Spain’s 1959 Economic Stabilization Plan: Impacts & Results
Background of the National Economic Stabilization Plan
The National Economic Stabilization Plan was an economic package approved by the Spanish Government in 1959. The plan’s objective was the stabilization and liberalization of the Spanish economy. It marked a break with the policy of autarky of the Franco regime and made possible the beginning of an era of economic growth in the country during the 1960s.
Goals of the Stabilization Plan
The Plan set a series of goals to achieve economic stability, equilibrium in the balance of payments, and strengthening of the currency so that it would become stable. It provided for the gradual liberalization of imports of goods and parallel trade of its interior. The measures taken by the plan were, on the one hand, liberalization and, on the other, austerity policies that were implemented by:
- Announcing the convertibility of the peseta and raising the exchange rate with U.S. dollars from 42 to 60 pesetas, aiming to provide stability to the peseta. This was accompanied by substantial foreign credits from international agencies and the U.S. government itself.
- Raising interest rates, implementing restrictions on bank lending, and enacting a wage freeze, all with the goal of trying to reduce existing inflation. With the same aim, in December 1958, the door to automatic debt in the Bank of Spain, which had been another source of inflation, was closed.
- Promoting foreign investment with new legislation on foreign investment that allowed foreign equity participation in Spanish firms.
- Proposing a tax reform to increase revenue and limit spending in order to limit the public deficit.
Transformation of the Spanish Economy
In short, the measures taken in 1959 went beyond a simple search for internal and external balance, which is configured as a stabilization and structural transformation plan. It was not just to restore the balance but also to abandon the inward-looking development model and incorporate the Spanish economy into international markets, cleaning up the economy to put the wicker suitable for further economic growth. It planned to launch a policy override, removing obstacles to the liberalization of the economy tightly controlled by an authoritarian state and a military and religious oligarchy who failed to act properly.
Immediate Effects of the Stabilization Plan
The stabilizing effects were noted in the very short term, both in internal and external balance:
- In 1959, there was a surplus balance of payments of $81 million.
- Foreign exchange reserves of the Bank of Spain increased. The amount of foreign reserves and short-term loans increased from a negative value close to $2 million in June 1959 to a surplus close to $500 million in December 1960.
- Inflation fell from 12.6 percent in 1958 to 2.4 percent in 1960.
- Foreign investment in Spain and tourism increased.
- Competitive conditions in the country improved, and new technologies were incorporated.
Short-Term Challenges
However, stabilization, like all such processes, also involved, in the short term, a noticeable slowdown in Spanish production during the second half of 1959 and early 1960, with pay freezes and sharp declines in consumption and investment and a consequent increase in unemployment. All these developments led to a phenomenon of paramount importance at the time: the increase in Spanish emigration, mainly to Europe, in search of employment.