In 1988, Mexican President Carlos Salinas de Gortari introduced a major economic reform program aimed at modernizing the Mexican economy.
This plan was one of the templates used to establish the "Washington Consensus" two years later. It mainly included the following four major aspects: opening up the domestic economy and participating in international competition by significantly reducing import tariffs and ultimately signing a free trade agreement with the United States.
Most sectors of the economy, with the exception of the oil, gas and energy industries, were privatized and deregulated; a stabilization program aimed at controlling inflation was implemented, based on maintaining a close peg between the peso and the dollar.
Specifically, the peso's exchange rate against the dollar can only fluctuate within a small, pre-set range each day. The range is so narrow that all of Mexico's exchange rate policies must take into account this very rigid exchange rate relationship between the peso and the dollar.
A broad social and economic consensus between the government, the private sector and trade unions, known as the Economic Stabilization Program, aims to control the pace of wage and price increases. This consensus is supported by prudent fiscal and monetary policies to keep inflationary pressures generally within a manageable range.
The key feature of Mexico's reform program is that it is based on an economic stabilization plan, which makes it significantly different from the reform programs of Chile, Argentina and other countries afterwards.
The annual adjustment of the economic stabilization plan has become an important political event in Mexico, with the public looking forward to it but also sometimes expressing anxiety.
The main purpose of this economic stabilization plan is to gain political support for the reforms among the Mexican people.
The participation of Fidel Velasquez, the legendary leader of the Mexican Workers' Union, in annual deliberations and decision-making has brought a degree of political legitimacy to Mexico's reforms that is not available in reforms in other Latin American countries.
The use of exchange rates as a tool to protect against inflation deserves special attention.
Since 1976, the Mexican public has linked exchange rate changes to inflation. Whenever the peso depreciates, the price of imported goods rises. In response, unions demand wage increases, which puts additional pressure on prices to rise. This in turn leads to further depreciation of the peso, higher inflation expectations among the public, and further increases in wages and prices.
To break this vicious cycle, Mexican authorities decided to peg the peso to the dollar in 1988. The idea behind this policy was that if the extent of the peso's depreciation could be limited, inflation expectations would fall, bringing Mexican inflation to levels similar to those in the United States.
Despite the reforms of the Salinas government, Mexico's economic performance from 1988 to the present has not been ideal. Real economic growth has averaged only 2.8%, significantly lower than Chile's 7.1% and Colombia's 4.1%. Productivity has barely grown, and exports have grown but not particularly well. Real wages have hovered around 1980 levels, private savings have fallen significantly, poverty rates remain high, and income distribution remains as skewed as in the past.
On the positive side, the budget was balanced in 1992, inflation fell to high single digits, and protectionism was eliminated at all levels.
Even though there were no significant economic effects, Mexico's reforms were still hailed as a major success by financial experts, academics, the World Bank and the International Monetary Fund.
To some extent, the term "Mexican miracle" was created by these institutions. This enthusiasm and optimism stemmed from many factors, including the confidence of many analysts in the reforms themselves and the belief that even if the effects were not immediately apparent, they would be in the near future.
The popular view that the “Mexican miracle” was working received additional support as the Clinton administration worked to sell NAFTA’s benefits to the public and Congress.
After the passage of NAFTA, a large number of observers believed that the free trade agreement would significantly accelerate the growth of investment and exports, and that the effectiveness of Mexico's reforms would become visible to everyone.
Moreover, reform supporters often cite Mexico's experience as a case study of the feasibility of successfully implementing structural reforms under democratic regimes.
Indeed, Mexico is often compared to Chile, where many of its successful reforms were driven by an authoritarian military government.
Presumably, the desire, especially among U.S. officials, to find an example of successful market-oriented reforms in a democratic system also contributed to the perception that Mexico was doing exceptionally well.
In mid-1992, a few months before the peso collapsed, Finance Minister Pedro Aspe gave a speech at the prestigious Lionel Robbins Lectures at the London School of Economics.
The published version of the lecture provides the most comprehensive explanation of the logic behind Mexico's anti-inflation plan. According to the prevailing view in the Mexican government at the time, a fixed peso value would quickly eliminate inflationary inertia and put a ceiling on price increases.
Mexico's economic stabilization program succeeded in reducing inflationary inertia but failed to cure it.
This slowed down Mexico's inflation rate, whereas in the early 1990s local prices and costs were rising faster than international prices. With the currency almost completely pegged to the dollar, Mexico's international competitiveness gradually declined - the number of pesos Mexican exporters received for each dollar of goods remained the same, but domestic costs such as wages, rent, taxes and insurance continued to rise, squeezing exporters' profit margins.
The Brady Plan of 1989 restructured the debts accumulated by Latin American countries during the "lost decade", and Mexico's foreign debt was significantly reduced. Since then, Mexico has opened its financial markets to foreign investors and started to privatize state-owned banks.
As a result of these policies and the sense that some kind of economic miracle was about to happen in Mexico, international capital markets turned their attention back to Mexico and began to invest heavily in securities issued by the Mexican government and government enterprises.
The resulting surge in capital inflows has enabled the country to finance its large and growing “current account” deficit.
The "current account" balance is the most comprehensive indicator of a country's foreign economic exchanges. From 1992 to the present, this deficit has averaged almost 7% of Mexico's GDP. Many economists believe that such a high deficit is extremely dangerous.
Because government spending is under control and the inflows are mostly private, many analysts, especially senior Mexican government officials, believe that despite the size of the capital inflows, there is no need to worry.
For a long time, economists have been debating the right steps for economic reform, exploring which markets should be liberalized first and which should be deregulated later or more slowly. Most experts agree that the best sequence for liberalization should be to gradually remove controls on international capital flows to avoid a sudden increase in liquidity due to large capital inflows, which would lead to an artificial appreciation of the local currency.
Contrary to this conventional wisdom, Mexico chose to remove restrictions on international capital flows in 1989, just as reforms were beginning.
Such reform steps are a response to factors such as Mexico's long tradition of allowing free capital flows and its strong desire to join the Organization for Economic Cooperation and Development (OECD), a club of rich countries that requires member countries to abandon barriers to capital flows.
Mexico's strategy stands in stark contrast to other Latin American reformers that followed, such as Chile, which has introduced some restrictions on the free flow of capital to avoid harming export competitiveness.
Because there were no restrictions, international financiers were able to move large amounts of money freely in and out of Mexico. In less than half a year in 1993 alone, Mexico's net capital inflow exceeded 8% of its GDP (half a year), which is a staggering figure compared with capital inflows to other countries and Mexico's historical data.
Most of the funds are short-term speculative and invested in stock markets, private sector financial instruments and government bonds.
By 1992, a number of observers were debating whether a stronger inflation-adjusted currency, or what economists call the “real exchange rate,” was a threat to the sustainability of Mexico’s reforms.
Rudy Dornbusch, a professor at the Massachusetts Institute of Technology and an expert on Latin American issues, pointed out: "The imminent problem of the Mexican economy is that the exchange rate is overvalued."
A document released by the World Bank in November 1992 mentioned with an ominous premonition that "opening the capital account would also expose Mexico to the risk of sharp fluctuations in short-term capital flows, which would transmit destabilizing external shocks to the country even if domestic economic policies are correct."
The document also says Mexico could "respond to these dangers by raising interest rates or by devaluing the peso."
In response to these concerns, Mexican authorities have reiterated that capital inflows are mostly private in nature and that the government's fiscal revenue and expenditure are balanced, so there is nothing to worry about.
Its position is based on three reasons: First, Mexican officials point out that the economic system itself has sufficient flexibility to respond to unexpected conditions and shocks, such as flexible interest rates and a limited exchange rate fluctuation range.
Second, rapid productivity gains will soon occur, which will lead to a significant increase in exports, eliminating the "current account" deficit and the trade deficit.
Third, the fundamentals for long-term economic growth remain sound, especially given the signing of the North American Free Trade Agreement.
Miguel Mancilla, the governor of Mexico’s central bank, told The Economist that the trade imbalance was not a problem because it was linked to the inflow of foreign funds rather than caused by expansionary fiscal or monetary policy.
Moreover, Mexican authorities have calculated that, when properly measured and adjusted for inflation, the currency is not as overvalued as independent observers believe.
However, these analyses fail to recognize that capital flowing into Mexico at a rate exceeding 8% of national output is unsustainable in the long run and that at some point the rate of capital inflows will slow or even cease.
While there is no definitive answer as to how large a scale of capital inflows can sustain this over the long term, there are some useful guidelines that analysts can follow to explore whether capital inflows are deviating from sustainability.
Generally speaking, most guidelines call for keeping the “current account” deficit below 4% of GDP, a level Mexico has far exceeded since 1992.
After reading the analysis report, Nan Yi tapped the keyboard a few times, calling up the statistics of major events and conferences that will affect the world's political or economic landscape this year, and looked up the part related to Mexico.
As part of preparations for the World Conference on Human Rights to be held in Vienna, Austria in June, representatives from Latin American and Caribbean countries gathered in San José, Costa Rica, from January 18 to 22 to adopt the St. Joseph Declaration.
The Declaration reaffirms the commitment of the Latin American and Caribbean countries to promote and guarantee, through their own efforts and broad, non-selective and non-discriminatory international cooperation, the full observance of human rights as set forth in the Universal Declaration of Human Rights and universal and regional human rights instruments.
The Declaration holds that civil, political, economic, social and cultural rights are interdependent and indivisible. It emphasizes the relationship between human rights, democracy and development, and believes that defending and strengthening representative democracy is the best guarantee for the effective enjoyment of all human rights.
The right to development was an inalienable human right and the international community must take urgent steps to realize that right through appropriate mechanisms that took into account that the right to development in a healthy and ecologically balanced environment was a universal right.
The Declaration expressed special concern for the situation of children, women, indigenous peoples, vulnerable groups, persons with disabilities, migrant workers and their families and the elderly, and called on the international community to cooperate in protecting their rights.
Nan Yi quickly read through the 31 articles of the declaration and selected the content related to indigenous peoples and drugs. According to the declaration, the countries that participated in the drafting of the St. Joseph Declaration have an obligation to improve the current situation of drug abuse and also have an obligation to recognize the great contributions of indigenous peoples to social development and diversity.
Reaffirming the commitment to the economic, social and cultural well-being of indigenous peoples and the obligation to respect their initiative and participation; recognizing the value and diversity of indigenous cultures and forms of social organization without prejudice to national unity.
After reading the "World Human Rights Conference", Nan Yi continued to read on. The major events that will take place this year and are directly related to Mexico include the "Conference of the Americas" hosted by the Wall Street Journal in late October; and the "Summit of the Americas" proposed by Clinton, whose main purpose is to promote the process of economic integration in the Americas.
The "Summit of the Americas" has only been proposed and is still in the preparation stage. It is still unclear whether, when, and where it will be held.
Nan Yi just felt that the name of the conference sounded familiar, but he had no memory of its situation. He made a phone call to inquire about the theme of the Americas Conference. Combining the information he had read so far and the only memory of the words "Mexican financial crisis" in his mind, he came to a conclusion:
It is necessary to figure out when the Zapatistas will make trouble, as the investment costs of Mexico's layout and even the first period of profits will fall on them.
Nan Yi subjectively believes that there is a certain connection between the Mexican financial crisis and the Zapatistas. The existence of the Zapatistas shows that Mexico is still a country with serious social problems, that is, there is political uncertainty in Mexico, which will directly lead to the international financial community's confidence in investing in Mexico being shaken.
If the Zapatistas do something, the international financial community's confidence in investing in Mexico will plummet, which will lead to a chain reaction. The most direct reaction will be in the exchange rate. The Mexican peso will definitely fall sharply.
Nan Yi quickly tapped away on the keyboard, sending an email to the Intelligence Committee and the Ghost of the Intelligence Group, and copied it to Scarlett. Everyone has their own expertise, so it would be better to let Scarlett worry about the financial strategies.
After sending the email, Nan Yi finished his work, lay down on the bed and turned on the TV. The Mexicali TV station of the Trevisa Group was broadcasting an old drama "The Trap".
This drama was adapted from the novel And Then There Were None. It was a mystery drama that was introduced into China two years ago. Nan Yi had watched several episodes of the dubbed version and happened to have watched the episode that was currently being broadcast. After watching it for only a few minutes, Nan Yi's eyes began to squint, and then, he subconsciously pressed the remote control and fell asleep.
…
"Bang, bang, bang, bang, bang, bang!"
Before Nan Yi's biological clock woke him up, something knocked on the outer wall of the room. Before he opened his eyes, Nan Yi heard curses mixed in with the noise, "Who's on duty?"
"I."
The voice of the fairy came from the sofa.
"Is it that girl?"
"yes."
Nan Yi turned over, picked up his watch from the bedside table and took a look at it. He instantly wanted to curse. It was only four o'clock in the morning. He woke up at this time. He would have to take a nap at noon.
He got up very uncomfortably, went to the bathroom to wash up, then took out a rolling bearing and put a steel nail on it to use as an abdominal wheel. He lay on the ground and did a set. After a short rest, he started various fitness exercises such as sit-ups, push-ups, and push-ups.
After doing all this, Nan Yi hung a white towel around his neck, opened the door, and prepared to go to the rooftop of the hotel for a run.
As soon as the door opened, Angelina Jolie, who was still kicking the wall, heard the noise, kicked her bare feet on the floor, and rushed towards Nan Yi.
Angelina Jolie raised her right leg and was about to kick Nan Yi, but Nan Yi moved to the right, raised his left foot, touched her crotch with his toes, and then quickly pulled away.
“Ah… bang…”
There was a scream and the sound of a back falling, and the screaming continued. Angelina Jolie bent her waist like a shrimp and kicked her legs like a frog, which was funny but also cute.
"Go northeast for 12 miles, and that's the drug dealers' territory. If you're really tired of living, you can go there. Ten, maybe twenty or thirty drug dealers will have their fun on you, and then you can beg them to give you a quick death."
After Nan Yi finished speaking, he withdrew his gaze from Angelina Jolie and walked straight to the top of the building. When he was about to turn the corner and walk up the stairs, he suddenly felt that there was something wrong with Angelina Jolie's screams of pain. He took a step back and listened carefully. His brows furrowed. This was not a cry of pain, but she was clearly in pain and happy.
"Masochist?"
With suspicion, Nan Yi went up to the rooftop platform and started running back and forth along the east and west lines of the building. When he finished running and went downstairs, Angelina Jolie was no longer in the corridor.
After washing up again and having breakfast with Edith Gonzalez after he got up, Nan Yi and his party began their boring inspection trip to the Mexicali Valley, the agricultural planting area of ​​Mexicali.
Mexicali was originally a water-scarce area. Thanks to the water from the Colorado River being diverted into Mexicali decades ago, the city became prosperous and the Mexicali Valley planting area flourished.
Standing on a high ground on the bank of the Colorado River, Nan Yi held a hydrological map of the Colorado River in his hand, studying the direction of the Colorado River.
The Colorado River is a major river located in the southwestern United States and northwestern Mexico. The river is 2,330 kilometers long, and its entire basin covers seven states in the United States and two states in Mexico, passing through the vast desert climate zone of the southwestern United States.
The main stream of the Colorado River begins at La Poudre Pass in Colorado. Its main tributaries come from Wyoming, Nevada, New Mexico, and a small part comes from Sonora, Mexico. Most of the entire river system is located in the United States.
The river flows southwest from its source across the Colorado Plateau, passing through Utah, Arizona, and the Grand Canyon, and then flows south to Mexico after entering Lake Mead. Finally, it passes through the dry Colorado River Delta and flows into the ocean from the top of the Gulf of California.
Parts of the middle and lower reaches of the river currently serve as boundary rivers for multiple administrative regions, including the state borders of Arizona and Nevada, Arizona and California, Arizona and Baja California, the U.S.-Mexico border, and the state border of Baja California and Sonora.
Since most of the flow of the Colorado River comes from meltwater from the mountains, dams are built at high altitudes near the source of many small tributaries upstream, which can intercept a large part of the water and generate electricity at the same time.
Downstream dams are extremely dependent on water releases from upstream dams. If Utah decides to increase the storage capacity of the Glen Canyon Dam, it will have a chain reaction, and the cascade reservoirs in the Hoover Dam in Nevada and the Gila River system in Arizona will correspondingly divert a certain amount of storage capacity.
If this continues, the reservoirs of Parker Dam and Empire Dam at the downstream end will gradually dry up, and Southern California will inevitably have no drinking water.
So in order to solve these problems, from the late 19th century to the 1940s, western states signed a large number of "water rights treaties" that detailed which state, city, county, and even farmer could take how much water from the canal.
From then on, the Colorado River basin has managed to consume every drop of water, leaving no drop for the sea. Relying on a river with an annual runoff only at the level of the Jialing River, it supports the lives of more than 30 million people with backyard swimming pools, front lawns, and distant water parks and golf courses.
It has continued for decades and can be called a miracle in water conservancy engineering that has never been surpassed.
Looking at the direction of the Colorado River on the map, Nan Yi frowned. The population in the Colorado River basin has increased several times compared to when the water access rights were first determined, and the population distribution has also undergone major changes, most notably in the two super metropolitan areas of Phoenix and Los Angeles.
However, the water resource allocation treaty remains the same. Most of the terms originally signed first protect downstream water use. Now it has developed into a situation that is actually very favorable to California. No matter how much water is upstream, all dams from Colorado and Wyoming all the way down are obliged to flow into the Parker Dam and Imperial Dam aqueducts in Southern California.
If the situation continues in this way, the Los Angeles metropolitan area and the Inland Empire (Riverside, San Bernardino County) will consume at least most of the water of the Colorado River, leaving very little for Arizona and even less for Nevada. As for Baja California, it can only wait to eat sand.
The administrative powers of the U.S. states are very large. Once the states start clamoring to amend the previous "water rights treaty", the federal government will certainly be very tactful to hide away. After all, in theory, such matters are not the responsibility of Washington.
Looking at the American cities that use the Colorado River's water resources on the map, Nan Yi began to feel a headache. In the United States, there is no such thing as central coordination and local governments considering the overall situation. It is simply unrealistic to expect any state to make sacrifices for other states.
What's more, the states involved belong to the traditional sphere of influence of the two parties. It is simply a dream to expect the Donkey Party to give way to the Elephant Party. The same is true in reverse. Just go home and sleep.
Since the North-to-South Water Diversion Project in California, Nan Yi can’t remember any large-scale water conservancy projects in the United States. He also doesn’t know whether the treaty has been signed again, and he is even less sure whether water supply in Mexicali will become extremely tight in the future.
“We must understand the water use of the Colorado River and survey the groundwater resources in the Mexicali Valley. Otherwise, what we are buying is not land, but a time bomb.”
Stroke his chin, Nan Yi thought about how to change his itinerary. He originally planned to spend a few days to thoroughly walk through the entire Mexicali Valley, but now it seems necessary to postpone it. If the water problem is not sorted out, no matter how much he does, it will easily be in vain.
After greeting Edith Gonzalez who was hiding in the crack of the mountain wall to cool off, Nan Yi and his party went to Longlou Restaurant. It was just past the peak dining time, so there were not many people in the restaurant, so they got a seat without queuing.
As soon as Nan Yi sat down, he found a gentle-looking yellow man walking towards him. The man stopped one meter away from Nan Yi, took the business card in his hand and handed it to Nan Yi, "Hello, I am Ye Zhenli from Xinmin Pharmaceutical. If you need any medicine, you can contact me."
"Hello, hello." Nan Yi stood up and took the business card with both hands. He glanced at it formally and put it away. "Mr. Ye, you've wasted a business card. I don't sell medicine."
Ye Zhenli was not disappointed when he heard Nan Yi say that he was not in the pharmaceutical business, but he was a little annoyed when he heard Nan Yi speaking in Beijing dialect. He wanted to meet powerful people in Mexico, not tourists from China.
However, he still maintained a formal smile and said modestly and calmly: "It doesn't matter. I can tell from the looks of it that you are a big businessman. You may enter the pharmaceutical industry in the future. You can still come to me if you need anything."
"Okay, okay, my last name is Bu, Bu Fandu. If I really make medicine in the future, I will definitely contact Mr. Ye. Sorry, I don't have a business card."
"It's okay, we won't disturb Mr. Bu's meal." Ye Zhenli said, nodded slightly, turned around and walked to his seat.
When Ye Zhenli's gaze was no longer directed at him, Nan Yi glanced at other tables and found a business card casually placed on another table where someone was sitting. He instantly realized that Ye Zhenli was casting a wide net and was not coming straight for him.
Taking the business card in his hand and looking at it again, Nan Yi was very moved, "I actually met this great god here. Should I say I am lucky to meet him?"