President Diaz and His Controversial Economic Development - Part 1

Porfirio Diaz’s presidency has been criticized as an authoritarian president who brought the common Mexican people to its knees while his close associates enrich themselves with the wealth of the country sold to foreigner. This overshadowed the fact Mexico grew from the dark chaotic shadows of 18th century.

President Porfirio Diaz (top hat with white mustache) with his wife

Mexico Before

Since independence in 1821, Mexico descended to political chaos followed by economic decline. Emperors, Presidents, and Generals dubbed as caudillos battled for supremacy while society fragmented between different classes and race. The great divide made Mexico vulnerable to aggressive foreign powers that entered frays complicating the already chaotic situation.

Foreign intervention resulted to the loss of Texas in 1837 followed by a French and British strike in 1838 during the so-called Pastry War that truly focused on Mexico’s heavy indebtedness. Finally, Mexico loss its vast territory to the United States during the American-Mexican War. Few decades later, the French invaded attempting to install their own Emperor to power.

Colonel Porfirio Diaz, 1861

In this situation, Porfirio Diaz was born in 1830 to a poor mestizo peasant. He decided to be a soldier in his teenage years and became prominent during the French invasion. Eventually he became a force to be reckon with and in 1876 he staged a coup that made him President of Mexico until 1880. He relinquished power to give way to the first peaceful transfer of power in Mexican history to his hand-picked successor Manuel Gonzales.

Gonzales’s regime began the modernization of the country’s infrastructure, but corruption and mismanagement of finance brought the country on the brink. This led Porfirio Diaz to run for President in 1884 and won ruling Mexico until 1911.

Porfiriato

Finance and Foreign Investment

Porfirio Diaz served as President from 1876 until 1880 and again in 1884 until 1991. Under his regime, he implemented fiscal and economic reforms that transformed Mexico’s landscape.

During his first presidency, he placed great importance in managing the country’s finances. He reduced spending and tightened the budget to achieve a balance. He reduced corruption and decrease the size of the bureaucracy. However, before he could implement further needed reforms, his tenure ended and handed over power to his “elected” successor Manuel Gonzales.

President Manuel Gonzales

Then in 1884, he came back to power after the country went back once again to dire financial conditions. This time he stayed in power for a long time with the slogan “Order and Progress.”

Mexico’s tremendous foreign debt became President Diaz’s immediate concern. Not an economist or financier in profession, he relied to his inner circle of technocrats called the Cientificos. Among the Cientificos his secretary of finances Matias Romero then Jose Yves Limantour helped in reforming the budget and paying debts.

Jose Yves Limantour

Mexico’s debts amounted to $ 25 million in unpaid salaries of civil servants and soldiers and another $ 200 million in foreign debt. Annual government revenue in 1877 was around $ 19 million and increased little over the next decade.

To prevent the country from being vulnerable financially, he must solve the country’s debt. He began by reducing the salary of government workers making an example of himself by reducing his salary by 50% from $ 30,000 to only $ 15,000. He also streamlined the government and reduced the number of civil servants to save money. He also renegotiated some foreign debts with success bringing it down to $ 146 million. He also prohibited the charging of penalties to overdue debts to lessen debt from local sources. Then in the 1890’s he switched Mexico’s standard from silver to gold to prevent sudden fluctuation in the government’s debt. With much of his reforms in debt payment and finances, confidence to Mexico and its ability to meet creadit payment rose gradually until such time that interest rates charged to its loans stood lower than Russia or Greece. Further confidence on the government’s finances skyrocketed after it reported a surplus budget of $ 72 million in 1895. Its revenue also rose from $ 19 million in 1877 to $ 100 million in 1909.

President Diaz in his private cabinet

While the government strictly managed its budget and spending, President Diaz knew that the country needed to see developments if he wanted to remain in power. But since money remained scarce for the government, he and the Cientificos looked towards foreign funding or investments to finance much needed development.

To attract foreign investments, Diaz needed to secure order to bring a safe atmosphere to foreign investors. He then combated widespread banditry by sending troops to the countryside, especially to Northern Mexico to cease raids by bandits to the United States. He also expanded the local police forces called the Rurales who earned a notorious reputation for brutality but effective in clamping down on bandits and opposition alike. Determined to stop violence in the countryside, Diaz punished bandits with death upon their capture.

The Rurales

With financial management, Diaz’s government also made it a priority to pay government workers and soldiers in time to curtail corruption. They realized that lack of better pay made officials susceptible to corruption to make ends meet. Thus, under Diaz, pay to government workers came out regularly.

Confidence of foreign investors gradually rose and furthered as Diaz threw his government’s support in meeting their needs. He altered laws in land ownership that gave them right to own and exploit especially sub-soil resources where Mexico had abundance.

Diaz’s administration met with influx of foreign investors from Great Britain and United States. He also expanded sources by expanding the country’s foreign affairs. He signed treaties of friendship with various European countries, which led to additional investment and trade. Mexico’s trade expanded from $ 36 million in 1833 to $ 481 million in 1908. Commodities such as silver, gold, and oil comprised the bulk of export while capital goods such as machinery and raw materials became prime imports.

Viaduct of Metlac, between Mexico City and Vera Cruz. An example of 

important engineering work which is to be seen throughout 

modern Mexico

Foreign and economic relations with the United States took center stage during Diaz’s rule. Much of the country’s foreign direct investment came from the United States, while 75% of its exports went to its powerful and rich northern neighbor. The influx of American investment led to the development of Mexico’s infrastructure and mining industry.

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See also:

What was the Great Spurt? 

Bibliography:

Websites:

“Diaz and the Porfiriato 1876-1910.” In MexicanHistory.org. Accessed on April 29, 2018. URL: http://mexicanhistory.org/Diaz.htm 

Evens, Travis. “The Porfiriato: The Stability and Growth Mexico Needed.” In Studies by Undergraduate Researchers at Guelph. Accessed on April 29, 2018. URL: https://journal.lib.uoguelph.ca/index.php/surg/index

Books:

Mallen, Bernardo. Mexico Yesterday and To-day, 1876-1904. N.P., N.P.: N.P., 1904.

Creelman, James. Diaz, Master of Mexico. New York, New York: D. Appleton and Company, 1911.

Kirkwood, Burton. The History of Mexico. Westport, Connecticut: Greenwood Press, 2000.

Tweedie, Alex. Porfirio Diaz, Seven Times President of Mexico. London: Hurst and Blackett Limited, 1906.