Mexico: The Remaking of an Economy.

• Author: Ramirez, Miguel D.

This relatively short book attempts to analyze and interpret Mexico's difficult process of adjustment during the 1980s and its apparent economic turnabout in the early 1990s. Although the book was finished less than two years ago, many of its key observations and conclusions have been rendered invalid in the wake of Mexico's recent political and economic events. At the time of its writing, Professor Lustig observed that Mexico had discarded the import-substitution industrialization model that had characterized its post-World War II development, and embraced (perhaps too eagerly it now seems) an open economy-laissez faire model prescribed by the IMF and World Bank. By no means alone, Lustig expected that the signing and passage of a North American Free Trade Agreement (NAFTA) would presage Mexico's ascension into the exclusive club of politically stable and economically viable countries of the world. Instead, passage of the NAFTA last fall has unleashed a series of highly destabilizing political events, beginning with the new year's peasant rebellion in the southern state of Chiapas (the rebels timed their attack to coincide with the enactement of NAFTA into law) and culminating with the assassination on March 23 of the ruling Institutional Revolutionary Party's presidential candidate, Luis Donaldo Colosio--the first assassination at such a senior level since 1928.

Moreover, contrary to Professor Lustig's economic prognosis and, I may add, that of many other Mexican specialists, the country's mounting political problems have been further complicated by a grim economic outlook brought on by an unexpected and sharp recession. The country's real gross domestic product per capita last year fell by 1.8 percent (the first time since 1988), investment collapsed by an estimated 1.5 percent, and manufacturing employment fell by 4.4 percent. What is particularly worrisome is that this downturn in the economy has occurred at a time when the U.S. economy, Mexico's largest trading partner, is coming out of a recession. To make matters worse, the less than reassuring reaction of the administration of Carlos Salinas de Gortari to the growing political and economic uncertainty has adversely affected financial markets and led to a resurgence of capital flight, thus putting tremendous downward pressure on the value of the peso.

Where does Professor Lustig's analysis and that of many other Mexican specialists go wrong? I think part of the answer can be found...