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Transforming, Modernizing Mexican Economy Is Far From a 'Radical' Idea

August 14, 1988

Krugman's premiere contribution as a member of the Times Board of Economists was narrow in focus and highly partisan. He favors Mexican President Carlos Salinas de Gortari's "radical" austerity program and efforts to promote exports. This, he trumpets, could make Mexico "a kind of Latin American Taiwan."

Krugman ignores the fact that many, if not most, of the underdeveloped countries are pushing exports at this time. If so, who will buy the new Mexican exports? The United States? But we're also promoting exports and cutting imports. Europe? They're in a depression. Krugman doesn't worry about such questions.

Even if there's demand for its imports, does Mexico have the prerequisite conditions for becoming a new Taiwan? Is it willing to manipulate foreign trade to favor exports? Has it received massive U.S. aid aimed at making it a showcase? Krugman doesn't say.

The common people of Mexico are currently paying a gigantic price in terms of depressed real living standards and will continue to do so under Salinas' program. Even if Salinas' austerity "works," will they receive a return on their investment? That is, will Mexican Reaganomics trickle down?

Krugman suggests that Salinas lacks a strong constituency. This technocratic partisanship ignores Salinas' backing from the World Bank, International Monetary Fund, the U.S. Agency for International Development and the international banks. These institutions are the ones that regularly recommend austerity--and the concomitant national and international disaster--just so creditors can get their interest.

It would be so much easier and fairer for Mexico to repudiate its external debts. After all, the Mexican people are paying for debts incurred by undemocratically elected rulers. Further, with the debt burden erased, Mexico wouldn't have to join the worldwide competitive austerity. They could actually buy other nations' goods, including those of the United States. Debt repudiation, though it might hurt the banks (poor dears!), would aid world prosperity, unlike Krugman's program.


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