Almost seventeen years after the nationali-
zation of the electrical industry, all of our
forewarnings have been fulfilled. Techni-
cally, the Federal Electrical Commission is
in bankruptcy. It owes foreign capital $7.2
billion dollars in outstanding loans, yet it
only has capital assets of $4 billion. This
enterprise is so debt-ridden that the owner
is not the Mexican nation but rather
foreign interests, principally North Ameri-
can, who dictate its policies in the interests
of the transnational corporations.
-Rafael Galvan
Electrical Union Leader
May 2, 1977
This statement by the leader of the rank-and-
file electrical workers’ movement made clear
what has become inescapable in Mexico: the
State-owned and operated electric power indus-
try, like the Mexican economy in general, has
fallen deeply into imperialism’s “debt trap.”
With the total foreign debt of Mexico now
surpassing $28 billion, increased attention has
focused on the CFE as the single largest source of
the debt crisis. As of December 1976, the CFE
accounted for 23 percent of the total public
foreign debt, tripling its size from 1970 to 1975.
And in this same year 70 percent of the total
income of this industry was going to pay off the
foreign debt. 1 Independent labor leaders like
Galvan call the CFE a “sop of the transnationals”
and a “vassal of imperialism.” Mexican and
foreign businessmen, whose profits are the
principal cause of the debt, blame it on bad
management by the government, and pressure
for continued subsidized electricity rates. High
government officials blame each other and past
administrations for the problem. And mean-
while, from Washington and New York suites,
officers of the International Monetary Fund, the
World Bank and Chase Manhattan glare menac-
ingly at the Mexican government and “advise” it
to become more efficient with its electrical
energy, if it expects any future loans.
CAUSES OF THE CFE DEBT
* The debt originated when the Mexican govern-
ment nationalized the industry from its U.S. and
European owners in 1960, paying an inflated
$120 million for the aging facilities. The govern-
ment was forced to turn to foreign loans
(including $52 million from the Prudential
Insurance Company of America) for the pur-
chase of what was already an inefficient,
irrational power system no longer lucrative
enough to be attractive to private investors.
“These companies,” explained a rank-and-file
10 NACLA ReportSept/Oct. 1977
11
electrical workers newspaper, “guided only by
their desire for profit, never bothered to inte-
grate and plan the nation’s electrical power
system. Capitalism never plans socially.” 3
Inefficiency and disorganization have
persisted within the electrical power industry
because it has never been integrated into one
national system. Two parallel state companies
(the CFE and the Compania de Luz y Fuerza in
Mexico City) continue to administer the industry
and are themselves subdivided into more than ten
separate agencies. The reason for keeping the
industry divided and thus inefficient is basically
political, since the integration of the industry
would also bring with it the unification of the
three major electrical unions (80,000 workers),
possibly unleashing a force the state does not
want to contend with (see Part II).
* Nor did the foreign companies expand electri-
cal power into the countryside, where small rural
villages hardly constitute a profitable market.
The state, consequently, has assumed the entire
burden of rural electrification, stretching electric
lines to some 10,000 rural towns between
1970-75 with loans from the World Bank. Still,
25 percent of the population of Mexico remains
without electricity. 4
* Probably the largest ongoing cause of the debt
of the CFE has been the policy of state subsidies
to private industry through the sale of electricity
to industries at below-cost rates. From 1962-73,
electrical rates remained unaltered for industry,
while the cost of raw materials, labor and
especially machinery and technology rose con-
stantly. Most private companies paid between
10-28 centavos per kilowatt hour during these
years, while production costs for the CFE were
41 centavos per kilowatt hour. The annual loss
through this policy was estimated by one source
at nearly $3 billion. 5
* Still another cause of the debt is that many of
the foreign loans are tied to the purchase of
overpriced machinery and technology from the
creditor nations, as in the case of a $2.5 million
Eximbank loan for the purchase of gas turbines
from United Technologies of Hartford, Connec-
ticut. 6 Between 1970-75 the CFE imported a
total of $800 million in electrical machinery and
technology from foreign creditor nations.’ Add
to this the $200 million of goods purchased by
the CFE between 1974-76 from Mexican-based
electrical equipment companies, much of it with
foreign loans, and you have whopping business
for the international banks and lending institu-
tions.
* The acquisition of high priced technology is
one of the ongoing causes of the debt. The most
striking, and indeed dangerous, example of such
technology is the multimillion dollar contract
the CFE has recently signed with General
Electric for the installation of nuclear plants to
generate electricity – using enriched uranium
they must obtain from the United States. The
first system G.E. set up in Laguna Verde for the
CFE netted the company $400 million, 8 with
$25 million going to Bechtel for installation of
another thermonuclear plant in 1976.9 (G.E. is
building similar systems for poor nations like
Jamaica, Trinidad, Guatemala and the Ivory
Coast, arranging financing from the U.S. Export-
Import Bank. 10) It is estimated that 45 percent of
Mexico’s electricity will be produced in these
thermo-nuclear plants by the year 2000, raising
serious questions not only of economic and
military dependence upon the United States but
also of health and environmental protection as
well.”
* Still another cause for the skyrocketing
foreign debt is the increased interest-payments
on the debt itself. Interest payments are consum-
ing a growing portion of the new loans taken out
each year, caused in part by the rising interest
rates in the worldwide money market. According
to an ex-director of the CFE, the debt stood at
$1.9 billion in 1972, and interest payments were
$104 million. Only four years later the total debt
had mushroomed to $6.7 billion, with the
interest payments on the debt climbing to $464
million. The total debt thus increased 3 1/2 times,
while the interest payments quadrupled.12
CONTRADICTIONS
IN THE SYSTEM
All these factors mentioned above have
helped to turn the nationalized electric power
industry into an enormous parasite upon the
Mexican working class. The CFE, like the 500
other state-owned enterprises, is used to enrich
the foreign-dominated private sector instead of
providing for the most basic needs of the
Mexican people. Thus it is a sad but accurate
example of the role played by the state in a
dependent capitalist nation like Mexico.
The practice of state subsidies to the private
sector was actively encouraged by the interna-
Sept./Oct. 1977 1112
NACLA Report
Source: Robert Castaneda, “Los limites del Refor-
mismo en Mexico,” Cuadernos Politicos #8, Ap-Jun,
76.
tional lending banks in the years following the
1960 nationalization. However, the economic
recession of the 1970’s and the colossal growth
of Mexico’s foreign debt have sent a tremor of
anxiety through the inner circles of international
finance. What if the Mexican government should
default on its debt repayments? This fear caused
the World Bank, as early as 1972, to advise the
Mexican government to raise the electrical rates
and to condition further credits on such an
increase. 1 3 The Mexican government responded
in 1973 by raising electricity rates by 50 percent
(and oil rates by 33 percent). As the crisis
deepened in 1976 and the IMF pressure on
Mexico grew, the government once again raised
the rates. Finally, in March 1977 President Lopez
Portillo declared still another electricity rate
increase. His proposal also included the freezing
of all hiring by the CFE, and holding wage hikes
to a maximum of 10 percent. This policy, aimed
at the electrical workers, has already caused
15,000 full-time workers to be fired, according
to the head of one electrical union.14
The crisis of the CFE and its foreign debt are
clearly just symptoms of the dilemma which
confronts not only Mexico, but the majority of
the developing and dependent capitalist nations
of the world. On the one side, local capitalists
and especially foreign investors demand subsidies
and special treatment from the state sector, and
threaten to “run away” if the response is not
generous enough. But decades of subsidies and
foreign loans have drained the resources of the
state and put it at the beck and call of the
international credit institutions, who are now
demanding a balanced budget above all else. As
some authors have pointed out, this contradic-
tion between specific needs of individual corpor-
ations and the general needs of the capitalist
system, as articulated by the IMF, IDB, World
Bank, etc., poses some sticky problems for
international capital.is But as a leader of
Mexico’s rank-and-file electrical workers’ move-
ment explained, it is the working people who will
suffer the most from this problem created by the
capitalist system:
In general, given the debt crisis, there are only two possibilities for the survival of
capitalism in Mexico: (I) a major reform of
the state enterprises to make the big companies pay their share, which would cause some serious confrontations with imperialism and the Mexican bourgeoisie, or (2) a frontal aggression against the masses, taking more from the working class where there is nothing left to take. This is the project of the landowners, the right, and some sectors of imperialism like the IMF. They all have their representatives in
the Mexican government … What will determine which of these positions within the state consolidates will depend upon the correlation of forces outside the state, especially the independent organization of
the working class.16
FOREIGN DEBT
I. Information from research of the Democratic
Tendency and Solidaridad, 1976.
2. For a complete list of the 500 state-owned
enterprises see Juan Felipe Leal, op. cit.
3. UnificacionProletaria #2, Dec. 11, 1974.
4. EIDia, Dec. 12, 1976.
5. Excelsior, June 28, 1976.
6. Ex-lm data.
7. Excelsior, Dec. 5, 1975.
8. LosAngeles Times, Sept. 7,1972.
9. Solidaridad, #160, Nov. 1976.
10. Business Week, Dec. 2, 1972.
11. The issue of nuclear energy is just recently
coming to the forefront in Mexico and is one of mutual
concern for people on both sides of the border. The best
information available at this point is the Rius comic-
book, “Energia Nuclear Para Mexico, Para Que?” Los
Agachados, #259.
12. Martinez Dominguez inSiempre, May 25, 1977.
13. Efren Martinez Nava, Obstaculos de la industria
electrica nacional, Thesis for School of Economy,
UNAM 1974, p. 26.
14. For more on the recent changes in the electric
rates and other reforms see: Comercio Exterior de
Mexico, May 1977, p. 168.
15. Roberto Castaneda, “Los limites del capital-
ismo en Mexico. Las finanzas del regimen,” Cuadernos
Politicos, #8, April-June 1976.
16. NACLA interview with Antonio Gershenson,
Aug. 1977.
