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Mexico and Neocolonialism: An Irish perspective

By Tony Phillips


Currency markets base their complex decisions on economic precepts as dogmatic and obscure as those of any religion. Certain indicators instantly affect currency markets. They include regularly published statistics such as unemployment figures and stock market indices and government policy changes such as the privatisation or nationalisation of industries, or changes in taxation policies. But how do traders react to the statistics? Which bible do they use?

In these final phases of pure market economics or 'neoliberalism', that bible is the brainchild of the Washington Consensus. Few religions are run on a consensus basis (the Washington 'Consensus' is a consensus of one), or are run on a consensus in name only. However this non-consensual trade is written into every unilateral trade agreement the US offers and is also enshrined in NAFTA.

NAFTA initialing ceremony, October 1992
(US Federal Government)

Peso up, Peso down

Why do currency traders react in such a herd mentality? Who writes the currency-trading rulebook? Could not traders in Zurich and those in New York base their decisions on different tenets?

Traders are continuously making split-second decisions in a global currency market, networked by computers in 24-hour trading and these markets have daily transactions in trillions of US dollars. The traders trade for profit. A delayed or bad decision can cost hundreds of millions of dollars, and so a mutually agreed rule system is essential.

As an example, the reaction at the global currency markets to the publication of a Mexican economic indicator such as the national unemployment rate is instructive. If unemployment goes up by two per cent in the third quarter, how will the global currency markets react? The theory predicts that this will eventually lead to cheaper Mexican labour. It could be argued that this has both a positive and a negative affect on the Mexican economy; positive because higher unemployment means cheaper labour, which means higher profits for the private sector and reduced public sector costs (depending on the power of unions in both sectors). It is negative because higher unemployment means a higher cost to the government in social security, lowered government tax income, and possible weakening of domestic demand. But how should the currency markets interpret this statistic? Who governs union power, minimum wages and so on?

What is the knock-on effect on US documented and undocumented immigrants from Mexico? Repatriated earnings are the second largest income source for the Mexican economy. In the same way Irish banks transfer many euros to the Baltic states from guest workers, Mexicans in the US (both documented and undocumented), save money to send dollars home.

All of this interplay may require that the Mexican Central Bank buy or sell international currencies in an attempt to react to these changes and maintain their currency's relative value (relative to the USD or a basket of international currencies). The net result of such currency stabilising transactions is often the transfer of hundreds of millions of US dollars from Mexican Federal Reserves to the profits of offshore derivative funds (the institutions trading in Mexican Pesos).

Colonial power is much less subtle than its cousin, economic hegemony. [4]

Cultural precepts such as architecture, religion and language take centuries to inculcate into the minds of the local population, a process essential to colonial expansion. If you want to move more quickly toward domination of a foreign economic resource, only two significant exercises of power create change in a short period of time; military might and economic leverage. In the absence of a military invasion of Mexico, only economic leverage can result in significant transfer of ownership of Mexican resources in a short period of time.

Enter, centre stage: Economic Hegemony.

A Concrete Example

Currency relationships can be explored using a practical example. In my pocket I carry Mexican pesos drawn from a US account from a Banamex ATM in San Miguel's town square. In Spanish times, I would be carrying silver or golden coinage made from metals mined nearby, but owned by the Spanish Crown. Now I use my Mexican paper currency to purchase my necessities at a daily adjusted rate.

In an attempt to protect their national assets, the founders of the Mexican state wrote rules into the constitution designed to protect the nascent state. But constitutions are pliant things, especially in Mexico, with more than 400 current amendments. Among those national assets explicitly protected from foreign exploitation and ownership are national resources such as oil, gas, and banks. There are many powerful Mexican national controls to protect Pemex, the national oil company. [5]

A Pemex petrol station in Puerto Vallarta, Jalisco
(Coolcaesar, October 2005)

Banks are charged with the care of the people's money and have been rescued in the past by public funds, which means they are particularly important for economic dependence. In an effort to rescue its economy from a crisis so deep that it affected the whole region with a malaise known as the ‘Tequila Effect', changes in Mexican laws on Foreign Direct Investment (FDI), and restrictions on foreign ownership of Mexican banks were relaxed to encourage foreign investment. The results were swift. All ten Mexican banks were rapidly bought up by Western Banks, mainly based in the US and Spain. Radical yes, unusual no! At that same time a wave of banking consolidation swept the Western World. In many countries (including the US), takeovers were restricted by national banking laws protecting local banks from foreign ownership.

Twelve years ago I lived in San Francisco, California. I had opened a bank account in the local branch of the San Francisco Federal Bank; within five years I had a CitiBank account. San Francisco Federal was bought by First Nationwide, then First Nationwide was acquired by California Federal Bank, which was snapped up to become CitiBank (West). I now draw Pesos from this account at Banamex (sixty-five per cent owned by CitiBank).

Technically I am a CitiBank West customer using a foreign Banamex teller machine, both entities being part of the largest private bank on the planet (CitiCorp, the owner of CitiBank). Robert Rubin is a recent CEO of CitiCorp. Once Secretary of the US Treasury, Rubin is also a former head of the US National Economic Council. Before that he worked at Goldman Sachs, then the largest investment bank in the world. He is also credited in his biography with acting to stem Mexico's financial crisis and 'opening trade policy to further globalization'.

If Mr. Rubin is not an architect of this 'Washington Consensus', then who is?

Certain weakened US Federal regulations persist, for the moment, to keep US CitiBank subsidiaries separate in name at least. The rules, designed to restrict the size of any one bank in the federal United States of America, are a legacy of the horrors of the 1930s depression in which CitiBank was indicted. But CitiBank was also implicated in the loss of confidence that precipitated the US stock market crash of 2000. CitiCorp regularly pays massive fines globally for illegal trading practices. US rules may protect ownership of US banks, they do not, however, restrict foreign acquisitions where these transactions are permitted by local governments.

Cultural barriers exist which prevent renaming Banamex to CitiBank, but the logo colour scheme, the computing systems and the retirement product sales are all CitiBank's, and CitiBank's currency trading operations are still based in New York. The change in Mexican laws to enable bank takeovers was a direct effect of external financial pressures which were brought to bear on Mexico by its debtor countries in the 1990s.

The value of the Mexican peso was devalued by about 30 per cent in the Mexican financial crisis of 1994. The results were disastrous and led to the flight into exile of ex-President Salinas (to the protection of the Irish Republic).

The Mexican peso crisis led to a cycle of Latin American financial crises, a phenomenon known as the Tequila Effect. To encourage foreign direct investment governments in crisis are often pressured into weakening national laws protecting national ownership of strategic resources, such as bank ownership. The results suggest a strong link between adjustment of such rules and the reality of modern neo-colonialism.


Tony Phillips



- Murray, Edmundo, 'The San Patricio Battalion: A Bibliography' in Irish Migration Studies in Latin America 2006. (http://www.irlandeses.org/sanpatriciosbiblio.htm), accessed 25 January 2007.

- Palast, Greg, 'Mexico City: It ain't Over 'til it's Over' in Greg Palast Journalism & Film. Available online (http://www.gregpalast.com/it-aint-over-til-its-over/), accessed 25 January 2007.



[1] The author runs a research project on Latin American Political Economics (http://projectallende.org/). He is a graduate of University College Dublin. He has lived in Ireland and four other countries, and is currently completing a postgraduate course in International Relations at the University of Buenos Aires. He can be reached at: tones@projectallende.org.

[2] For more information please refer to recent articles on the 2006 Mexican Presidential elections, for example those published at http://bbc.co.uk/.

[3] For more information on the San Patricios, please refer to articles on this theme included in The San Patricio Battalion: A Bibliography.

[4] Hegemony results in the empowerment of certain cultural beliefs, values, and practices to the submersion and partial exclusion of others. It influences the perspective of mainstream history, as it is left to the victors to write history.

[5] Not unsurprisingly, the survival of these national controls was a huge issue in the recent Mexican presidential election.



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Copyright © Society for Irish Latin American Studies, 2007

Online published: 1 March 2007
Edited: 07 May 2009

Phillips, Tony, 'Mexico and Neocolonialism: an Irish perspective
' in "Irish Migration Studies in Latin America" 5:1 (March 2007), pp. 16-22. Available online (www.irlandeses.org), accessed .


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