ABSTRACT
Financial policy has important implications for the autonomy of the state. The cyclical economic crises observed in Mexico from 1976 to 1994 illustrate the importance of the financial policy for the country's economic performance. The institutional framework in the economy produced badly specified and weakly enforced property rights leading to an environment of high uncertainty and poor economic performance. However, President Porfirio Diaz suppressed political conflicts towards the end of the century and introduced economic institutions that promoted rapid growth. Every time the government used financial policy with expansionist purposes a conflict developed between the Ministry of Finance and Banco de Mexico (BdeM). Nacional Financiera, established in 1934, was the most important development bank in terms of assets and connections with domestic banks and multilateral financial organisations. At the moment when the process of banking deregulation was initiated, the most important feature of the Mexican financial system was the existence of two separate circuits.
