Foreign Loans, Domestic Capital: Taxation and the Financing of Mexico’s Power Industry

This paper explores the financing of Mexico’s power industry in the half decade prior to its nationalization in 1960. Focusing on the country’s largest private-owned company, Mexican Light and Power, it argues that a combination of heterodox paper-printing, semi-forced contributions from Mexican bankers, and generous if confidential tax breaks allowed the sector to flourish during the late 1950s. During this decade the Mexican power industry was the fastest-growing economic sector, and investments in infrastructural buildout did away with blackouts and power rationing in the country’s core areas. At the same time, subject to government-dictated rates, private-owned companies could not achieve the desired levels of profitability to attract private capital. Fearful of the inflationary consequences of increasing electricity rates, what government was not willing to give as rate increase it was happy to provide as soft loan from the state development bank and as tax subsidy. This practice ensnared private enterprise in dependency and vulnerability vis-à-vis the government. Addressing the paradox that the nationalization of electricity — the cardinal statist intervention of the postwar — was carried out not to confront industry crisis, but in the midst of its flourishing, this paper probes the relations between businesses, bankers, and international financial institutions with the Mexican government during the ‘Mexican miracle’.