ABSTRACT
This chapter presents the groundwork for analysis by selectively reviewing recent developments in the Mexican economy. It discusses necessary conditions for the Mexican crisis of 1982—excessive public expenditure, naive import liberalization, and touching faith in the stability of a financial system built on Mexdollars. The chapter examines the new style, with commentary about how long it is likely to remain in fashion; doubts are expressed about the durability of the International Monetary Fund model. Some economists such as Garcia-Alba and Serra Puche simply correlated fiscal deficits with many of the bad traits of macroeconomic life—high inflation, slow growth, big trade gaps. In flow terms, money supply grew in pace with nominal gross domestic product until 1980; only in 1981 and 1982 did it grow somewhat more rapidly because of increased credit to the public sector. By contrast, the big increase in Mexican imports provoked intense controversy regarding the trade liberalization program.
