Financialization in Mexico - Dr. Gregorio Vidal

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264 JOURNAL OF POST KEYNESIAN ECONOMICS Eurodollar market would soon be hit with a crisis as syndicated loans, largely from recycled petrodollars, were defaulted on by many developing nations. While this first crisis of modern global financialization certainly had affected the developed world, such as the bankruptcy of Continental Illinois National Bank in the United States, its effects in the developing world were far more profound. Since the 1970s, much has been written on the process of the external indebtedness of developing countries, particularly in the moments after the so-called debt crisis that first unraveled in Mexico in 1982 (Girón, 1994; Martínez Hernández, 1986). Yet the significance of these developments cannot be understood under the logic of a simple problem of external balances. The expansion of syndicated credit to several of the largest developing economies implied a substantial modification in the process of capital accumulation in debtor economies in at least two ways: local interest rates were exchanged for international ones (Libor, prime rate) and the exchange rate was brought under the umbrella of profit expectations and investment. Other factors introduced into the domestic dynamics were the international credit cycle and the interests of internationally expansive banking conglomerates, especially American. In Mexico, the expansion of syndicated credit created a high level of liabilities both for the government and state-controlled enterprises and banks, as well as large private-sector banks and companies (Labra, 1997). In 1978, 100 percent of all new debt commitments were channeled toward the servicing of foreign debt. The subsequent debt crisis drove all of Mexico, including public and private companies, into a clear Ponzi position and local banks into insolvency. The capital losses and the fall in profitability over many years meant an important contraction in profitability for economic groups that was gradually offset by the lowering of salaries and increases in productivity (Alvarez, 1997). In addition, the government mitigated many losses to private interests; the Ficorca program restructured the external debt of local private sector firms and transferred foreign exchange risk to the government. In order to alleviate losses created by the nationalization of the banking sector in 1982, the government issued high-yielding public bonds, offering new sources of profit for the country’s most important financial actors. After the peso’s devaluation in 1976, and after almost twenty years of fixed exchange rates, the central bank authorized deposit taking and loan issuance in dollars in the domestic market, imposing a 70 percent interest-earning deposit requirement. As such, local banks recovered part of their lost market share as a result of advances by foreign banks in the local market while assuming a relatively small part of the exchange rate
FINANCIALIzATION IN MEXICO: TRAJECTORY AND LIMITS 265 Figure 1 Real minimum wages (daily) in Mexico Pesos 140 120 100 80 60 40 20 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1983 1982 1981 1980 Source: Authors’ calculations based on Banco de México’s (2010a) statistics on employment and consumer price inflation. risk. With the crisis, the cost of the process termed “pesification” was passed on to the public. The posterior dollarization and the existence of a double monetary circuit had significant repercussions over the generation of profits and salary levels during the following three decades (Parguez, 2010). In developing economies, this double monetary circuit represents part of the process of the financialization of accumulation, as the denomination of profits in dollars is fundamental for their transfer and centralization. Beginning in the second half of the 1970s, real salaries began a trajectory of constant deterioration (Figure 1). The 1982 debt crisis and the subsequent economic stagnation led to massive layoffs. Renewed but limited growth toward the end of the 1980s was insufficient to offset unemployment generated in the debt crisis, much less to absorb the growth of the labor force, as the demographic curve had only begun its decline. The creation of this immense reserve of unemployed workers has had widespread repercussions even on the contraction of real salaries in the United States in subsequent years. The distributive pressure that inflation—and even hyperinflation for several months—exerted during the 1980s obviously did not arise from salary increases, but precisely from a massive transfer of profits from the Mexican economy (banks, government budgets, and public and private
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Financialization in Mexico - Dr. Gregorio Vidal

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