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Ambiguous Threat, Ambivalent Response The 1993 Mexican Central Bank Reform The 1988 national elections demonstrated the extent of dissatisfaction with Mexico’s ruling party and its neoliberal reform agenda. In particular, they pointed to the rise of a center-left movement with the potential to threaten the electoral hegemony of the PRI. As with Chile, we appeared to be witnessing the prelude to a decisive insulation response. But while up to here the Mexican and Chilean cases look more or less similar, this is the crucial point where they part company. For while both authoritarian governments faced a threat of regime change, in Chile that threat was imminent, whereas in Mexico it was considerably more distant. This chapter explores the implications of this difference for the amount of autonomy afforded the Mexican central bank. In brief, I argue that because pressures for democratization were still in their incipient stages, Mexico’s authoritarians lacked the incentives to make the central bank fully autonomous. Rather, knowing that they were likely to remain in of‹ce for the next several years, they were careful to design an institution that would not overly restrict their own margin of maneuver within the foreseeable future. The chapter unfolds as follows. In the ‹rst section, “The 1993 Mexican Central Bank Reform: An Overview,” I demonstrate the key differences between the Mexican and Chilean reforms on the dependent variable. In addition to noting the considerably slower pace at which the Mexican reform evolved, I highlight those speci‹c aspects of the legislation—looser constraints on lending to the executive branch and weaker policy-making tools— that rendered the resulting institution less autonomous than Chile’s. In the second section, “Assessing the Degree of Threat: Mexico 1988–93,” I then proceed to locate the source of this difference in the independent variable: the degree of threat. I show that while the Mexican government had a number of reasons to fear a leftward rotation of power in the future, a full-›edged transition was not yet under way. Though the ruling party did face growing internal tensions and mounting political competition, the most likely outcome in the short run still seemed to be one of regime continuity. 169 CHAPTER 7 The third section, “Splitting the Difference: The Logic of Partial Insulation ,” links this diminished threat of democratization to the correspondingly weaker degree of autonomy observed. On the one hand, there was enough possibility of political change to prompt the authoritarians to use autonomy as an insulation tactic. On the other hand, knowing that they—and not their adversaries—were likely to retain power in the near future, they deliberately loosened the legislation to manipulate monetary policy when needed. The chapter concludes with a postscript examining the central bank’s role in the peso crisis. While some have argued that the lax monetary policy pursued by the Bank of Mexico in 1994 casts doubt on the signi‹cance of the autonomy initiative, I offer a variety of different types of evidence to suggest that the reform did, in fact, matter. More important, I also note that as pressures for democratization increased in Mexico, so too did efforts to enhance the autonomy legislation, thus reinforcing the central argument offered in this book about the relationship between democratization and institutional change. The 1993 Mexican Central Bank Reform: An Overview Reform Process: The Build-up to the 1993 Reform The ‹rst contrast that emerges when comparing the central bank reforms of Chile (1989) and Mexico (1993) is the pace of the reform once the threat of democracy was on the table. Rather than being executed in a relatively short period of time, as had been the case in Chile, the Mexican reform instead incubated over a period of ‹ve years. Right off the bat, this difference signals a lack of urgency on the part of Mexico’s incumbent authoritarian regime. The idea for a central bank reform in Mexico surfaced early on in the Salinas sexenio. While individuals closely involved with the reform were not speci‹c about its exact timing, most dated the initial discussions to shortly after Salinas took of‹ce.1 All concurred that the idea was the brainchild of Finance Minister Pedro Aspe. In his own words, “the idea was in my mind since the beginning of the sexenio . . . as a way to ‘lock in’ our package of [‹scal] reforms so that Mexico would not revert to in›ationary ‹nancing in the future.”2 After discussing the idea with the...

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