The Alliance for Production Model was one of the strategies used by Mexican President José López Portillo as a measure in the face of the economic crisis of 1976.
Between 1940 and 1950, Mexico sustained its economy on a conservative model that promoted industrialization. This model directed state credit towards priority investment projects.
Former President José López Portillo
As a consequence, by 1960 the distribution of public income had become uneven; hence, the needs of the poorest were neglected.
Faced with popular discontent, Presidents Echeverría and López Portillo adopted fiscal measures that practically bankrupted the public treasury.
Background
When President López Portillo assumes power, he receives a highly indebted country.
Mexico was mortgaged to foreign investment in its most productive sectors, and was dependent on imports as a means of supplying its population.
In the midst of an alarming inflationary situation, the president received a loan from the International Monetary Fund with which he managed to avoid some difficulties.
At the same time, it launched the Accelerated Growth Program, which was a series of administrative, fiscal, and investment reforms aimed at tackling the economic problem.
The 1976 Alliance Model for Production
It was called as an agreement "Popular, National and Democratic Alliance for Production".
With this, López Portillo called on Mexican businessmen to join forces to reactivate the country's economy.
In the search for a solution to the crisis, the president offered businessmen fiscal and monetary benefits to encourage reinvestment in their companies.
Part of these incentives was the issuance of petrobonos that contemplated very attractive interest rates and subject to the price of crude oil, which was on the rise. It also granted the bank an authorization to receive deposits in dollars.
The purpose of raising new capital depending on the price of oil and foreign loans, was aimed at satisfying the food needs of the population.
In addition, it sought to promote new jobs, reduce imports as a result of the reorientation of production towards basic consumer goods, and improve social services.
Model results
Between 1978 and 1980 the model yielded results that were reflected in the 8% annual increase in the Gross Domestic Product. This attracted the interest of international banks.
This is how the government, relying on the ability to pay provided by its newfound oil wealth, assumed new and considerable credit commitments.
The foreign exchange obtained from the sale of oil made it possible to face the economic lags of the previous regime and reduce the inflation rate.
However, the reforms contemplated in the alliance did not solve the production problems, since the economic axis was always the fluctuating oil income.
The situation worsened when, as a result of international indebtedness, public spending exceeded income by significant numbers. This caused the inflationary indices to shoot up.
Faced with this situation, there was no choice but to increase tax rates for the population.
But with this it was only possible to worsen the crisis and deteriorate the quality of life of Mexicans, who suffered a serious decrease in their purchasing power.
The Model Alliance for Production buried the old regime of Keynesian policies and gave way to the arrival of liberal policies to the nation.
References
- The Model of the Alliance for Production. Retrieved on November 29, 2017 from: modelspoliticosdemexico70.wikia.com
- Macroeconomic Mangement. (sf). Retrieved on November 29, 2017 from: countrystudies.us
- Economic Model: Alliance for Production 1976-1982. Retrieved on November 29, 2017 from:estructurasocioecodemex.com
- Alliance Model for Production. (2012). In:tructurasocioeconomicademexicounivia.wordpress.com
- Weiss, J. (1984). Alliance for Production: Mexico's Incentives for Private Sector Industrial Development.