Osvaldo Quiroz - The Political Economy of Mexicos Financial Reform

Osvaldo Santn Quiroz
Institute for Banks Savings Protection (Mexico)

First published 2001 by Ashgate Publishing

Reissued 2018 by Routledge
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Copyright Osvaldo Santn Quiroz 2001

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ISBN 13: 978-1-138-70372-8 (hbk)
ISBN 13: 978-1-315-20301-0 (ebk)

Mexico's financial reform illustrates how President Carlos Salinas used 'structural adjustment' policies to engineer new bases of support for the regime and consequently to consolidate his political leadership within the new parameters set by economic globalisation and political democratisation. The main stimulus for Mexico's financial reform came from political imperatives as understood by President Salinas and his economic team. Economic reform, gradual democratisation, and social spending were all policies subordinated to the goals of reasserting presidential authority, government capacity and the PRI's electoral hegemony. Mexico's financial reform was the result of political entrepreneurial initiative la Meier (1991). The charismatic leadership of President Salinas aligned a powerful coalition of support for economic reform.

In each case of reform to the financial system, President Salinas used extensively the organisational and institutional infrastructure of the quasi-authoritarian Mexican state to overcome the legitimacy deficit inherited from the 1988 elections. President Salinas devoted an important part of the state's resources to gain popular support for the regime from the beginning of his term. His government was very well aware of political constraints. Largely for this reason, Salinas sought to boost the purchasing power of the peso, leading to an enormous increase in the current account deficit. President Salinas emphasised the need to provide a positive image of Mexico in foreign countries in order to attract investment and boost the economy.

Mexico's financial reform represents a case where President Salinas redefined the economic role of the state in order to reduce the state's exposure to economic swings and to increase state capacity. According to Jorge Dominguez (1987; 76), while good economic performance helps regimes and incumbents to generate legitimacy, poor performance serves to undermine legitimacy. Salinas sought to avoid potential conflict and to make new alliances with powerful groups, like financiers and large industrialists, by scaling down the economic activities of the state. His reform also intended to release state resources so they could be re-directed to strategic areas where the state could exercise more effective control upon society and the economy.

The political discourse during this period stressed the importance of improving state capacity to satisfy the needs of the poor. In his inaugural speech, President Salinas outlined this vision:

...the crisis has shown us that a larger state is not necessarily a more capable state; a state that owns more is not necessarily a state that is more just. The truth is, in Mexico, more state has meant less capacity to respond to the social needs of our fellow countrymen and, in the end, greater weakness of the state itself. All the time the activity of the public sector was increasing, attention to the problems of the highest social priority was decreasing (quoted by Golob 1997: 132).

According to Anne Krueger's (1974) 'pluralist' hypothesis, public policy is the result of competition between interest groups. In other words, organised interest groups push the government to introduce reforms. Considering Mexico's financial reform from her perspective, it follows that the coalition of interests that favoured the reform outweighed the coalition that opposed it. However, broader state priorities like regime legitimacy weighted more heavily than support from specific constituencies when the decision to reform the financial system was taken. The interest groups that benefited from the reforms, though powerful, did not have the capacity to subordinate the government's political agenda to their own private interests. In this case, the relevant groupsinternational and domestic capitaldisplayed considerable influence but the state still preserved the power to set the parameters for economic policy-making. For instance, President De la Madrid's financial policy favoured a new interest group organised around the stock exchange and the brokerage houses. Important policy decisions served the interests of this group like the sale of non-banking concerns after the nationalisation and the emission of government securities. However, these decisions responded in the first place to the financial needs of the state during the 'debt crisis'.