Question

Why did military dictatorships embrace radical market reforms in the 1970s? Discuss with explaining US - Mexico relationship, relating it to the question.

Answer 1

During the period of 1970-1975, the anti-business stance of leftist President Luis Echeverría's government detered foreign investment, but the discovery of oil reserves in Mexico enabled the government to go on a borrowing spree and further increase public spending. This sudden infusion of revenue briefly masked the warning signs of the financial and economic crisis to come.

By the 1970s, third World economies began to stagnate. The situation was exacerbated when oil-producing nations, acting through the Organization of Petroleum Exporting Countries (OPEC) raised oil prices substantially, beginning in 1973 and again in 1979. Although higher oil prices inconvenienced wealthy industrial economies, they crippled many developing nations. Thus, by the mid-to late 1970s, many developing countries saw economic growth rates plummet and the costs of imported energy soar.

Since the developing countries did not have appropriate growth, they were not able to return their loans, which caused the Debt Crisis. The IMF blamed the misguided economic policies of developing nations for poor growth. That is one side of the story. The opponents of the IMF blame the lack of development on the global capitalist system as the primary obstacle to genuine development. A great many economist blame the crisis on the increase in oil prices in 1970s that hit everybody, but poorer nations got even more affected. The oil prices went up in 1973 due to the political and military reason. That was the time of the Yom Kippur war, between Israel and its Arab neighbors. The Suez Canal was closed due to fighting. The tankers with oil could not pass through, which created the shortage of oil and its higher costs of transportation around Africa. The Arab countries also wanted to exert economic pressure on the U.S. and other Western powers that supported Israel in the war. They stopped exporting oil to them. The crisis hit the West hard and they stopped sending weapons to Israel. However, high oil prices hit the poor countries much more so.

The most significant of the early crises involved Mexico. Throughout the 1970s, Mexico’s debt burden grew faster than its economy as a whole. By the early 1980s, it was clear that Mexico would be unable to pay back its loans on schedule. Fearing the consequences of a Mexican default, especially for major international banks, the IMF loaned Mexico money to makes it payments. The money did not come without strings, however. The IMF insisted that Mexico enact economic reforms. The IMF claimed the reforms were necessary to promote economic growth needed for Mexico to repay its loans. This set the precedent for subsequent IMF bailouts throughout Latin America, Africa, and Asia over the next two decades. This is why military dictatorships embraced radical market reforms.