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.Among other things, the number of university students increased by 290 percent between 1970 and 1976.The stimulus was paid for with oil income, which was rising as international petroleum prices spiraled upward.But Echeverría needed more revenue.He needed to collect more taxes from the rich but could not because too many were hiding their wealth abroad.So, the government increased borrowing on foreign markets.53 Under Echeverría, foreign debt shot from $3.2 billion to $16 billion.With the stimulus came inflation.In August 1976, Echeverría’s debt bubble burst, and the peso was devalued 45 percent.Mexico had been a low-inflation country, but in the early 1970s, prices began to rise from an annual average increase of 3.6 percent between 1965 and 1970, to 30.5 percent between 1977 and 1982.By the mid-1980s inflation averaged 90 percent.The next president, José Lopez Portillo, continued the balancing act: he repressed the radical Left but allowed the Communist Party to run in elections.He spent lavishly on development projects and invested in neglected sectors like agriculture, housing, health, and education.Again, oil prices were surging.Between 1979 and 1980, Mexican oil income grew by almost two-thirds.54 Yet, the government still had to borrow to pay its bills.The economy was growing by 8 percent per year, many companies were operating at full capacity, and Mexico’s small stock market was booming.From the early 1960s through the 1970s the number of primary schools doubled, and the illiteracy rate fell to 15 percent; the infant mortality rate fell by half, thanks to a nearly tenfold increase in the number of public doctors.55Logic of LoansIn theory, the strategy of taking loans against future oil incomes was sound.As international oil prices increased, so too did the value of Mexico’s untapped petroleum.Mexican planners sought to avoid the “resource curse” of developing into an unbalanced, petroleum-fixated economy.Mexico’s leading politicians wagered that while credit was cheap and oil income high, they could renovate the nonoil sectors of the economy with petroleum-collateralized debt.Because of the oil boom, credit was cheap: financial markets were awash in liquidity because most petrostates lacked the capacity to invest their windfall earnings internally.These so-called petrodollars were recycled through international financial markets.Diversified and balanced economic growth would allow Mexico to generate tax revenue with which to repay the loans.With this strategy, Mexican technocrats sought to avoid the “mistakes of Venezuela,” which had spent most of the century exporting oil and squandering the income.The trick was to invest the petroleum-collateralized income in production, not just spend the money on imports.56Alas, imports did not decline, and domestic production did not surge.The peso’s value rose, making imports cheap: grain imports doubled between 1979 and 1980; the oil and service sectors drew away talent.Agriculture, the heart of Mexican society, stagnated amidst the boom, as did other nonoil sectors.Poverty remained severe and widespread.By the end of 1980, Mexico owed $33 billion to foreign banks.As crisis loomed, President José Lopez Portillo insisted, “Our economy is not petrolized.” In fact, it was: nearly 75 percent of Mexico’s export earnings came from petroleum.57The Mexican economy was now like a waiter rushing forward with a tray full of dishes: keep moving and you are okay.But, as the bankers say, “It’s not speed that kills; it’s the sudden stop.”CrashThe sudden stop took the form of that disciplinary recession unleashed in 1979 when the US Federal Reserve, under Paul Volcker, jacked up rates.This triggered (but did not cause) the Latin American debt crisis.As the crisis worsened, the International Monetary Fund (IMF) and World Bank stepped in.As chapter 13 on Brazil explains, assistance from the Bretton Woods institutions came with strings attached: emergency loans were given only if austerity was imposed and exports increased.But increased exports meant an oversupply of primary commodities and therefore declining prices
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