Economic Hardship

Economic Hardship

While the Mexican government, with assistance from the United States, struggled to improve its status in the world financial community, conditions at home remained unsettled. After the GNP contracted by 5 percent in 1983, Mexican optimism surged briefly in 1984, when the economy posted a 3.5 percent growth rate. The next year hope faded as the economy contracted by 1 percent.

A major natural disaster in 1985 further depressed the economic situation. In mid-September, central Mexico experienced two major earthquakes. Between 5,000 and 10,000 people died as a result, and some 300,000 lost their homes. The cost of relief and reconstruction placed a heavy burden on an already struggling nation. The de la Madrid administration successfully cited the earthquakes as negotiating points in its efforts to obtain better terms from its creditors.

In the political arena, initial optimism also gave way to disillusionment. The liberalization that appeared to have begun in 1983 ended by 1984. The ruling PRI easily swept municipal elections in the northern cities of Mexicali and Tijuana, in Coahuila and Sinaloa states, and in the city of Puebla. Despite public protests alleging widespread fraud, the results stood. The PRI easily maintained its majority in congress, but some party leaders were concerned that of the combined vote in five large cities--Mexico City, Guadalajara, Nezahualcóyotl, Monterrey, and Ciudad Juárez--the PRI polled less than 45 percent. The vote in the northern cities could be seen to reflect the traditional regional schism, but the poor showing in the capital area and Guadalajara signaled a growing alienation from the PRI, particularly among the middle class.

Moreover, the persistent fall in oil prices and continuing high levels of foreign debt service forced a new round of austerity measures. De la Madrid effected an additional US$465 million in federal budget cuts by reducing subsidies and government investments, selling more than 200 state-owned parastatals, and placing a partial freeze on federal hiring. As the president announced these new belt-tightening measures, he could also point to some significant achievements. Inflation, which had exceeded 100 percent in 1982, had declined to 60 percent annually. The public-sector deficit had also decreased from 13.6 percent of gross domestic product (GDP--see Glossary) to 6.9 percent. Although these figures fell short of the goals prescribed by the IMF, they represented progress.

De la Madrid did not exaggerate the importance of these positive economic indicators. In his 1986 State of the Nation address, he declared that "our austerity effort is permanent" and vowed again not to deviate from his economic course. Just months before, his administration had reached a precedent-setting agreement with the IMF in which the amount of new loans to Mexico would be tied to fluctuations in the world price of crude oil. But the crisis was far from over.


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