California Western School of Law

Valdez, Abelardo L., Ambassador

English

KEYNOTE ADDRESS - Strengthening the United States-Mexico Relation: A Proposal for Establishing a Free-Trade Zone and Co-Production Zone

Fauriol, Georges

DIFFERING PERCEPTIONS IN FOREIGN POLICY AND SECURITY: The Mexican Foreign Policy Tradition

Beres, Louis Rene

Terrorism, Insurgency and Geopolitics: The Errors of U.S. Foreign Policy

Brezzo, Steven

THE IMPACT OF LEGAL FEES ON
CULTURAL INSTITUTIONS
STEVEN BREZZO*
I am the director of an art museum and as such, I confront on a
daily basis those issues which, over the past decade have become
part of what is perceived to be the rarified world of visual arts.
Now, before you begin fantasizing about international high stakes
art auctions, clandestine encounters in Soho lofts and great and
stirring revelations in Italian palazzos, you should be aware that
the greatest percentage of my and my colleagues' time is spent try-
ing to keep the museum's doors open and staying one step ahead of
the bill collectors. Encouraged by an aura of abundance and "mon-
etary overweight," museums are frquently misperceived. Is it not
museums that proverbially joust for multimillion dollar works of
art, build state of the art climate-controlled additions and celebrate
events in black-tie splendor? In a way, we appear to be the cultural
community's answer to conspicuous consumption. But like the man-
drake at the county fair, let me assure you it is all an illusion.
Today's art museum, like today's theater or symphony, is a frag-
ile and perishable entity beset by spiraling costs and confronted by
increased public demands. In the midst of this new popularity, the
museum is threatened by critically diminished federal and govern-
ment support. The art museum today is perched precariously on a
financial precipice which comes close to crumbling each and every
operating day. And in this era of dangerous budgetary dependence,
a simple two or three percent fluctuation in a given fiscal year can
spell disaster for the art museum.
It is my contention, therefore, that over the next five years,
Americans will see a number of prominent art museums disappear
for reasons I will note in a few moments. Concomitant with all of
these fiscal dilemmas is the predicament created over the last fif-
teen years as the body of laws governing museums, artists, collec-
tors and dealers has expanded to the point where ignorance or un-
" Director of the San Diego Museum of Art; former curator of the La Jolla Museum of
Contemporary Art; formerly served as vice-president of the National Planning Committee
and as a delegate to the People's Republic of China and Italy for the International Commis-
sion of Museums for Conservation and Preservation.
1
Brezzo: The Impact of Legal Fees on Cultural Institutions
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IMPACT OF LEGAL FEES
familiarity can spell institutional disaster. The old rules have
changed. There are new guidelines. There are rapidly changing reg-
ulations governing every step made in an art museum. Ignorance of
any of these areas can lead to disastrous results for the nonprofit
institution as directors, administrators and curators warily make
their way through the labyrinth of each and every day. Today there
exists a veritable maze of complex legal dilemmas which relate to
issues involving everything from production rights of auctions to
artists' estates to donors' wishes to collections management, etc.
They are questions requiring institutional familiarity which, in
many cases, only the most facile, well-educated, competent, up-to-
date legal counsel can provide. Whether the issues involve insur-
ance or concern areas as bewildering as international repatriation
or reevaluation of property, the museum is expected to move with
the most current and correct legal guidance it can possibly garner.
But unfortunately, like many questions in the nonprofit sector,
effectiveness and the ability to deal with the issues at hand returns
to the availability of funding. Who can afford the best legal advice;
who can attract the best counsel? And although attorneys have a
long and respected tradition of offering in kind services to muse-
ums, there is, to quote the vernacular, "no free lunch," and litiga-
tion invariably costs money. But more than that, it costs the mu-
seum its range of services.
Let me give you a list of a few areas that have been adversely
affected or eliminated-not so much by the monetary costs (the
dollars and cents of litigation), but in many cases simply because
the challenges posed by opposition forces and the nuisance factor
entailed are simply too expensive for already fragile institutions to
bear. Museums can no longer afford many aspects of revenue pro-
duction critically needed for thier operations. Museums currently
face challenges regarding unrelated books, posters and magazines.
Rental galleries in most institutions have already been discontinued
because of the threats of local dealers and galleries claiming unfair
competition. Film programs are challenged by local theaters for
similar reasons. Many museums now charge for the processing of
loans of art works since the necessary forms have become so com-
plex that most institutions now have entire staffs devoted to doing
nothing but filling out and processing lengthy loan materials. As a
result, museums will soon charge $75 per loan. If an exhibition con-
sists of 500 objects, the bills can be exorbitant. To borrow a slide
from a slide library in many art museums may cost as much as $35
19871
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282 CALIFORNIA WESTERN INTERNATIONAL LAW JOURNAL [Vol. 17
in processing fees.
To add to this problem, new tax legislation has radically affected
the relationship of donors and art institutions. Some museums are
even cautious and reluctant to collect work of living contemporary
artists since new restrictions are far beyond their means of compli-
ance. Due to the increasingly litigious nature of society, curators no
longer evaluate works of art (a service which used to be invaluable
to museum members) out of a fear of liability if their evaluations
prove incorrect. Indeed, numerous lawsuits have been brought
against institutions by the dealers who originally sold the works.
The precise impact of the rising role of the lawyer in the opera-
tions of museums is still uncertain. Obviously, the cost concern is a
director's nightmare. What can be said without hesitation, however,
is that the romance of the major art auctions and the lure of an-
cient foreign treasures will now be sobered by the reality that the
law and lawyers will suspiciously view each of our acts.
3
Brezzo: The Impact of Legal Fees on Cultural Institutions
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The Impact of Legal Fees on Cultural Institutions

Teichman, Judith

PROBLEMS FACING MUSEUMS AND THE
LAW
JUDITH TEICHMAN*
As earlier comments on the variety and number of legal issues
which arise in the normal course of museum business illustrate, my
shift from museum and arts lawyer to museum administrator needs
little explanation. My move demonstrates that the new director of
the Asian Art Museum is a very practical man. My duties include
everything that he and the chief curator do not want to do as well
as keeping the museum out of legal trouble.
After one week on the job as deputy director of the Asian Art
Museum, I am more convinced than ever that the developments of
the law pertinent to museum operations are but one of the problems
facing museums. The toughest problems are funding; the lack of
staff, particularly support staff; the lack of good management infor-
mation systems, so that collections management practices can be
documented; and inadequate space, particulary office space, work
space and storage space. Those are big problems, but obviously
they arise in a context where there are a lot of legal ramifications.
The legal problems of museums fall generally into two catago-
ries. One category encompasses those problems which affect all in-
stitutions or businesses of comparable size; the other category in-
cludes those problems which relate specifically to museums. I am
not going to go through all of the problems in the first class, but I
would like to run through a few of them to illustrate the fact that
museums have many of the same problems as other enterprise-type
organizations. I think it is important to recognize the areas where
museums are not unique-particularly for the law students who
think they might want to be museum lawyers. When asked what is
the best preparation for being a museum lawyer, I always advise
students to take classes in contracts, torts, property, to get the best
basic legal education they can get. It is helpful to take a course on
art law, but that is "dessert."
Museums are labor intensive operations. As employers, museums
* Deputy City Attorney for the City and County of San Francisco; legal advisor to the
San Francisco Arts Commission, the Asian Art Museum of San Francisco, the Fine Arts
Museum of San Francisco and the San Francisco War Memorial Performing Arts Center.
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Teichman: Problems Facing Museums and the Law
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MUSEUMS AND THE LAW
have all the problems of other employers. They are subject to all
the local, state and federal laws of other employers. For example, in
San Francisco, we have a no smoking ordinance which requires em-
ployers to accommodate those who prefer not to have to deal with
fellow workers who smoke. At the state level, as an example, there
are Cal OSHA health and safety requirements and, of course, at
the federal level are the laws prohibiting employment discrimina-
tion. In California, there is an evolving right for employees to be
terminated only "for cause." It used to be that only public employ-
ees had this kind of protection, but more and more courts are using
a variety of theories to find that private employees have the right
not to be terminated unless there has been compliance with appro-
priate procedures or policies. In effect, these guarantee private em-
ployees the same due process rights public employees have had.
There are unions in museums. There are legal issues relating to
working conditions, collective bargaining, unfair labor practices,
grievances and arbitrations.
A big area of concern in museums is that involving conflicts of
interest. For example, there may be cases in which the museum
director has had access to insider information about an up and
coming artist or the curator organizes an exhibition of a particular
artist who then offers a work from her collection to the curator
because she is grateful for having had the opportunity to show in
the museum. You may be shocked to learn that some of the conflict
of interest standards which relate to the trustees or directors of mu-
seums are less stringent than the standards applied to the directors
of profit-making corporations. In the museum world, it is accepted
that one of the best sources for trustees or members of the board
are people who collect because they might eventually give some or
all of their collections to the museum. So, board members often are
collectors who are in competition with the institution, something
which would not be tolerated in the for-profit world.
Legal problems also arise in connection with activities related to
the primary functions of museums. For example, if the museum's
book shop has a publications program, there may be questions
about the sale of reproductions and copyright issues. If the museum
operates a restaurant, it must comply with local sanitary codes.
There are other examples of how laws which are generally applica-
ble to businesses also affect museum operations. For example, if the
museum wants to alter its building, it has to consider handicapped
access requirements and historic preservation laws.
19871
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CALIFORNIA WESTERN INTERNATIONAL LAW JOURNAL
These are all of the examples I am going to give of legal
problems which museums have in common with other institutions,
but I will direct your attention to a book by Steve Weil.1 Mr. Weil
is a lawyer and the deputy director of the Hirschhorn Museum in
Washington, D.C. He has put together a checklist of legal concerns
to museums. It may be a little outdated, but it will give an idea of
the range of legal problems that museums face.
Since our time is limited today, I would like to focus on problems
related to collections management. The collections, after all, are the
heart of the museum. There is a lot of interest these days among
museum personnel in collections management issues, probably be-
cause the standards for accounting for museums' collections have
risen significantly in the last few years. It is difficult to know
whether the ability to automate record keeping in museums
through the use of computers has led to this interest or whether the
rush to automate is the effect of the movement which resulted in
establishment of a registrars' committee of the American Associa-
tion of Museums in 1976. The registrar is a kind of accountant or
controller for the museum in terms of the movement of objects,
their acquisition and disposal.
The increasing emphasis on the accountability of museums for
their collections has its greatest impact on older museums, particu-
larly community-based museums with collections that have evolved
through the years. I think a fairly typical example is the M.H. de
Young Memorial Museum in San Francisco, which opened in 1896
as an encyclopedic museum. The museum collected everything from
bird feathers to art. (There are stories about birds which died in
Golden Gate Park being stuffed and hung in the museum in the
good old days.) The museum had rock collections and all kinds of
historic material. A lot of museums began in that way but have
evolved into other kinds of museums, particularly into art muse-
ums. Objects no longer pertinent to older museums' collections are
often loaned to other institutions. Problems arise because, as has
too often been the case, these other institutions do not have good
collections management practices.
As a side note, most museums have good records on objects ac-
quired since the 1960's. Even though registrars did not organize
until 1976, the change in collections management practices proba-
bly began in the 1960's. The collections managements problems
I. S. WElL. BEAUTY AND THE BEASTS: ON MUSEUMS, ART, THE LAW AND THE MARKET
(1983).
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MUSEUMS AND THE LAW
most museums have to deal with arise when they attempt to ac-
count for loans made to or by the museum thirty, forty, fifty,
maybe even sixty years ago when these new recording practices had
not begun.
It is not a simple matter to terminate an old loan from another
museum. The museum may not be able to call the lender and tell
him to pick up the property for the lender may have died or moved
away and may not be available to contact. Also, the museum may
not be able to determine who the lender was as the identification
marks that have been used to track these objects over the years
may have become separated from the object itself. For example, in
the early part of the century, museums used brass identification
tags which were fastened with brass wire to the object. Brass suf-
fers from metal fatigue, the wire breaks and the tag falls off. The
museum then has an object that it cannot trace back in its records
unless it has a much better description than most museums had in
the early years.
This leaves museums with the responsibility of storing these old
loans, often a very significant cost. Sometimes the problem is even
greater than the cost of storage. There is a relevant story involving
the Los Angeles County Museum of Natural History which until
recently had a loaned collection which included such exciting speci-
mens as buffalo hides. The collection had been loaned by an ex-
plorer in the 1930's. The museum had a well documented record of
efforts to try to track down the lender to return the collection,
which took up half of a storage room in the basement of the mu-
seum. The collection presented a threat to other objects in the mu-
seum because it attracted pests, vermin and insects. California at-
tempted to deal with these problems a few years ago with
legislation which governs loans to museums. It begins with section
1899 of the Civil Code. This legislation establishes a twenty-five
year statute of limitations on the right to recover property loaned to
museums. If the property has been on loan to the museum for
twenty-five years or more and if there is no evidence of any contact
between the museum and the lender in the museum's files at the
end of twenty-five years, the property is deemed a gift to the mu-
seum. The lender's rights are terminated and the museum can dis-
pose of the property.
The legislation also deals with loans which museums might want
to terminate on shorter notice. It permits the museum to give notice
of the intent to terminate the loan by publishing notice of its intent
1987]
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CALIFORNIA WESTERN INTERNATIONAL LAW JOURNAL
if the museum is not able to personally contact the lender. The leg-
islation did not solve all the problems with old loans, however. The
registrar from the San Diego Museum has noted the problem of
objects which are thought to be on loan but which have no identifi-
cation so they cannot be traced to a particular lender and the date
of the loan cannot be established. How does a museum get rid of
those? Does it wait twenty-five years? This is an example of a situ-
ation where the lawyer can be helpful in suggesting practical solu-
tions. For example, the museum may be able to find former em-
ployees or people still on staff who can recall having seen the object
in the museum at some earlier date, maybe twenty years before. If
so, the museum can get a declaration from the individual with the
information and put it with the records relating to the object. If the
museum can document the fact that the object was in its collection
for twenty years, the museum only has to wait five years to dispose
of the object. In this situation, the museum should consult with a
lawyer who can advise on the evidentiary problems with the docu-
mentation. These are some of the problems that arise in dealing
with old loans to museums.
There is another area that I will just mention briefly: the
problems that arise in connection with loans made by museums.
The most difficult problem to deal with in this instance are the
loans that were made back when museums were "old boy's clubs"
and when there was less concern about the trust obligations of the
directors.
A typical problem is the family portrait that was given to the
museum-and you can imagine what it looks like-in the 1920's or
1930's because the family was very proud of the accomplishments
of grandpa or some other family member. As the museum's collec-
tion developed and improved, the portrait became of less interest
and was loaned back to the family which obviously had a sentimen-
tal attachment to it. Now with the rise in collections management
standards, there is increased concern about the obligations of the
museum's trustees. Museums are in the terrible situation of having
to demand these family portraits back, knowing full well that they
will never display them.
Another issue that comes up in the collections management area
is what to do when a museum has objects or pieces which are not
pertinent to its collections but which have social, cultural, historic
or scientific value to another institution. Can the museum just
transfer title to the other institution? The practice in the past was
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Teichman: Problems Facing Museums and the Law
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MUSEUMS AND THE LAW
to make long-term or indefinite loans. Since the works are still the
museum's property, however, it has the obligation to account for
them and that can be expensive. So, the more desirable goal is to
transfer title to the other institution but, given the obligations of
the museum's trustees to conserve the assets of the museum, this
may not be possible without court approval.There are competing
theories on the power to transfer title to the objects in the mu-
seum's collection without compensation. One theory is that if a col-
lection is given with the intent that it remain available to the pub-
lic, the museum may have an obligation to transfer it to an
institution where it is wanted and will be displayed. On the other
hand, there is the theory that the collection is held in trust and that
the museum cannot "waste" the asset of the trust by giving it
away. Lawyers rely on the one which is appropriate to the case they
have at hand, but as a lawyer for a museum and now as a museum
administrator, I am concerned about the day when somebody looks
to both theories. What will we do?
There is interest in the California registrars' association to seek
legislation which would authorize museums to transfer title to ob-
jects to other nonprofit or government institutions when there is
some assurance that the objects will be cared for and made availa-
ble to the public at the other institution. Just to give you an exam-
ple, assume that a museum has some military costumes which if
sold at auction would probably be bought by people who would cut
them up for costume parties. However, there is a military museum
in the community. It has no money for acquisitions, but is capable
of preserving and protecting the costumes so they would be availa-
ble for future generations. The legislation which is being discussed
in California would permit the museum which owns the costumes
to transfer title to the military museum rather than having to store
the costumes, put them on loan and continue to be responsible for
their safekeeping, or sell them.
I want to recommend another book for those of you that are in-
terested in these kinds of problems: Marie Malero's A Legal Pri-
mer of Managing Museum Collections.2 Between the text and the
footnotes, it answers most collections management questions.
Now, I am going to shift briefly to the subject of cultural prop-
erty as it relates to collections management and acquisitions. There
has been a lot written on the subject by John Merryman and
2. M. MALERO. A LEGAL PRIMER OF MANAGING MUSEUM COLLECTIONS (1985).
1987]
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CALIFORNIA WESTERN INTERNATIONAL LAW JOURNAL
others. Nevertheless, there are some very practical problems with
cultural property laws which have not been addressed. For exam-
ple, the prohibition on importing an object depends on whether it
was exported in violation of the laws of the country of origin. There
are, however, instances where one does not know what the country
of origin is. For example, a Mayan pot could have come from Gua-
temala or Mexico. Is it the export law of Guatemala or Mexico
which must be researched? What does an attorney tell his client in
that situation? Another practical problem is that a copy of the law
is not always available. For example, at one point we wrote to
UNESCO and to the Tunisian Embassy in Washington to obtain a
copy of the Tunesian cultural property law. All we turned up was a
1973 version in French of a law which we had been told by others
was superseded. Right now we are in the process of trying to get a
copy of a law of one of the Middle Eastern countries. It turns out
that the Library of Congress has a collection of pertinent laws, but
the only person who can locate and translate it is on vacation and
has a big backlog of requests for locating and translating such laws.
Sometimes the nature of the material itself presents problems.
The Fine Arts Museum of San Francisco inherited some pre-Co-
lumbian monuments from Teotihaucan, a site outside Mexico City.
In 1934, Mexico asserted ownership of all pre-Columbian monu-
ments. The murals were probably removed from Mexico in the
1960's before the treaties and laws making it illegal to import them
into the United States. The problem was that they were painted on
adobe which had been chiseled out of the wall. They were big,
heavy chunks described by the curator as crumbling graham crack-
ers. They could not be moved without breaking apart. There was no
way that they could be preserved and kept available for future gen-
erations without extensive, expensive conservation work. There can
be all the nice theories in the world about ownership of cultural
property, but if money cannot be raised for conservation in these
circumstances, what can be done with the objects? You may have a
white elephant rather than something desirable.
In closing, I would like to thank Dean Dessent and the law
school for the opportunity to participate in this symposium. One of
the problems of being out there on the firing line, caught up in the
day to day activities of the museum, is that these very difficult is-
sues, with all kinds of ramifications, come up the same day as thir-
[Vol. 17
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Teichman: Problems Facing Museums and the Law
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19871 MUSEUMS AND THE LAW 297
teen other crises. An opportunity to sit back and contemplate them
and develop a rationale for approaching them is not available. This
symposium has been a good opportunity for doing that.
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Problems Facing Museums and the Law

Law Review, California Western

Table of Cases

California Western Law Review 
Volume 23 Number 2 Article 1 
1987 
Table of Contents 
California Western Law Review 
Follow this and additional works at: https://scholarlycommons.law.cwsl.edu/cwlr 
Recommended Citation 
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, Article 1. 
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This Prefatory Matter is brought to you for free and open access by CWSL Scholarly Commons. It has been 
accepted for inclusion in California Western Law Review by an authorized editor of CWSL Scholarly Commons. For 
more information, please contact alm@cwsl.edu. 
CALIFORNIA WESTERN LAW REVIEW
VOLUME 23 SPRING 1987 NUMBER 2
CONTENTS
ARTICLES
Negligence Liability of Landowners and
Occupiers for the Criminal Conduct of
Another: On a Clear Day in California
One Can Foresee Forever ......... Sigfredo A. Cabrera 165
Share Valuation-A Chance for Financial
Literacy ....... Warren E. Banks & Charles N. Carnes 192
Of Tribal Courts and "Territories"
Is Full Faith and Credit Required? .. William V. Vetter 219
COMMENTS
Greenmail: From Backrooms to Boardrooms
to Courtrooms ...................... Karien L. Balluff 273
Products Liability in the Small Capital
Goods Manufacturing Firm: Problems,
Proposals and Pitfalls ............... William G. Rood 304
United States Class Actions in Private
International Law Decisions ......... SaraLloyd Truax 342
BOOKS IN BRIEF ........................................ 372
BOOKS RECEIVED ...................................... 374
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Selan, Harold

Interpreting RICO\u27s  Pattern of Racketeering Activity  Requirement After Sedima: Separate Schemes, Episodes or Related Acts?

Library, California Western

California Western Law Review 
Volume 23 Number 2 Article 9 
1987 
Books Received 
California Western Library 
Follow this and additional works at: https://scholarlycommons.law.cwsl.edu/cwlr 
Recommended Citation 
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Article 9. 
Available at: https://scholarlycommons.law.cwsl.edu/cwlr/vol23/iss2/9 
This Prefatory Matter is brought to you for free and open access by CWSL Scholarly Commons. It has been 
accepted for inclusion in California Western Law Review by an authorized editor of CWSL Scholarly Commons. For 
more information, please contact alm@cwsl.edu. 
BOOKS RECEIVED
CONSTITUTIONAL RIGHTS OF THE ACCUSED, 2D ED. By Joseph G.
Cook. Law. Co-op. Publishing Co.: Rochester, New York. 1985.
Pp. 818. No price given.
COVERING ALL THE BASES: A COMPREHENSIVE RESEARCH GUIDE
TO SPORTS LAW. By Gary A. Uberstine. Shepard's/McGraw-
Hill: Colorado Springs, Colorado. 1985. Pp. 224. No price
given.
FROM CRIME TO CHOICE: THE TRANSFORMATION OF ABORTION IN
AMERICA. By Nanette J. Davis. Greenwood Press: Westport,
Connecticut. 1985. Pp. 290. No price given.
THE FUNDAMENTALS OF LEGAL DRAFTING. By Reed Dickerson.
Little, Brown and Company: Waltham, Massachusetts. 1986.
Pp. 393. No price given.
FUNDAMENTALS OF THE CRIMINAL JUSTICE PROCESS. By Jonathon
D. Schiffman. Law. Co-op. Publishing Co.: Rochester, New
York. 1986. Pp. 212. No price given.
HOW TO PREPARE A LEGAL CITATION. By Elaine C. Maier.
Baron's Educational Series, Inc.: Woodbury, New York. 1986.
Pp. 228. $6.95.
THE INTELLIGENT LAYPERSON'S GUIDE TO STAR WARS. By Joyce
E. Larson and William C. Bodie. National Strategy Informa-
tion Center, Inc.: New York, New York. 1986. Pp. 59. No price
given.
JUDGING CREDENTIALS: NONLAWYER JUDGES AND THE POLITICS
OF PROFESSIONALISM. By Doris Marie Provine. University of
Chicago Press: Chicago, Illinois. 1986. Pp. 248. $13.95.
LAW, MEDICINE, AND FORENSIC SCIENCE, 3D ED. By William J.
1
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BOOKS RECEIVED
Curran and E. Donald Shapiro. Little, Brown and Company:
Waltham, Massachusetts. 1982. Pp. 1132. No price given.
LEGAL PRIMER FOR ARTISTS AND CRAFTS PERSONS. By John
Goodwin. Publishing Horizons, Inc.: Columbus, Ohio. 1986. Pp.
176. No price given.
LEGAL THINKING: ITS LIMITS AND TENSIONS. By William Read.
University of Pennsylvania Press: Philadelphia, Pennsylvania.
1986. Pp. 189. No price given.
MOTION PRACTICE. By David F. Herr, Roger S. Haydock and Jef-
frey W, Stempel. Little, Brown and Company: Waltham, Mas-
sachusetts. 1985. Pp. 645. No price given.
MULTIDISTRICT LITIGATION: HANDLING CASES BEFORE THE JUDI-
CIAL PANEL ON MULTIDISTRICT LITIGATION. By David F. Herr.
Little, Brown and Company: Waltham, Massachusetts. 1986.
Pp. 350. No price given.
PSYCHOLOGICAL CONSULTATION IN THE COURTROOM. By Michael
T. Nietzel and Ronald C. Dillehay. Pergaman Press, Inc.: Elm-
sford, New York. 1986. Pp. 198. $10.95.
SEPARATION OF POWERS-DOES IT STILL WORK? Edited by Rob-
ert A. Goldwin and Art Kaufman. American Enterprise Insti-
tute for Public Policy Research: Washington, D.C. 1986. Pp.
193. $8.95.
SEXISM, RACISM AND OPPRESSION. By A. Brittan and M. May-
nard. Basil Blackwell: New York, New York. 1984. Pp. 236.
$10.95
SOFTWARE PROTECTION: PRACTICAL AND LEGAL STEPS TO PRO-
TECT AND MARKET COMPUTER PROGRAMS. By G. G. Davis, III.
Van Nostrand Reinhold Co., Inc: Florence, Kentucky. 1985.
Pp. 372. $42.95 (cloth).
STATISTICS AS PROOF: FUNDAMENTAL OF QUANTITATIVE EvI-
DENCE. By David W. Barnes. Little, Brown and Company: Wal-
1987]
2
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376 CALIFORNIA WESTERN LAW REVIEW [Vol. 23
tham, Massachusetts. 1983. Pp. 438. No price given.
STRATEGIES FOR CREDITORS IN BANKRUPTCY PROCEEDINGS. By
Lynn M. LoPucki: Little, Brown and Company: Waltham,
Massachusetts. 1985. Pp. 709. No price given.
TAX ESTATE PLANNING FOR DIVORCE AND SEPARATION. By
Waldo Rothenberg. Law. Co-op. Publishing Co.: Rochester,
New York. 1985. Pp. 326. No price given.
VIEWS FROM THE BENCH. By Mark Cannon and David O'Breen.
Chatham House Publishers, Inc.: Chatham, New Jersey. 1985.
Pp. 352. $25.00.
3
Library: Books Received
Published by CWSL Scholarly Commons, 1986


Books Received

Bailey, Norman A.

THE MEXICAN ECONOMY AS 1987 BEGINS
Norman A. Bailey*
Successive external shocks have battered the Mexican economy
since 1982. Mexico has experienced one of the most severe cases of
structural over-indebtedness in the developing world, a devastating
earthquake, and a collapse of the international price of crude oil.
However, the Mexican economy has not undergone fundamental
structural changes since the oil boom of the late 1970s. Existing
structures and procedures have absorbed these external shocks. The
elastic nature of these structures has ended with the latest series of
orthodox "settlements" between Mexico and its public and private
creditors.
The July 22, 1986, agreement between Mexico and the Interna-
tional Monetary Fund (IMF) was for $12 billion in new external
financing. This agreement represented an important retreat in the
monetary authorities' tactical approach to the Third World debt
crisis. The IMF, under significant pressure from the U.S. Federal
Reserve and the United States, agreed to a number of Mexican
demands it had previously rejected. In a desperate effort to stave
off willful default by Mexico on its external debt, the monetary au-
thorities accepted the proposal that Mexico would not make any
serious economic adjustments. Mexico's demands of the monetary
authorities and creditors included:
1. The advancement of new creditor loans sufficient to finance
Mexico's interest obligations while allowing the Mexican economy
to grow at a 3-4% annual rate;
2. The abandonment of fiscal and monetary adjustment targets
that would constrict Mexico's ability to grow at a 3-5% annual rate
(To accomplish this objective, Mexico sought IMF and creditor ac-
quiescence in new methods of miscalculating its fiscal deficits in a
way that systematically underestimated them.);
3. The creation of a contingency fund that would advance Mex-
ico additional loans if the price of petroleum sank further; and
finally;
* President, Norman A. Bailey, Inc., Economic Consultants. Author (with Richard Co-
hen) of THE MEXICAN TIME BOMB (N.Y. 20th Century Fund 1987).
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Bailey: The Mexican Economy as 1987 Begins
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CALIFORNIA WESTERN INTERNATIONAL LAW JOURNAL
4. Real debt relief.
The monetary authorities ultimately agreed to the first three de-
mands, but rejected the last demand for real debt relief. Mexico
retreated from that demand and accepted a larger foreign debt and
powerful domestic inflationary pressures as prices of growth. To
avoid immediate default, the monetary authorities agreed to aban-
don their demands for adjustment discipline and to increase Mex-
ico's total foreign indebtedness by 12% in 1987, guaranteeing re-
covery from Mexico's second depression in five years.
The package presented to Mexico in 1986, while forestalling de-
fault, illuminated the growing political weakness of the monetary
authorities, the growing incentives for default among debtors, Mex-
ico in particular, and the ineffectiveness of the monetary authori-
ties' approach for resolving Mexico's debt problem. Our forecast is
that the package will probably stay intact for the next six to twelve
months. As it unravels and Mexico faces its next payment crisis,
resort to the same formula is less likely. In response to a new pay-
ment crisis, Mexico will either resort to unilateral means for reduc-
ing its debt burden or come to terms with its creditors on a partial
write-off of its debt. Lack of relief, combined with a substantial
new debt, and depressed oil prices over the next two years, could
cause Mexico to face its third depression this decade in 1988-89.
The 1986 depression was the second depression of the decade. It
was precipitated in part by the collapse in oil prices. This downturn
heralded a 4% decrease in growth, a 10.7% reduction in gross fixed
investment, a 3.8% decline in manufacturing activity, and a loss of
1.5 million jobs. The collapse of the value of crude oil exports
(down from $13.3 billion in 1985 to $5.4 billion in 1986) shattered
Mexico's trade and current accounts as well as its ability to service
its debt. The reduction in oil revenue also led to an explosion of
fiscal deficits, rising to nearly 15% of GDP. This depression made
continued economic adjustment completely unthinkable for the
Mexican government. In the midst of this depression, the govern-
ment rejected a further decrease in imports and government spend-
ing. As new deficits arose, Mexico's inflation surged 104% at the
end of 1986, up from 63.7% at the beginning of the year. In order
to ensure the competitiveness of its non-oil exports and restrain
sudden capital flight, Mexico depreciated its currency, from 445
pesos to the dollar at the beginning of 1986, to 900 pesos to the
dollar at the end of the year.
Twelve billion dollars in foreign loans injected into the economy
[Vol. 18
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ECONOMIC STRUCTURE OF MEXICO
during 1987 will ease the pain of the 1986 inflationary depression.
The depression should end in 1987, but inflation will probably con-
tinue. Of the $12 billion in foreign loans, approximately $6 billion
will be needed to service Mexico's foreign interest payments. This
forecast is predicated on the Mexican government's optimistic pro-
jection that 1987 oil exports will earn $1.5 billion more in 1987
than in 1986. A further decrease in oil prices and failure of the new
OPEC pricing agreement in 1987 would mean that the trade sur-
plus would not reach the projected $2-3 billion. This could increase
Mexico's interest payments to approximately $8 billion. Addition-
ally, the government anticipates a $1.1 billion increase in non-oil
exports borne of its competitive devaluations of the peso. This esti-
mate assumes a recession-free OECD economic environment and
containment of OECD protectionism, neither of which are certain-
ties in 1987.
Any diversion of the remaining $6 billion will come out of the
hide of the Mexican economy. Already the government has reduced
its growth estimate for 1987 from 3.5% to a more realistic target of
2-3%. The domestic social pressures and the 1988 election cam-
paign make it unlikely that the government will accept any lower
growth rate. Political prioritization of growth and short-falls in pro-
jected export earnings together represent a primary avenue of possi-
ble renewed payment difficulties that Mexico could experience
before the end of 1987.
Another avenue of possible payments difficulty is Mexico's con-
tinuing inflation and the depreciation of the peso. The persistent
fiscal deficit of 1987, combined with social and political pressure on
the government to reverse the 1986 depression, mean additional in-
flationary pressure. In order for the government to retard an explo-
sion of its fiscal deficit, it will index prices of many goods to infla-
tion. This will be done in order to ensure sufficient revenues. The
need to subsidize consumption particularly in the election period
will create pressure to increase wages. (At the end of 1986, real
wages were only 57% of what they were at the end of 1978.)
Finally, the need to boost non-oil exports will mandate a govern-
ment policy of competitive devaluation. This will also stoke infla-
tionary fires. After rising substantially in 1986, inflation will proba-
bly continue to rise in 1987, perhaps reaching 150% by the end of
the year. At the same time the peso will probably continue to de-
preciate to as low as 2000 pesos per dollar. The dynamics of rising
inflation and sharply declining currency mean instability for Mex-
19871
3
Bailey: The Mexican Economy as 1987 Begins
Published by CWSL Scholarly Commons, 2015
34 CALIFORNIA WESTERN INTERNATIONAL LAW JOURNAL [Vol. 18
ico, which could spark disinvestment and a consequent payments
crisis.
In 1988, Mexico will continue to have huge deficits without the
benefit of $12 billion in fresh money that it receives in 1987. Mex-
ico's creditors are increasingly arguing that the dynamics defined
above will generate a new payments crisis. The only question is,
when?
Resolution of the next payments crisis will determine whether
Mexico institutes fundamental internal structural reform or
whether it can sufficiently modify the external environment to ad-
just and maintain existing structures and procedures. It is possible
and desirable to combine domestic change with a more benign ex-
ternal environment. Whatever happens, it will have crucial implica-
tions for the prosperity, peace, and security of Mexico, the United
States, and the world.
4
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