The economic program implemented by the Spanish authorities over the period 1982–86 may well be an example of the effectiveness of stabilization policies combined with gradual structural reforms in helping a country adjust to domestic and external imbalances. Following a 15-year period of high and sustained economic growth during which real gross domestic product (GDP) increased at an average annual rate of nearly 7½ percent—the highest rate of economic expansion in Europe—Spain found itself in the mid-1970s in the midst of a severe crisis. The rise in international oil prices dealt a serious blow to Spain’s industrial sector, the principal engine of growth throughout the 1960s and early 1970s. Heavy investment in energy-intensive sectors, such as steel, chemicals, and shipbuilding, and a concomitant substitution of energy sources away from domestic coal toward imported oil had left industry particularly vulnerable to such external shocks and ill-prepared to compete effectively with its counterparts abroad. The oil price rise also coincided with the end of the Franco era and Spain’s return to democracy. The emergence, inter alia, of a free trade union movement and the desire on the part of the Government to avert serious social confrontations that might endanger Spain’s fledgling political institutions led to a rapid acceleration of wages, which exacerbated the already adverse consequences of the terms of trade loss.1 The combined effect of these two factors precipitated a steady deterioration of the economic climate and a pronounced drop in the rate of economic growth. Between 1975 and 1979 GDP grew by less than 2 percent a year, well below the rates registered in Spain’s main trade partners. By the early 1980s it had become clear that the Spanish economy was facing major economic imbalances and that a comprehensive adjustment program was necessary.