Bank Nationalisation, Privatisation, Crisis and Financial Rescue: Using Testimonials to Write Contemporary Mexican Banking History
By Enrique Cárdenas (Centro de Estudios Espinosa Yglesias)
Abstract – The Mexican banking system has experienced a large number of transformations during the last 30 years. Although important regulatory changes were introduced in the 1970s, all but a couple of the commercial banks were nationalized in 1982, consolidated into 18 institutions and these were re-privatized in 1992. Shortly after, a balance of payments crisis in 1995 (i.e. Tequila effect) led the government to mount a financial rescue of the banking system which, in turn, resulted in foreign capital controlling all but a couple of institutions. Each and every one of these events was highly disruptive for Mexico’s productive capacity and society as a whole as their consequences have had long lasting effects on politics, regulation and supervision of the financial sector as well as polarising society. Not surprisingly the contemporary narrative accompanying these events has been highly controversial and full of conflicting accounts, with competing versions of events resulting in a long list of misconceptions and “urban legends”.
Review by Bernardo Bátiz-Lazo
This entry departs from our usual as it fails to discuss a specific paper circulated by NEP-HIS. Instead I comment and reflect on a public lecture, that is, another common medium we use to communicate our research. The lecture build around two multi volume books and three DVD’s, and was delivered by Enrique Cárdenas (Executive Director of Centro de Estudios Espinosa Yglesias or CEEY) at Bangor Business School’s London campus on 2014-04-07. The actual publications are available, by the way, in hard copy from CEEY’s book store and in electronic version from Amazon.com.mx, as well as following the links to videos below and the link to the full podcast of the presentation above.
The chief aim of this project is to offer new evidence on the process of nationalisation (1982) and privatisation (1991-1992) of Mexican commercial banks. These two episodes of contemporary financial history had important rippling effect on Mexican society, politics and macroeconomic performance. They also had global consequences, first, as they mark the start of the so-called “International Debt Crisis” after Mexico informed of a payment moratorium of sovereign debt in August 1982. Secondly, the ratification of Robert Rubin as the 70th US Treasury Secretary (1995-1999) together with Ernesto Zedillo taking office as 54th President of Mexico (1994-2000), led to a political power vacuum and impasse in economic policy making between the Autumn of 1994 and early Winter of 1995. Known in the vernacular as the “Tequila Crisis”, in December 1994 Mexico devalued its currency and this led to instability in international foreign exchange markets and accelerated the exit of portfolio investments from a number of other countries (most notably Argentina and Brazil). By this point in time, Mexicans had fought hard during negotiations with the US and Canada to keep the banking system out of the North American Free Trade Agreement (NAFTA). But this exception was lost in the aftermath of the “Tequila Crisis” while the subsequent bailout of the newly privatised banks represented a precedent missed by US and British regulators of what would happen, on a much bigger scale, during the 2007-9 financial debacle.
Cárdenas’ analytical framework is based on Stephen Haber’s ideas of co-dependence between political and financial spheres. Cardenas’ evidence-based approach is certainly welcomed. But more so as he tackles head on with the issue of periodicity and method. Specifically whether and how to write accurate and meaningful economic history using of oral sources in the recent past. Revisiting and unpacking method and methodology are topics not far from current debates in business history, as has been portrayed in previous posting in the NEP-HIS blog (click here); the forthcoming panel on oral histories and World War I at theEuropean Association for Banking and Financial History (EABH) meeting in Rüschlikon, Switzerland; recent and forthcoming publications in refereed journal articles by Stephanie Decker and colleagues (see full references below); and JoAnne Yates’s contribution to the edited book by Bucheli and Wadhwani (2014) (as well as their panel on the latter publication during the recent World Business History Conference in Frankfurt). Indeed, one of Cárdenas’ and CEEY trustees’ chief motivations to engage in this research was to listen to what major players had to say while they were still alive.
Cárdenas was not limited to oral sources. He endeavoured to gather surviving but uncatalogued documents as well as the construction and reconstruction of statistical data series to complement historical analysis. Actors were of the highest standing in society including former Presidents, Mexican and foreign Treasury ministers, senior staff at multinational financial bodies, past and present senior bank executives, regulators, economic academic advisors, etc. To deal with historians mistrust of recollection and potential bias, Cárdenas sent in advance a questionnaire split in two sections: one aimed at enabling a 360 degree perspective on key moments; and the second, made out of questions tailored to the participant’s office and status during the event. All participants were informed of who else would take part of the discussions but none were shown others’ responses until all were collected and ready for publication. The risk of being “outed” thus resulted in only a handful of contradictions as participants preferred to declined answering “painful” topics than stretching the “truth”. Meetings were recorded, transcribed, and compared against statistical data. The latter would either strengthen the participant’s argument or was returned to him with further queries. Several iterations resulted in each participant embracing full ownership of individual texts and thus effectively becoming an author of his entry. It’s this process of iterations and guided discussion to which Cárdenas refers to as “testimonials”.
As mentioned, the result of the CEEY’s sponsored research by Cárdenas was two multi book volumes and three documentary videos all of which, as illustrated by the links below to trailers and video documentaries below, have been edited but have no narrators. All views are expressed by the main actors “so that viewers can draw their own conclusions” said Cárdenas during his lecture. By publishing a large number inconclusive outputs based on “testimonials” the CEEY, and Cádernas as his Executive Director, aim to offer a new empirical source for others to include in their own analytical work and come to their own conclusions. Indeed, CEEY’s publications also include a number single author monographs and the commissioning of edited collections by academic authors who have used the testimonials as part of their evidentiary repertoire.
But does Cárdenas have any conclusions of his own? For one, he believes the effort to generate and document events through testimonials and new statistical material results in a much more balanced approach to assess the limited options President López-Portillo had at the end of his term in office. For starters in 1981 he was to nominate on his successor ahead of elections (“el dedazo”). The events that followed were to become the beginning of the end for the one party rule that characterised Mexico during most of the 20th century. At this point in time, Mexico had experienced four record years of strong economic growth. Never seen before and never to be seen since. Its oil production was doubling each year but its international debt was skyrocketing (particularly that of short-term maturity in 1981-2).
But as international oil prices begin to drop, Mexico followed an erratic behaviour (reducing and then raising its oil price) while oil revenues generated 35% of fiscal income and 75% of exports. Moreover, prices for other Mexican exports also fell while a practically fixed-rate parity with the US dollar meant a strongly overvalued peso. A devaluation was followed by a massive increase in salaries. And in the midst of political jockeying and an accelerating worsening of public finance, the President (a lawyer by training) was, according to Cárdenas, to receive conflicting and contradicting information (Cárdenas calls it “deceiving”) on the actual size of the public deficit (which was to double from 7% of GDP in 1981 to 14% of GDP in 1982) as well as the merits of defending the Mexican peso vs US dollar exchange rate (which he publicly claim to “defend like a dog [would defend his master]“.
This conclusion sheds a significant amount of light on the decisions of late former President López-Portillo. As much as also help to better understand the end of some otherwise promising political careers. The narrative of actors bring fresh light to understand the break up between Mexican political and business elites, which eventually results in the end of the one party rule in the presidential election of 2000. It also helps to explain the break up of the rule of law during the next 15 to 20 years in Mexico as well as the loss of the moral authority of its government.
Cárdenas and CEEY have certainly produced a piece that will resist the test of time. They offer a unique effort in creating contemporary financial history while building from oral sources, privileged access to main actors and in this process, developing an interesting method to deal with concerns around potential bias. Given the passion that the topics of nationalisation and privatisation still generate amongst Mexicans and scholars of modern day Mexico, it is understandable that the analysis has emphasised idiosyncratic elements of these events. But somehow links with wider issues have been lost. For one, nationalisation or sequestration of assets (whether of local or foreign ownership) characterised the “short” 20th century. Nationalisation is one side of the coin. The other is public deficit reduction through the sale of government assets. Indeed, the privatisation of Mexican banks between 1991 and 1992 enabled to finance about half of the reduction of Mexican sovereign debt (though the massive rescue that followed practically annulled that reduction). Mexicans were not inmune to Thatcherism to the same extent that a reduction of the state in economic activity (whether real or not) was and is part and parcel of the “second” globalisation.
In summary and in Enrique Cárdenas own words: “Writing current (economic) history is not only possible, but highly desirable!”. We welcome his contributions to enhance empirical evidence around such important events as well as offering a way to systematically deal with oral sources.
The President’s Decision (1982) – Trailer (with English subtitles)
The President’s Decision (1982) – Full length (in Spanish)
From Nationalisation to Privatisation of Mexican Banks (1982-1991) – Trailer (with English subtitles)
Privatization of Mexican Banks (The President’s Decision Ex Post: Bank Privatization [Tequila effect – 1991-1995] – Trailer (with English subtitles)
Yates, J. (2014) “Understanding Historical Methods in Organizational Studies” in M. Bucheli and R. D. Wadhwani (eds.) Organizations in Time : History, Theory, Methods Oxford: Oxford University Press, pp. 265-283.
Decker, S. (forthcoming) “Solid Intentions: An Archival Ethnography of Corporate Architecture and Organizational Remembering”, Organization.
Decker (2013) “The Silence of the Archives: Postcolonialism and Business History”, Management and Organisational History 8(2): 155-173.
Rowlinson, M. Hassard, J. and Decker, S. (forthcoming) “Research Strategies for Organizational History: A Dialogue between Organization Theory and Historical Theory”, Academy of Management Review.
Note: with special thanks for helpful comments to Sergio Negrete (ITESO) and Gustavo del Angel (CIDE).