User:Vrodrig9497/sandbox/TheLostDeacde

The History (Madison Tomasek)

La Década Perdida was a financial crisis that can be traced back to Mexico’s inability to pay off its accumulating foreign debt following the boom and bust of petroleum in the 1970s through the 1980s. Following Mexico’s petroleum boom, oil production reached 1.5 million barrels daily at the price of nearly $33 per gallon in 1981. This increase in oil production attracted several countries. In fact, one of Mexico’s most prominent customers, the United States, turned to Mexico for its oil supply after the Arab representatives of the Organization of Petroleum Exporting Countries (OPEC) placed an embargo on oil exports to the U.S. for supporting the opposition in the Arab- Israeli conflict of 1973. While Mexico and other oil- rich countries were able to rely on the profit from petroleum exports to support their economy, there existed the desire to industrialize and further develop the infrastructure of the nation’s oil sector. As a leading exporter of oil in the early 1980s, Mexico was granted permission to borrow money from international commercial lenders in order to expand the progress of production. However, as the demand for oil in international markets dwindled, consumers benefited from cheap prices while producers suffered. Mexico and other Latin American countries whose economies depended on oil revenues, found themselves in financial turmoil. Since these economies relied on petroleum exports as their primary source of income, the earnings of other realms of employment were unable to support Latin America’s financial needs. As foreign interest rates increased to as much as 15% in the early 1980s, debt payments rose from roughly $6.3 billion U.S. dollars in 1971 to $28 billion in 1976, becoming an issue more difficult to tackle. Mexico was unfit to reimburse capital markets for their loans. Currency became inflated, decreasing the value of the peso, and foreign banks cut off investment opportunities in Latin America, thus creating the financial crisis, otherwise known as the Lost Decade.

Impacts on Society and Education (Madeleine Lancaster)

With any financial disaster, a country’s economy is not the only thing affected. As is the case with Mexico during “La Decada Perdida,” there was a powerful impact on the educational system and several career industries, such as the automobile and agricultural industries. The financial crisis had conflicting impacts on the education system in Mexico. First, because there was so much inflation in the Mexican peso, public schools had to lower their entrance fees making public education available at a low cost. As a result, most families could then afford to send their children to school for an education and enrollment numbers greatly increased. Also, as there were less jobs available, kids of primary and secondary school age were forced to return to school instead of earn money for their families. Dropout rates also significantly decreased during this decade because there were no jobs available to student workers.  On the contrary, because schools were receiving less government funding, the quality of education suffered.

The automobile industry was also heavily influenced by “La decada Perdida.” The creation of new automobiles provided jobs for a substantial portion of Mexican citizens in factories, distributing centers, and sales. During the financial crisis people could no longer afford to buy the brand-new cars normally produced in the country, resulting in a large influx of imported used cars. This negatively impacted the money flow to Mexican automobile industries, thus affecting the amount of jobs available in the country.

The Aftermath (Vanessa Rodriguez)

The recovery process after Latin America’s Década Perdida, specifically in Mexico, began during the early 1990s. The country’s recovery from the decade’s economic turmoil centered on the growth of the country’s Gross Domestic Product (GDP) as well as the growth of new and already existing metropolitan areas. Towards the end of La Década Perdida, the beginning of the recovery process brought a growth of about 3.6 percent to Mexico’s GDP. There were certain cities in Mexico that saw an increase in foreign investments, specifically in the United States, which brought an influx of people resulting in the increase of GDP. During the early years of recovery, Mexico saw an increase in the number of new cities around the country which caused a spike in their population growth. By the end of the recovery decade, the number of inhabitants in metropolitan areas had almost doubled in size while some areas saw numbers triple. The majority of growth of Mexico’s cities seen in already existing urban areas. The already existing cities that experienced the most population growth could be seen in the country’s capital as well as other large cities. Mexico saw another positive increase during its recovery process, an increase in its national economy through the benefits of being involved in the global economy. One of the benefits from entering the global economy is bringing interests from foreign investors. However, these investors were only interested in certain areas that were already established urban centers with large populations. The change in Mexico’s approach to the economy changed with how the country now views how an economy should be structured.

Effects on Mexico versus Chile (Hannah Maddox)

This crisis affected Chile at the same time as Mexico which led to them also experiencing a severe economic crisis. However there is a large contrast to be shown between these two countries. This is that Chile’s export businesses almost a fully recovered, while Mexico continued decrease in this area. There are many explanations which could have attributed to this drastic difference.  Three of these explanations have to do with the Chile’s wage indexation, structural reforms and both countries external debt.

Chile’s wage indexation was reversed by the government after the crisis which allowed the wages to drop. This in turn led to a depreciation of the exchange rate which started an export boom and helped with rapid recovery. The reason this did not work in Mexico is what leads us into the next point. Mexico’s enormous amount of accumulated debt held them at a standstill and prevented them from growing while Chili exponentially expanded. This debt was key in both of these countries falling into a crisis. After their debt had grown by 140%, in Mexico, and 134%, in Chile, in the 1970’s due to low interest rates they lost major trading partners causing their export economy to crash. Taking into account this similarity in events during this decade, Chile’s structural reform was the defining factor leading them to come out on top. They used the 70’s to establish new bankruptcy laws, fiscal and trade policy while Mexico waited till the 80’s to establish these things. This set them back immensely in their economic progression.