“History is a prophet who looks backwards: in favor of what happened, against what happened, and announcing what will be.”
A few days ago, talking to a dear teacher, we were sharing reflections on the great challenges that Mexico is facing, as well as the huge progress we have achieved.
We focused our conversation on the latter point, and he shared with me an old article that he had recently found in his files, Mexico: Joining The World, published in The Economist in 1988. The text summarized Mexico’s “state of the art” in economic affairs. Today, nearly 30 years after the article’s publication, I think it serves to reflect on the past and the present, to understand where we come from, but above all, where we are headed.
In July 1988, Mexico was struggling to keep its inflation under control, as it reached 180 percent in February that year. The Government of President Miguel de la Madrid had inherited, 6 years earlier, a country with terrible public finances, that had led it to borrow money under terrible conditions, or to print it to artificially increase its economic solvency.
Nonetheless, during President de la Madrid’s term, a series of reforms were made that could stabilize the Mexican economy. First, a fiscal reform that succeeded in reducing corporate taxes from 42 to 35 percent, even as the Government’s tax collection base with the same taxes was increased. Trade barriers were also lifted, particularly on the import of goods and the number of licenses required to import. In addition, Mexico entered GATT, which led to a significant reduction in entry barriers to imported goods. In those years, non-oil exports were growing at impressively high rates (25 percent in 1987), and the trade balance was becoming favorable.
The year 1988 was not only a significant change for Mexico regarding economic affairs, but also political matters. Carlos Salinas de Gortari was elected under the shadow of a fraud. He was the first President to come from a divided party and a polemic election, that cast the Mexican electoral system into crisis. Nonetheless, during his term, ver profound reforms for Mexico were carried out.
Why is this article from The Economist so important at this time? Because hundreds of nodal points within this story are repeated, although in a different order and in a different way. First, economic stability has become (despite the deterioration in the last few years) a great strength for Mexico, and not the opposite. The last time that inflation reached two digits was March 2000. Moreover, international reserves to cover our next foreign debt, not considering our credit lines, are equivalent to the payment plus 40% more of it, whereas in 1988 they represented 6.4 percent.
Second, just as in President Salinas’ term, during President Enrique Peña Nieto’s term important structural reforms have been approved, aiming to get Mexico out of the economic impasse where it is currently. These seem to be some of the few achievements of the current Administration and they should yield results for the Mexican economy in the coming years, not necessarily in the short term.
Third, because the political regime in Mexico has entered a new crisis whose solution could partly depend on a deep change in 2018. I speak of a crisis of legitimacy and trust derived from the very high and embarrassing levels of corruption, impunity, and violence.
As in 1988, the regime has been unable to give a specific answer to the demand for a fairer political system for all, which has caused great discontent. Given this development, it is important to keep in mind that this can result in false exits that will supposedly respond to the crisis, but that would instead only undermine democracy.
Next year, it will be 30 years since 1988, and even now we can see how much and how little we have progressed. These have been good years for economic stability and, recently, for the reforms that, in a few years, must increase our dynamism and competitiveness against the rest of the world. However, these have also been years when the political system has remained estranged from the people and been unable to strengthen and consolidate a genuine Rule of Law.
Text translated by the Instituto VIF from the original published by Reforma.