The oil discoveries in Southern Mexico are now thought to be linked in one vast field a geological blessing that could catapult Mexico as the world's second largest oil producer. However, after six years of oil boom it is now clear that this does not mean, by itself, a blessing for Mexico. Current experience leaves no doubt that Mexico's problems can not be solved only by oil exports.
Initially, oil was the
key of development
that the government had envisioned. Rapid economic growth created almost four million jobs in five years. The sharp rise in oil prices in 1980 brought in far larger revenues as expected and the government launched an expensive industrialization programme and overspent. Nevertheless, Mexico ran into problems in 1981 when worldwide demand for oil began to fall. By that time Mexico had lost many of its costumers and an estimated $10 thousand million in total revenues. The slump in worldwide oil demand damaged Mexico's ambitious development plan. Because solutions to the country's troubles hinge on economic recovery, the government has already taken some pragmatic steps to shore up the slumping economy. The government haltered refinery expansion and public works projects even in the oil industry. However, its most immediate problem, its huge foreign debt owned mostly to American lenders, leaves little space for optimism. The initial recovery period will take at least 18 months.
What went wrong? How could Mexico fall into its worst financial crisis in spite of the oil revenues?