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Economic Development of Central America Econ. 4200 - Spring 2004 – Dr. Taylor - page 55 / 153

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Economic Crisis:

In the 1970’s the PRI undertook economic policies designed to foster rapid and sustained economic growth (import substitution).

Borrowed heavily to fund and achieved economic growth of 8%.

Backed by its vast deposits of petroleum, the PRI recklessly borrowed to expand its economic infrastructure.

Petroleum prices plunged in 1981-82… debt crisis. By the end of 1982 40% of Mexico’s export earnings were devoured in interest payments on a debt of $80bil.

IMF set as a condition for emergency funding a drastic reduction in state spending => layoffs, reduced spending on social welfare programs. Devastated the poor and reduced the standard of living of the middle class.

In December 1994 the economy collapsed after the government could no longer sustain an overvalued peso.

The peso fell 50% , while the stock market fell 38%. Ushered in another round of public austerity (Pres. Zedillo) and was the final ingredient in bringing down the PRI.

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