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At the same time, social pressure was growing throughout Mexico: farmers, workers, and, most of all, students and urban youth were forming active social movements. Their protests were met with arrest, torture, murder, and even massacre. Ten days before the 1968 Summer Olympics opened in Mexico City, soldiers opened fire on a student protest at La Plaza de las Tres Culturas at Tlatelolco. Some two to three hundred were killed, hundreds more wounded, hundreds arrested and beaten, with scores of bodies taken away and hidden by troops.52

Amidst the rising tension, Luis Echeverría began his six-year term as president in 1970. Personally implicated in the slaughter of protesting students at Tlatelolco in 1968, President Echeverría attempted to shore up the state’s legitimacy with a neopopulist program of political and social reforms. “Shared development” was the catch phrase; a massive expansion in public spending, the means. Among other things, the number of university students increased by 290 percent between 1970 and 1976.

The stimulus was paid for with oil income, which was rising as international petroleum prices spiraled upward. But Echeverría needed more revenue. He needed to collect more taxes from the rich but could not because too many were hiding their wealth abroad. So, the government increased borrowing on foreign markets.53 Under Echeverría, foreign debt shot from $3.2 billion to $16 billion. With the stimulus came inflation. In August 1976, Echeverría’s debt bubble burst, and the peso was devalued 45 percent. Mexico had been a low-inflation country, but in the early 1970s, prices began to rise from an annual average increase of 3.6 percent between 1965 and 1970, to 30.5 percent between 1977 and 1982. By the mid-1980s inflation averaged 90 percent.

The next president, José Lopez Portillo, continued the balancing act: he repressed the radical Left but allowed the Communist Party to run in elections. He spent lavishly on development projects and invested in neglected sectors like agriculture, housing, health, and education. Again, oil prices were surging. Between 1979 and 1980, Mexican oil income grew by almost two-thirds.54 Yet, the government still had to borrow to pay its bills. The economy was growing by 8 percent per year, many companies were operating at full capacity, and Mexico’s small stock market was booming. From the early 1960s through the 1970s the number of primary schools doubled, and the illiteracy rate fell to 15 percent; the infant mortality rate fell by half, thanks to a nearly tenfold increase in the number of public doctors.55

Logic of Loans

In theory, the strategy of taking loans against future oil incomes was sound. As international oil prices increased, so too did the value of Mexico’s untapped petroleum. Mexican planners sought to avoid the “resource curse” of developing into an unbalanced, petroleum-fixated economy. Mexico’s leading politicians wagered that while credit was cheap and oil income high, they could renovate the nonoil sectors of the economy with petroleum-collateralized debt. Because of the oil boom, credit was cheap: financial markets were awash in liquidity because most petrostates lacked the capacity to invest their windfall earnings internally. These so-called petrodollars were recycled through international financial markets. Diversified and balanced economic growth would allow Mexico to generate tax revenue with which to repay the loans. With this strategy, Mexican technocrats sought to avoid the “mistakes of Venezuela,” which had spent most of the century exporting oil and squandering the income. The trick was to invest the petroleum-collateralized income in production, not just spend the money on imports.56

Alas, imports did not decline, and domestic production did not surge. The peso’s value rose, making imports cheap: grain imports doubled between 1979 and 1980; the oil and service sectors drew away talent. Agriculture, the heart of Mexican society, stagnated amidst the boom, as did other nonoil sectors. Poverty