final, gigantic effort that left it exhausted and from which it never recovered.28
While Lopez Portillo bears the blame for economic mismanagement, it should be noted that the private sector, the middle class, Mexican labor, and foreign bankers strongly supported his policies until near the end of his term. Also, when it comes to poor countries dealing with sudden oil wealth success stories are few—consider Iran, Nigeria, and Venezuela.
Further undermining the image of the government during Lopez Portillo’s term was an explosion of corruption, facilitated by billions of poorly audited petrodollars flowing through state coffers. According to some estimates, Lopez Portillo himself accumulated more than $1 billion during his presidency. The lavish five-mansion estate he built on a hill overlooking Mexico City was dubbed “Dog Hill” by enraged citizens who never forgot his pledge to defend the peso “like a dog.”29
World History
