Identification of the Mexican Monetary Policy and the Fiscal and Monetary Indicators Essay

To identify the fiscal and monetary policy tools used by Mexican Presidents since Miguel Aleman and Make clear the fiscal and monetary indicators that define each policy the economic models of that time must be examined; from Miguel Aleman to Felipe Calderon there has been just 3 Economic Models: a) 1940-1964: Import substitution model. (Modelo de sustitucion de importaciones) b) 1964-1982: Stabilizing development model. (Modelo de desarrollo estabilizador) c) 1982- ………: Neoliberal model. Modelo neoliberal) in order to understand this models and its implications it’s important to make sure a clear understanding about the policies. The Macroeconomic policy affects a country or region as a whole. It deals with the monetary, fiscal, trade and exchange regime, as well as economic growth, inflation and national rates of employment and unemployment.

Changes in demand and aggregate supply can cause short-term fluctuations in output and employment.The monetary and fiscal policy can shift aggregate demand and, therefore, influence these fluctuations. a) 1940-1964: Import substitution model, presidents on it: Manuel Avila Camacho, Miguel Aleman Valdez, and Adolfo Ruiz Cortines. In the import substitution model, the management of public finances, which sought to redistribute income and promote domestic production, contributed to the process of industrialization and modernization in Latin America.Fiscal functions got away from their initial orientation because there were a change in the economic conditions that had raised the model in the first place, and also because the controls imposed to streamline the management of foreign exchange and boost production became privileges that promoted a rentier economy that masked productive investment generated a high concentration of income and limited the expansion of the domestic market. In 1940 this model was implemented. Because of World War II, increased demand for Mexican goods which also raised the employment rate.

This fact combined with the policies of President Avila Camacho (1941 – 1946), who promised to compensate the “past owners” of the Mexican oil industry and encouraged foreign investment in manufacturing and trade. President Miguel Aleman further boost economic model to impose tight control on the import of consumer goods and be flexible with capital goods. Known as the era of the “Mexican miracle” for extending its benefits to the entire population, this model was strengthened by Mexican entrepreneurs. They accepted the need for economic and social reform, encouraging the expansion of domestic and foreign markets. ) 1964-1982: Stabilizing development model. Presidents on it: Gustavo Diaz   Ordaz, Luis Echeverria Alvarez and Jose Lopez Portillo y Pacheco. This period has since come to be known as the era of Stabilizing Development. The main objectives of economic policy during SD were to increase private sector savings and capital accumulation, maintain price stability and a fixed parity with the dollar, and increase real wages.

These goals were largely achieved, leading observers to speak of a “Mexican miracle. ” The exchange rate was kept fixed at 12. pesos per dollar and the annual inflation rate averaged 3. 8 percent. Real output grew at an average rate of 6. 7 percent and the share of gross fixed investment in GDP rose (at 1960 prices) from 16. 2 percent in 1958 to 20.

8 percent in 1970. The real manufacturing sector wage inclusive of fringe benefits grew at an annual average rate of approximately 4 percent. ’ Economic policy during this period was consistent and well defined. To promote private capital accumulation, profits were taxed at a low rate and public sector investment was directed toward projects complementary to private investment.A substantial increase in financial intermediation also played an important role in stimulating private investment. The supply of bank funds and private sector credit grew rapidly in response to a policy of maintaining real deposit rates at positive levels competitive with those offered in the United States. In real terms, bank credit to the private sector grew at an average annual rate of 14.

8 percent. Fiscal and monetary policies were coordinated with a view to preserving a fixed exchange rate and overall price stability.The growth rate of the monetary base was strictly controlled and it was well understood that if the fiscal deficit exceeded the level consistent with the planned rate of monetary emission, expenditures were to be lowered until the gap was eliminated. The main source of funds for financing the fiscal deficit was not the printing press but rather forced “loans” extracted from the commercial banking system through the imposition of high reserve ratios. Since bank deposits grew at a rapid pace, this provided a considerable margin for noninflationary financing of the fiscal deficit. ) 1982- ………: Neoliberal model.

Presidents on it: Miguel de la Madrid Hurtado, Carlos Salinas de Gortari, Ernesto Zedillo Ponce de Leon, Vicente Fox Quesada and Felipe Calderon Hinojosa. For nearly a decade, Mexico has embraced a neoliberal development model based on liberalization, privatization and deregulation. Yet, contrary to longstanding claims in the economic development literature, this strategy has yet to produce the high levels of growth and income gains that policy-makers had projected at the outset of the reforms.The lacklustre response of the Mexican economy represents more than a longer-than-expected adjustment lag. Rather, through an analysis of state policy in the urban–industrial and rural–agricultural sectors of the economy, it can be said that the sources of slow growth and wage compression are the particular mix of policies that have been implemented under the banner of neoliberalism in Mexico; and the failure to properly coordinate macroeconomic stabilization with longer-term goals of market restructuring.

The neoliberal model aims to reduce public spending, the fight against inflation, financial stability and strengthening of domestic savings. He proposed replacing the obese state and replaces it with strong and efficient. Henceforth, the national business would be responsible for reviving and carrying out the country’s economic impetus. This reorientation strengthened the government’s position for radical trade liberalization and the establishment of economic integration treaty with the United States and Canada.This model has been heavily criticized because it has good macroeconomic outlook, but it is fatal to microeconomic levels.

It went from an obese state into an inoperative one. Conclusions The import substitution model is of great importance, because the opening was wider in scope abroad as foreign investment is encouraged in the fields of manufacturing and trade.With representatives like Avila Camacho, Miguel Aleman which prompted its replacement more strongly controlling the import of consumer goods, is time known as the “Mexican miracle” managed to open a path to stabilizing development model where representatives Luis Gustavo Diaz Ordaz and Echeverria were more interested in modernizing industry, increase productivity and achieve international competitiveness now incorporating modern technology would give oil exports to Mexico financial self-determination and develop strategic areas such as steel, chemicals, petrochemicals, fertilizers, electricity and oil as primary.The neoliberal model, with President Zedillo as the main representatives sought to reduce public spending, the fight against inflation, financial stability and strengthening of domestic savings, helping the government to have an open trade and integration agreement establishing the economically with the United States and Canada. Each model was very important, but could be considered as the great initiator substitution model as it opened the way for new ideas. References http://www. pbs.

rg/wgbh/commandingheights/lo/countries/mx/mx_full. html http://www. mongabay. com/reference/country_studies/mexico/ECONOMY.

html http://en. wikipedia. org/wiki/Economic_history_of_Mexico http://www. azc. uam. mx/csh/sociologia/sigloxx/cronologiademexico. html http://www.

ucl. ac. uk/dpu-projects/Global_Report/pdfs/Mexico. pdf http://www.

nber. org/chapters/c7524. pdf http://journals. cambridge. org/action/displayAbstract? fromPage=online&aid=16137 http://ruthmerari28.

blogspot. mx/2007/07/desarrollo-estabilizador. html

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