The accelerated economic growth model was the economic model that was carried out in Mexico during the 1976-1982 administration of President José López Portillo, in which its main characteristics were economic growth and capital accumulation.
Upon coming to power in 1976, López Portillo received a country in a rather difficult economic situation. Due to the failures of the previous government, the annoyance of the population made confidence in this government less and less, with a decrease in GDP and inflation.
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However, the government was able to regain the confidence of the people and businessmen, through the discovery of formidable oil reserves.
This positioned Mexico as the fifth nation in the world with the largest amount of hydrocarbon reserves. With the exploitation of these oil fields and the subsequent development of the industry, the economy was reactivated and made the country's GDP grow.
In addition, the intention was to reduce unemployment, lower inflation and improve a series of basic services: health, water, food, housing and electricity. All this from the income from oil.
characteristics
The objective of this model was to provide a minimum of satisfaction to workers, but without disturbing the financial interests of the companies.
Due to the conflicts created during the previous government of President Luis Echeverría between businessmen and the government, one of López Portillo's objectives was to carry out conciliatory acts with the productive sectors.
One of the most important economic-financial events during this six-year period was the discovery of oil fields in the country. The sale of oil made it possible to postpone the increase in public sector tariffs, keeping the value of the Mexican peso almost unchanged from 1977 to 1980, which was 22.70 and 22.90 pesos per dollar.
The economy began to improve, but it was based only on oil, ignoring other sectors such as agriculture, which showed no progress.
The government plan was moving away from its initial objectives, transforming into an accelerated growth focused on industrializing the "inexhaustible" wealth of oil.
Background
In November 1973, the Organization of the Petroleum Exporting Countries (OPEC) reacted by drastically increasing oil prices due to the overheating of the world economy at that time. This rise in prices had devastating effects on the world economy and a serious recession occurred from the second half of 1974.
Faced with pressure and business resistance, Echeverría found that the only way out was public external debt. As a result, the public debt increased considerably, inflation rioted and the currency devalued, losing its value by 58%.
All of this favored the weakening of Echeverría's stabilizing development model and the transition towards the accelerated growth model, which was identified under the López Portillo presidency.
Economic growth
In 1976, the government requested help from the International Monetary Fund (IMF) to face the economic emergency. The public sector deficit relative to GDP was at 10%, but fell to 7% in 1980.
The union of all sectors was considered necessary to overcome the crisis and regain economic development: businessmen, workers and the government.
As the situation improved, the government and industrialists made more profits. Faced with such abundance, the government decided to use these resources in private and public investments, instead of paying the foreign debt. Public spending was increased to improve:
- Public health, expanding medical services.
- Drinking water, public lighting and drainage.
- Public education, doubling the number of students.
Economic growth was too fast but incorrect, because the government's decisions were based on the fact that the economy would not fall into crisis again and would continue to rise because the national oil was infinite.
Model crash
The apparent progress collapsed with the unforeseen decline in the international price of oil, due to an oversupply from producing countries and energy savings from consuming nations.
This price crash at the end of 1981 had a rather serious negative effect on public finances, because it was wrongly assumed that the price would remain high.
The Mexican government insisted on the "gigantism" of the governmental apparatus, as well as the excessive pace of spending, building bombastic works that would end up abandoned.
This economic scenario led to a 400% depreciation of the Mexican currency against the dollar, presenting an unprecedented inflationary process. Prices increased six times compared to the beginning of the six-year term. Finally, the government announced that it was unable to meet scheduled debt payments.
The government ended up being objected to by all sectors of Mexican society, calling it corrupt and inefficient.
Advantage
The government organized a public investment program aimed at expanding the oil industry. There was also an expansion in the provision of education and public health services and in public infrastructure.
Private and public investment grew between 1978 and 1982 at an annual rate of 15% in real terms. For the first time in the history of Mexico, the demand for primary education was fully satisfied.
The segment of the population that had access to medical services reached 85%, compared to only 60% in 1976. The government applied the value added tax and created important policy instruments. In addition, different organisms were created such as:
- National Council for Culture and Recreation among Workers.
- Institute of the National Fund for the Consumption of Workers.
- Mexican food system.
He also created the federation treasury certificates, which would become the most important national government bonds.
Disadvantages
- There was an increase in foreign debt and devaluation of the Mexican currency.
- The financial deficit of the public sector in relation to GDP rose from 6.7% in 1977 to 14.8% in 1981.
- The industrial policy of the Mexican government failed to promote an entrepreneurial class that would compensate for the import of capital goods.
- The companies were dedicated to manufacturing products for immediate consumption subsidized by the State, with a high price and of poor quality, without addressing essential issues such as technological and scientific improvement.
- The fall in oil revenues led to a deficit in 1981 of 14.7% and in 1982 of 17.6%. On the other hand, the external public debt rushed from $ 4.3 billion in 1970 to $ 58.9 billion in 1982.
- Exchange control and nationalization of banks, given the tremendous flight of capital that was estimated at 22 billion US dollars.
- The stagnation and crises from 1982 to 1995 were a consequence of both the deterioration of the institutions, as well as the fiscal imbalances that occurred from 1971 to 1981.
References
- Development Models in Mexico (2015). Models of economic development (1940-1982). Taken from: models of development in Mexico.blogspot.com.
- Socioeconomic Context of Mexico (2012). From the shared development model to the accelerated growth model. Taken from: context-socioeconomico-de-mexico.blogspot.com.
- Wikipedia (2019). José López Portillo. Taken from: es.wikipedia.org.
- The Economic Quarter (2013). Rapid growth followed by stagnation: Mexico (1950-2010). Taken from: eltrimestreeconomico.com.mx.
- Manuel Aguirre Botello (2010). The Economic Crises in Mexico, 1929-2012. Mexico Maxico. Taken from: mexicomaxico.org.