¹ ‘Successful’ is defined here in terms of (1) whether the reform is implemented and (2) whether it achieves its explicit aims.

² This article analyses the Salinas reform up to the legislative package introduced at the beginning of 1992.

³ For the dynamics of economic reform see Przeworski, A., Democracy and the Market: Political and Economic Reforms in Eastern Europe and Latin America (Cambridge, 1991), ch. 4CrossRefGoogle Scholar; Nelson, J., ‘The Political Economy of Stabilization: Commitment, Capacity and Public Response’, in Bates, R. H., Toward a Political Economy of Development: A Rational Choice Perspective (Berkeley, 1988)Google Scholar; Nelson, J. M. (ed.), Fragile Coalitions: The Politics of Economic Adjustment (New Brunswick, 1989)Google Scholar; and Haggard, S. and Kaufman, R., ‘The Politics of Stabilization and Structural Adjustment’, in Sachs, J. (ed.), Developing Country Debt and Economic Performance: The International Financial System (Chicago, 1989), pp. 209–54Google Scholar. A summary of the logic of the economic reform in less developed countries can be found in World Development Report: The Challenge of Development (Oxford, 1991), ch. 7. For a collection of case studies see Nelson, J. M. (ed.), Economic Crisis and Policy Choice (Princeton, 1990)Google Scholar and Stallings, B. and Kaufman, R. (eds.), Debt and Democracy in Latin America (San Francisco, 1989)Google Scholar. For a comparison of five developed countries at three critical moments see Gourevitch, P., Politics in Hard Times: Comparative Responses to International Economic Crisis (Ithaca, 1986)Google Scholar.

⁴ See for example R. Kaufman, ‘Economic Orthodoxy and Political Change in Mexico: The Stabilization and Adjustment Policies of the de la Madrid Administration’, in B. Stallings and R. Kaufman (eds.), Debt and Democracy, pp. 109–26; and Heredia, Blanca, ‘Mexican Businessmen and the State: The Political Economy of a “Muddled” Transition’, mimeo, 1992Google Scholar.

⁵ With respect to trade liberalisation see Blanca Heredia, ‘The Politics of Trade Liberalization in Mexico, 1982–1988’, DPhil diss. Columbia University, in preparation. For the position of businessmen and the North American Free Trade Agreement see Carlos Alba Vega, ‘El empresariado mexicano ante el acuerdo de libre comercio con Norteamerica’, mimeo, 1991. With respect to privatisation see Schneider, B., ‘The Politics of Privatization in Brazil and Mexico: Variations on a Statist Theme’, in Sulerman, E. N. and Waterbury, J. (eds.), The Political Economy of Public Sector Reform and Privatisation (Boulder, 1990), pp. 319–45Google Scholar. Schneider was writing before Salinas radicalised the programme of privatisation.

⁶ See Bird, R. M., Tax Policy and Economic Development (Baltimore, 1992), chs. 2, 3 and pp. 14–16Google Scholar.

⁷ In this article businessmen, owners of capital, capitalists, property holders and other similar terms are considered equivalent.

⁸ See Lindblom, C. E., Politics and Markets (New York, 1977), pp. 172–88Google Scholar. For a brief review on the literature of ‘structural dependence’ see Przeworski, A. and Wallerstein, M., ‘Structural Dependence of the State on Capital’, American Political Science Review, vol. 82, no. 1 (1988), pp. 11–14CrossRefGoogle Scholar.

⁹ A. Przeworski and M. Wallerstein, ‘Structural Development’, p. 24.

¹⁰ This is discussed more fully in chapter III of my dissertation, ‘Property Rights in Mexico: Government and Business after the 1982 Bank Nationalization’ (DPhil, Oxford University, 1993).

¹¹ Data concerning tax income from 1960 to 1978 come from several issues of Secretaría de Hacienda, Dirección General de Difusión Fiscal, Indications Tributarios. These figures are not identical to those used below for describing the 1980s. The first figures use net revenue, while the ones used afterwards refer to gross revenue. Also, definitions concerning different income categories have changed; and the methodology for calculating GDP has varied.

¹² Quoted by Hansen, Roger D., The Politics of Mexican Development (Baltimore, 1974), p. 84Google Scholar.

¹³ See de Hacienda, Secretaría, de Difusión Fiscal, Dirección General, lndicadores Tributarios (Mexico, 1977), p. 94Google Scholar.

¹⁴ Tanzi, V., ‘Quantitative Characteristics of the Tax Systems of Developing Countries’, in Newbery, D. and Stern, N. (eds.), The Theory of Taxation for Developing Countries (Oxford, 1987), p. 221Google Scholar.

¹⁵ Kaldor, N., ‘Las reformas al sistema fiscal en México’, in Solis, Leopoldo, La economía mexicana, vol. 1 (México, 1973), p. 36Google Scholar. All translations from Spanish sources are mine.

¹⁶ Solis, Leopoldo, Economic Policy Reform in Mexico: A Case Study for Developing Countries (New York, 1981), pp. 20–2Google Scholar.

¹⁷ For a detailed description of the fiscal law see Kretchmar, Samuel Ignacio del Villar, ‘The Rule of Law, Economic Growth and the System of Economic Regulation in Mexico’, DPhil diss., Harvard Law School, 1978, pp. 164–201Google Scholar.

¹⁸ Solis, Economic Policy Reform, pp. 23–4.

¹⁹ This happened, for instance, when mink coats were taxed heavily, thus actually decreasing government revenue. See Francisco Gil Díaz, ‘Some Lessons from Mexico's Tax Reform’, in Newbery and Stern, The Theory of Taxation, p. 334. A. Przeworski and M. Wallerstein assume in ‘Structural Dependence’, that there are no enforcement costs on consumption taxes, but these are usually high and impractical as the above example shows.

²⁰ See Camp, R. A., Entrepreneurs and Politics in Twentieth-Century (Oxford, 1989), ch. 5Google Scholar.

²¹ Maxfield analyses this argument in depth. She calls this close relationship the bankers' alliance and describes how it has significantly influenced Mexican economic policy. In my view, however, she underestimates the autonomy of the Mexican bureaucracy, in particular that of the President. The 1982 bank nationalisation is an example of this autonomy. See Maxfield, S., Governing Capital: International Finance and Mexican Politics (Ithaca, 1990)Google Scholar.

²² Solis, Economic Policy Reform, p. 16.

²³ See Maxfield, Governing Capital, p. 87.

²⁴ On the econom y before 1970 see Reynolds, C., The Mexican Economy: Twentieth-Century Structure and Growth (New Haven, 1970)Google Scholar.

²⁵ Whitehead, L., ‘The Economic Policies of the Echeverría Sexenio. What Went Wrong and Why?’, Paper presented at LASA, Pittsburgh, 1979. Published in Spanish in Foro Internacional, vol. XX, no. 3 (1980)Google Scholar.

²⁶ The bibliography with respect to Echeverría's economic policy is vast. It can be divided between those who argue that there were long term disequilibria before 1970 that had to be solved through a strategy similar to the one followed by Echeverría, thus tending to limit the responsibility of Echeverría in the economic problems of his sexenio, and those who think some changes in the opposite direction were required and blame the problems of the sexenio basically on Echeverría's policies. Within this last group, some were suggesting policies similar to the ones currently taking place. **Among the first group see Tello, Carlos, La politico económica en México: 1970–1976 (Mexico, 1979)Google Scholar; Blanco, José, ‘El desarrollo de la crisis en México, 1970–1976’, in Cordera, Rolando (ed.), Desarrollo y crisis de la economía mexicana (Mexico, 1981), pp. 297–335Google Scholar; Clement, N. and Green, L., ‘The Political Economy of Devaluation in Mexico’, Interamerican Economic Affairs, vol. 32, no. 3 (1978), pp. 47–7Google Scholar;. Among the second see E. F. Buffie and A. S. Krause, ‘Mexico 1958–86: From Stabilizing Development to the Debt Crisis’, in J. D. Sachs, Developing Country Debt, pp. 141–68 and Newell, R. G. and Rubio, L., Mexico's Dilemma: The Political Origins of Economic Crisis (Boulder, 1984)Google Scholar.

²⁷ In 1970 the lowest 40% of homes obtained 10.5% of income. In South Korea they obtained 18.0%. See Aspe, Pedro and Beristain, Javier, ‘Toward a First Estimate of the Evolution of Inequality in Mexico’, in Aspe, Pedro and Sigmund, Paul E. (eds.), The Political Economy of Income Distribution in Mexico (New York, 1984)Google Scholar.

²⁸ Carlos Tello, La político económica, p. 49.

²⁹ See Saldivar, Américo, Ideología y politico del Estado mexicano: 1970–1976 (Mexico, 1980), pp. 98–9Google Scholar.

³⁰ This group was in ‘direct contact with the Assistant Secretary for Revenue Affairs’. Solis, Economic Policy Reform, p. 72.

³¹ Purcell, F. H. and Kaufman, S., ‘El Estado y la empresa privada’, Nueva Político, vol. 1, no. 1 (1976), p. 230Google Scholar.

³² The reform is described in Solis, Economic Policy Reform, pp. 72–3. See also Maxfield, Governing Capital, pp. 88–92.

³³ Franciso Gil Díaz, current Assistant Secretary for Revenue Affairs, writes that the criticism of the Mexican tax system before 1970 is ‘not entirely justified’. He points out that corporate income tax as a proportion of GDP was relatively high, and that other taxes compared favourably in international terms. However, he does not address the fact, although he does mention it, that the tax/GDP ratio was comparatively low. He only mentions that this ratio was raised during the 1970s by four points. But that this was precisely a response to the latter criticism he thinks was not entirely justified. See Gil Díaz, ‘Some Lessons’, p. 333. The high corporate tax is common to richer underdeveloped countries and seems to be explained by their higher ratio of corporate profits vis-ó-vis GDP. See Tanzi, ‘Quantitative Characteristics’, p. 241.

³⁴ In Solis, Economic Policy Reform, p. 73.

³⁵ In Saldivar, Ideología, p. 96.

³⁶ Solis, Economic Policy Reform, p. 76.

³⁷ The rate of growth of public spending was, however, very high, and in spite of the growth in government income, the deficit grew very quickly, thereby undermining price stability.

³⁸ Solis, Economic Policy Reform, p. 93.

³⁹ For example, Tello tacitly distinguishes between their ‘true’ interests and those that they wrongly thought they had. See Tello, La politico, pp. 80 and 204.

⁴⁰ See Azuela, Antonio, La ciudad, la propiedad privada y el derecho (México, 1989), pp. 24–37Google Scholar.

⁴¹ Van R. Whiting, Jr. (quoted by R. Camp, Entrepreneurs, p. 83) argues that many members of the bureaucracy also opposed the fiscal reform because by eliminating anonymity it would have disclosed their own holdings. A high official told me in a private interview that many politicians were worried that the reform would also reveal their wealth position to their wives, making the support of a lover more difficult to hide.

⁴² Flores de la Peña, Secretary of National Wealth had suggested such a reform. Even within the Treasury there was support for most of the elements of the reform as it followed the suggestions then in vogue within academic circles of the UNAM School of Economy. I owe this point to Carlos Bazdresch who then worked in the Secretariat of the Treasury (private interview, 12 January 1992). See also Solis, Economic Policy Reform, pp. 72–4, where he argues that the Assistant Secretary for Revenue Affairs suggested different options including a reform of the income tax and a wealth tax. According to Solis: ‘Despite some opposition, a tax reform proposal was quickly drafted by the Treasury’ (p. 73).

⁴³ Paradoxically, although business opposed the reform in private, their public reaction was less vociferous than against other measures Echeverría actually implemented. This was partly due to the short interval between the announcement and the abandoning of the reform. See for example the lack of data on the fiscal reform in Arriola's study, which describes with a great detail other conflicts. As he bases his book on public sources, he might have been unable to capture private opposition. The mere fact that public reaction was not very loud is still very significant. See Arriola, Carlos, Los impresarios y el Estado (Mexico, 1988)Google Scholar. Purcell and Kaufman (‘El Estado’, pp. 232–3) argue it was one of Echeverría's measures that was most opposed. However, they provide no supporting evidence for this claim.

⁴⁴ Solis, Economic Policy Reform, p. 93, and Bazdresch, interview.

⁴⁵ For an analysis on the different dimensions of power see Lukes, S., Power: A Radical View (London, 1974)CrossRefGoogle Scholar and Connolly, W. E., The Terms of Political Discourse (Oxford, 1983), ch. 3Google Scholar.

⁴⁶ See, for example, Tello, La politico económica.

⁴⁷ This was clearly explained by López Portillo, Secretary of the Treasury, after the ‘bin incident’, namely, the disclosure by Excelsior of a 1971 project for imposing a wealth tax. See Numérica, no. 6, March 197;, p. 2.

⁴⁸ The new tax rates were justified on the grounds that they increased taxes on items consumed by the rich. This was, however, only partially true. There were also higher taxes on beer, a popular consumer good, and on petrol, affecting the whole economy.

⁴⁹ See the profits of Mexican big corporations in Tello, La político, p. 105.

⁵⁰ See speech in Numeérica, no. 26 (December, 1976).

⁵¹ For business reactions to the adecuaciones of 1974 see Saldivar, Ideología, p. 102.

⁵² Tello, La político económica, pp. 74–5 an d 136–7.

⁵³ This is the interpretation accepted in most academic work. See, for example, S. Maxfield, Governing Capital, p. 92.

⁵⁴ Purcell and Kaufman (‘El Estado’, p. 245) argue that an intensive campaign to mobilise support among workers and even the middle class to pass the tax reform would have been necessary. Such a strategy, however, would have politicised the issue in such a way as to provoke the threat of capital flight.

⁵⁵ The fact these expressions of discontent did not reach the magnitude of similar disputes in other Latin American countries during these same years could be taken as an indication that Echeverría's political strategy was successful.

⁵⁶ Gil Díaz, ‘Some Lessons’, pp. 334–5.

⁵⁷ I analyse this in ‘Implicaciones de la reforma del Estado Mexicano’, in Alcántara, Manuel and Martínez, Antonia (eds.), México frente al umbral del siglo XX (Madrid, 1992), pp. 81–99Google Scholar.

⁵⁸ From a public sector deficit of 16% of GDP in 1987 and 12.4% in 1988, it fell to one of 1.3% in 1991, without including income from privatisations. A surplus of 0.8% is expected in 1992. Republica, Presidencia de la, Criterios generates de politico economica, 1992Google Scholar, table 1.

⁵⁹ Expansión, 25 April 1990, p. 7.

⁶⁰ The system is still, however, not a purely global one. Interest income is still taxed at source, and there is no personal tax for capital gains in the stock market. Imputed income from owning a house and many fringe benefits are also exempted. See Gil Díaz, ‘Some Lessons’, p. 336.

⁶¹ The reform was very successful in terms of revenue and fairness. See the description of the 1976–82 reforms in Gil Díaz, ‘Some Lessons’, pp. 336–56.

⁶² Private interview, 13 May 1992.

⁶³ VAT rates, for example, went from 10% to 15% in 1983.

⁶⁴ I analyse this in chapters 6 and 7 of my DPhil dissertation.

⁶⁵ I present a summarised and oversimplified account of the changes. A key issue not discussed here is the administrative reform to assure a better system of tax collection. For the importance of the administrative dimension see R. M. Bird, Tax Policy, ch. 15. Changes in fiscal relations between the Federal Government and the local government are also ignored.

⁶⁶ In Expansión, 1 March 1989, p. 46.

⁶⁷ The financial sector is excluded. New investments follow specific rules that allow for a period of exemption.

⁶⁸ Gil Díaz, transcript of Televisa interview, 31 January 1989, p. 3.

⁶⁹ Transcript of Imevision interview, 31 January 1989, p. 3.

⁷⁰ See Proceso, 22 May 1989, p. 28.

⁷¹ See Proceso, 13 March 1989, pp. 24–5.

⁷² See Márquez, Alfredo, ‘Sin atinar, la forma de salir del divisionismo del CCE’, in El Financiero, 24 11 1989Google Scholar.

⁷³ Gil Díaz argues along this line with respect to taxes on interest rates and on net wealth and inheritance. Gil Díaz, ‘Some Lessons’, p. 335. To make capital repatriation easier the government implemented a programme called the fiscal stamp. It allowed repatriated capital to pay only a small tax rate and to exempt it from other tax obligations, such as for example having to pay income tax on the interest this capital had been receiving abroad.

⁷⁴ Transcription of press conference in the National Palace by Gil Díaz, 6 January 1989, p. 1, part 2.

⁷⁵ A writ of amparo is the protection given to individuals by the courts against acts of the executive that are believed to go against the constitution. It is given on an individual basis, that is, it only benefits the plaintiff. A brief description of the writ of amparo can be found in Carpizo, Jorge, La Constitution mexicana de 1917 (Mexico, 1979), pp. 269–79Google Scholar.

⁷⁶ See Excelsior, 24 April 1990.

⁷⁷ See El Financiero, 15 March 1990, and Excelsior, 24 April and 4 Oct. 1990.

⁷⁸ Figures given by Aspe, Pedro, Secretary of the Treasury. Excelsior, 6 01 1990Google Scholar.

⁷⁹ Gil Díaz, transcript of the words with British Chamber of Commerce, 8 February 1989, p. 8.

⁸⁰ Transcript of press conference, 8 January 1990.

⁸¹ See Excelsior, 17 December 1989.

⁸² The PAN, the right wing opposition party, argued that a quorum was in fact lacking. Instead of the 250 deputies necessary there were 248. See Excelsior, 17 December 1989.

⁸³ See Lerma, Manuel Cavazos, ‘Qué se suprimió y qué quedó en Ley de Ingresos y Miscelánea’, in El National, 19 12 1989Google Scholar.

⁸⁴ The revenue effect of the elimination of MTP and STB is still unclear.

⁸⁵ This included a treaty of fiscal information with the United States. In spite of a warning by the Secretary of the Treasury (Uno más Uno, 24 January 1990), it has not been used yet. However, many got scared and corrected their fiscal situation. It has certainly increased the potential power of the government to close loopholes.

⁸⁶ Transcript of the words of Pedro Aspe in working meeting in Cuernavaca, 13 January 1990, p. 5.

⁸⁷ A reform approved in July 1992 has changed this.

⁸⁸ The 1990 figure is an advance estimate. Gil Díaz in press conference, January 1990, p. 2A.

⁸⁹ see Excelsior, 31 May and 1 June 1990.

⁹⁰ The exceptions found so far are the murky García Suárez incident referred to above, the imprisonment of three businessmen, the most notorious of whom was Sergio Bolaños, very close to La Quina, the former leader of the oil trade union, currently in prison, and the process pursued against Guillermo de la Parra Loya, who some claim had printed a book critical of Salinas in 1987, financed by La Quina. Bernardo Ardavín, former president of COPARMEX was audited after having criticised the reform. According to Pedro Aspe, however, auditing is decided at random. The government, he argues, has audited 10% of taxpayers. Among his own family, he notes, this percentage is slightly higher. (See Epoca, no. 34, 27 January 1992, p. 9.)

⁹¹ See words of Aspe, Pedro in , Guadalajara quoted in El Financiero, 12 02 1990Google Scholar.

⁹² Solano, Jorge Flores, ‘Principales cambios fiscales para 1990’, manuscript, 10 01 1990, p. 14Google Scholar and Excelsior, 24 January 1991.

⁹³ See Proceso, 24 February 1992, pp. 6–9.

⁹⁴ Proceso, no. 807, 20 April 1992, pp. 6–9, and ha Jornada, 11 May 1992.

⁹⁵ Lower rates were also introduced in some indirect taxes and some other taxes were just eliminated.

⁹⁶ Gil Díaz quoted in El Financiero, 15 March 1991.

⁹⁷ The following data is from Criterios, 1989, 1990, and 1992, table 3.

⁹⁸ Private investment grew 10.2% in 1988, 8.6% in 1989, 13.6% in 1990 and 14.4% in 1991. Criterios, 1992, table 5.

⁹⁹ Criterios, 1992, table 5. Total oil income went down from 11.7% of GDP in 1987 to 8.0% in 1991, with domestic income from this source stable at around 5% of GDP.

¹⁰⁰ This argument is sketched in Heredia, Blanca and Elizondo, Carlos, ‘State and Business in Contemporary Mexico: Managing Uncertainty in Times of Economic Reform’, mimeo, 1991Google Scholar.

¹⁰¹ Ibid.

¹⁰² See Bates, R. H. and Lien, D., ‘A Note on Taxation, Development, and Representative Government’, Politics and Society, vol. 14, no. 1 (1985), pp. 54–7CrossRefGoogle Scholar.

¹⁰³ A radical businessman like Basagoiti, former president of COPARMEX, argues, for example, that an electoral victory of the PAN in a Presidential election would severely diminish the influence of big business. Private interview, 19 May 1992.

¹⁰⁴ Interesting new solutions to these problems have started to appear. In a Northern state of Mexico, after a natural disaster business organisations asked the local Congress to levy a temporary business tax. The money collected was directed to a trust administered by businessmen.

¹⁰⁵ Nevertheless, with the help of middle and small size businessmen, the PAN has just won state elections in Chihuahua. Whether this marks a significant political change is beyond the objectives of this article. For the case of Chihuahua see Yemile Mizrahi, ‘The New Conservative Opposition: The Political Organization of Entrepreneurs in Chihuahua’, DPhil diss., University of California, Berkeley, in preparation.

¹⁰⁶ More than 3.5% of GDP in 1991. More than 2% is expected for 1992. Criterios, 1992, table 2.

¹⁰⁷ The need for elite cohesion is recognised as a precondition of success by many academics studying the process of economic reform. See Nelson, ‘The Political Economy of Stabilization’, p. 100.

¹⁰⁸ Bird, Tax Policy, pp. 22–4.

¹⁰⁹ Once trade liberalisation is implemented, businessmen cannot move the affected assets quickly. They have to confront the discipline of the market. For the politics of trade liberalisation see Heredia, ‘The Politics of Trade Liberalization’. Whether the best way of conducting a trade liberalisation is by a sudden change is, however, a different issue.