History of Mexico

Carlos Salinas de Gortari: Economic Liberalization, Political Indecision

The Passing of the Torch, 1987-88

The year 1987 in Mexico was the last full year of de la Madrid's presidential term. In both economic and political terms, de la Madrid's last months in office proved tumultuous. Economically, the administration's failure to restore sustainable growth rates produced a new flare-up. On November 18, 1987, the government recognized the overvalue of the peso and announced that the national currency would be allowed to float on the free exchange market. The free float produced an overnight devaluation of 18 percent; devaluation in turn reignited inflation, which jumped to 144 percent on an annual basis. To avoid an economic disaster, de la Madrid mandated the Economic Solidarity Pact among government, business, and labor to control both prices and wages. Although the government had always exercised immense influence over the economy, wage and price controls of this scope were unheard of. Their implementation by a president who had made sincere but ineffective efforts to liberalize the economy demonstrated both de la Madrid's frustration and his determination to avoid personal blame for the intractable crisis.

The man who inherited this unenviable legacy was a forty-year-old economist with wide experience in the Mexican bureaucracy. Carlos Salinas de Gortari was de la Madrid's minister of budget and planning when the president decided that Salinas was best qualified to assume the helm of state. The selection of Salinas appeared calculated to signal the continuation of de la Madrid's austere economic policies, which were largely shaped by Salinas. A Harvard-educated Ph.D., Salinas was a técnico , a competent technocrat with little or no grassroots political experience. Technically, he was highly qualified to deal with the nation's problems. Politically, however, he had to define himself on the campaign trail.

Although throughout his administration de la Madrid had publicly vowed to promote political reform, this promise was not realized. De la Madrid's failure to open up the political system to genuine competition dashed the expectations of Mexicans both within and outside the ruling party. As a result some disaffected PRI members chose to establish the Democratic Current (Corriente Democrático--CD) within the party in October 1986.

The CD leaders were Porfirio Muñoz Ledo, a former chairman of the PRI, and Cuauhtémoc Cárdenas, former governor of Michoacán state and son of president Cárdenas. The primary issue binding the faction members together was the exclusionary nature of party-nominating procedures. They particularly condemned the practice of the dedazo , whereby the sitting president chooses his successor, who is then declared the party's candidate by acclamation. In addition, CD members and their sympathizers also objected to de la Madrid's austere economic policies on nationalistic grounds. The president, they believed, had mortgaged the national patrimony to foreigners. Such policies, these dissidents claimed, resulted from the noncompetitive nomination of técnico presidents who had no feeling for the plight of the average Mexican.

The CD did not find a receptive audience for its message within the PRI. At the party's national assembly in March 1987, party president Jorge de la Vega condemned the CD, recommending that those who could not abide by the party's rules should resign. Months later, the PRI leadership formally "condemned, rejected, and denounced" Muñoz and Cárdenas, rendering them persona non grata within their own party.

Ostracized by his former party members, Cárdenas declared himself an independent candidate for president on July 3, 1987. Backed by a coalition of leftist parties that eventually dubbed itself the National Democratic Front (Frente Democrático Nacional--FDN), Cárdenas advocated a "return to the original principles of the Mexican Revolution." The candidate's familial heritage infused this message with legitimacy and had considerable emotional appeal for the Mexican voter. Nationalistic policy prescriptions, such as repudiation of the foreign debt and the redistribution of oil exports away from the United States, appealed to the poor, whose lives had clearly not improved under de la Madrid's administration. Like most Mexicans, Cárdenas was mestizo. The prospect of rule by someone other than an elite, light-skinned técnico further added to Cárdenas's appeal.

Many in the PRI recognized the threat posed by Cárdenas's candidacy. In response, the party leadership attempted to make it appear that the presidential nominating process had been made more pluralistic. On August 14, 1987, de la Vega announced a list of six candidates for the nomination, including Salinas, but not Cárdenas. The convention formally nominated Salinas on October 4, 1987. Salinas began his campaign having to defend unpopular policies against a popular rival at a time when his party's solidarity and influence were in question. Despite Salinas's pronouncements mandating electoral probity, the July 1988 elections appeared to most observers to be fraudulent. The most serious incidents were the deaths of two key aides to Cárdenas, Xavier Ovando and Román Gil, which were never adequately explained.

Post-election reports by outside observers and voter interviews indicated that much of the rural vote experienced some degree of tampering; the FDN and the PAN had insufficient observers to monitor such elections. After much delay, the election commission declared Salinas the winner on July 13, 1988. The surprise was the total number of votes for the victor--50.36 percent. The low total, which itself spoke of manipulation, demonstrated the people's disaffection with the PRI.

President Salinas

The 1988 election did not end Salinas's struggle to succeed his mentor, de la Madrid. Cárdenas rejected the Electoral Commission's results, which showed him with 31.1 percent of the national vote. On July 17, 1988, Cárdenas addressed a rally of some 200,000 in Mexico City, in an effort to force a recount. Eventually, along with the PAN candidate Manuel Clouthier, the two opposition candidates united to demand that the elections be nullified and an interim president appointed.

On August 15, 1988, the National Congress, sitting as the electoral college, met to ratify the presidential vote. Cárdenas filed criminal charges against Minister of Interior Manuel Bartlett Díaz, who also served as head of the Federal Electoral Commission. Despite an August 15 rally by the FDN and the PAN, nationwide protests never materialized; the electoral college ratified Salinas's victory as expected.

Meanwhile, during his final months in office, de la Madrid sought to maintain the economy on an even keel for his successor. On August 15, 1988, the government extended the wage and price freeze through November 30, the end of de la Madrid's term. The freeze had done what had been expected--it had reduced inflation from 15.5 percent in January to 1 percent in August. To ease the burden somewhat on the poor, the administration also eliminated a 6 percent value-added tax on basic foodstuffs and medicine and decreed a 30 percent tax cut for low-income workers. The exchange rate of the peso to the dollar remained fixed at the 2,270-to-1 level established in December 1987.

On October 17, 1988, the United States government announced a US$3.5 billion loan to Mexico to help ease the revenue shortfall resulting from the continued drop in oil prices. The loan was considered a bridge loan to tide Mexico over until it could reach agreement with the IMF and the World Bank. Many observers considered the United States action to have been prompted more by political concerns than economic ones. From 1982 to 1988, real income in Mexico had fallen by 40 percent; inflation had reached almost 160 percent annually, privatization efforts had eliminated thousands of jobs that had not yet been replaced by the private sector, and the economy had contracted more than it had grown. In late April 1988, candidate Salinas visited the United States to sound out both United States presidential candidates George H.W. Bush and Michael Dukakis and to visit with members of the United States Congress, interest groups, the press, academics, and influential Mexican-Americans. Even before his election, it was clear that Salinas set great store on productive relations with Mexico's northern neighbor. The October loan may have been one result of his efforts.

Salinas took office on December 1, 1988. In preinaugural interviews, he promised the "political, economic, and cultural modernization" of Mexico and an improvement in Mexico's standing abroad. During the inaugural ceremony, Cárdenas's supporters walked out in protest; PAN members protested silently throughout. In his speech, Salinas stressed the importance of a sound economy to the nation's future. The debt, he claimed, was the primary problem in this regard. He urged further renegotiation, "no longer to pay, but to return to growth." Salinas, however, had no intention of reneging on any portion of the debt. The new president also promised further political reform.

Salinas made the economy his first priority. On December 12, 1988, he ended the wage, price, and exchange-rate freeze instituted under de la Madrid. In its place, the new president advocated price restraint, a modest wage increase, and a scheduled devaluation averaging one peso per day against the dollar. Salinas endorsed de la Madrid's efforts for Mexico's entry into the General Agreement on Tariffs and Trade (GATT), although imports had risen and foreign reserves had dwindled since membership had first been proposed. Salinas privately held that Mexico must open and integrate itself more extensively into the world economy in order to progress and meet the employment needs of a burgeoning young population. Over the short term, however, he admitted that 1989 would be a "year of transition," with little overall economic growth.

Initially, Salinas hoped to diversify Mexico's markets by expanding trade with the industrialized nations of Europe and perhaps with Japan. A state tour of Europe and other contacts, however, convinced him that this hope was illusory. Geography, history, infrastructure, investment, financial ties, and other factors made the United States the arbiter of Mexican economic progress, whether President Salinas liked it or not. Accordingly, Salinas began to develop a notion that he had first proposed to United States president-elect Bush in late November 1988. The Mexican president-elect suggested the establishment of free trade between the two nations, as a natural extension of bilateral agreements already negotiated in such areas as steel, textiles, and automobiles. Bush had promised to take the suggestion under advisement.

In several ways, Salinas followed the pattern established by his predecessor. He wasted little time in moving against potential political enemies in his own moral renewal campaign. Where de la Madrid had moved quietly, however, Salinas acted more dramatically. The corrupt leader of the oil workers union, Joaquín Hernández Galicia (also known as La Quina), surrendered after a gunfight with federal police at union headquarters. Subsequently, authorities took into custody broker Eduardo Leorreta, a PRI member and former fundraiser for the party, on charges of tax fraud.

With his political flanks covered, and having included both técnicos and oldtime PRI members (disparagingly nicknamed "dinosaurs") among his cabinet, Salinas felt secure enough to begin his program of economic liberalization and reform. In May 1989, he ended previous restrictions on foreign ownership of business in Mexico and opened to foreign investment some previously restricted areas. The president also promised to simplify the bureaucratic process that often had deterred investors in the past. The new administration also continued the process of privatization begun under de la Madrid. The major casualty of this process was Altos Hornos de México, a state-owned steel mill in Monclova, where 1,740 workers lost their jobs under a foreign-financed modernization program begun in June 1989. The previous administration had closed outright the Fundidora Monterrey, another steel mill, in 1986, putting almost 13,000 out of work.

In laying the groundwork for economic liberalization, the government announced in July 1989 that it had reached another accord with its foreign creditors after four months of negotiations. Under the so-called Brady Plan, an approach advocated by United States Secretary of the Treasury Nicholas F. Brady to reduce Mexico's debt principal, the IMF agreed to provide US$3.5 billion over three years, US$1 billion of which was designed to assure Mexico's bank payments. In addition, the World Bank was to provide US$6 billion over three years for economic development and guarantees. The government of Japan also provided US$2.05 billion in debt reduction loans. Foreign creditor banks received three options: to make new loans to Mexico, to reduce the principal by writing off some percentage of their loans, or to cut the interest rates they charged on Mexican loans. The net effect of the terms was to reduce Mexico's foreign debt payments by US$8 billion per year.

The debt agreement behind him, Salinas began to make good on his promise of political reform. In the balloting of July 1989, the PRI conceded the governorship of Baja California Norte to the candidate of the PAN. This was a historic event, the first time that the PRI had admitted the loss of a state election. At the same time, however, the PRI took a firm stand in Cárdenas's home state of Michoacán, where the ruling party claimed to have won eleven of eighteen seats in the state legislature. Cárdenas's party, now known as the Democratic Revolutionary Party (Partido Revolucionario Democrático--PRD), protested that its candidates had taken fifteen of the eighteen seats. The PRI, they claimed, had stuffed ballot boxes.

Allegations of voting fraud aside, the United States government, led by President Bush, was very supportive of Salinas and his efforts, particularly in the economic arena. Salinas's original suggestion of a free-trade agreement received serious consideration in Washington. Eventually, after the debt reduction agreement and liberalization efforts in such areas as foreign investment and privatization, United States officials felt that a free-trade accord was a logical next step in opening the Mexican economy and incorporating it into a North American trading bloc. Accordingly, on June 11, 1990, the two governments agreed in principle to negotiate a "comprehensive free-trade agreement" that would eliminate not only tariff barriers, but also "import quotas, licenses, and technical barriers" to the free flow of goods, services, and capital between the two nations. As negotiations progressed, the treaty would become known as the North American Free Trade Agreement (NAFTA). The agreement fit logically into Salinas's vision of a modernizing Mexico, at least in an economic sense. In 1992 NAFTA was approved by the legislatures of Mexico, the United States, and Canada to take effect on January 1, 1994.

With the president's support, congress passed modest political reforms during the last half of Salinas's term. In 1992 constitutional restrictions on the Roman Catholic Church were repealed. The following year, congress passed a package of electoral reforms, including limits on campaign financing, expansion of the Senate to allow a third minority-party senator from each state, and increased proportional representation in the Chamber of Deputies.

As in previous sexenios , the last year of the Salinas administration was a time of crisis. On January 1, 1994, the Zapatista Army of National Liberation (Ejército Zapatista de Liberación Nacional--EZLN), a heretofore unknown group, suddenly overran several towns in Chiapas. The overwhelming military response forced the rebels into the mountains, but the rebels' demands for reform reminded the country that recent economic improvements had failed to reach many in the lower classes or in the impoverished south.

Political uncertainty increased during 1994. In March Luis Donaldo Colosio Murrieta, the PRI presidential candidate, was assassinated while campaigning in Tijuana. Several investigations failed to produce a motive or the existence of a conspiracy. Rumors circulated, however, that the assassination was drug-related or the action of old-line PRI members opposed to political reform. Anxious to divorce itself from a reputation of fraud, the PRI quickly nominated reform-minded Ernesto Zedillo Ponce de León as its presidential candidate. Zedillo had been Salinas's secretary of budget and secretary of education and was widely perceived as someone who would continue Salinas's policies.

With all eyes focused on the presidential campaign and the uprising in Chiapas, few noticed the worsening economy in 1994. A rising deficit in the current account made the economy increasingly vulnerable to shifts in external capital flow. Although statistics showed a healthy rise in exports, most of the exports were goods from the border-zone maquiladora industries, with little overall benefit to the Mexican economy or Mexican workers. In addition, rising interest rates in the United States diverted much-needed capital from the developing world. The government was reluctant to take stringent economic measures in an election year, however, and instead issued short-term, dollar-denominated bonds to finance government spending.

The election results of August 21, 1994, contained no surprises. The PRI candidate, Zedillo, won the presidency with 49 percent of the vote. The PAN took 26 percent of the total, the major candidate on the left garnered 16 percent, and six minor parties accounted for the rest. Despite some irregularities, international observers declared that the election was generally honest, and Zedillo was inaugurated on December 1, 1994.

With the election over, attention turned to the economy. Most economists felt that the currency was overvalued, and a devaluation was widely anticipated. When a devaluation was announced on December 20, however, the result was unexpected. Investors panicked, and large amounts of capital were pulled out of Mexico or converted to dollars. Government measures to stem the exodus of funds only exacerbated the problem. Government debt rose sharply, and inflation and interest rates soared. Only large-scale international intervention stopped the downward spiral.

President Salinas had hoped that his free-market economic policies and political reforms would bring sustained economic growth and increased democratization. The realities of the last years of the twentieth century differed, however. The Mexican economy suffered one of its worst downturns since the Great Depression of the 1930s. The PRI's lessening grip on power led not to stability but to an era of increased political and social turmoil. As so often in Mexico's past, in the late 1990s democracy and prosperity remained only tantalizing goals.

Mexico History Contents

SOURCE: Area Handbook of the US Library of Congress