Mexico

The economy of Mexico is made up mostly by the private sector. It is a free market system much like the system in the US. The number of privately owned enterprises is increasing, while the number of Government operated business is decreasing. State-owned enterprises numbered higher than 1,000 in 1982, but have fallen below 200 since 1999. Mexico, despite some downfalls, has one of the strongest economies in Latin America. It is heavily industrialized and has the highest export levels in Latin America. Many US companies employ thousands in Mexican manufacturing plants, specifically the automobile industry.

Mexico is still on the path to modernizing its economy and raising the standard of living. There exists a very unequal distribution of income, with 20% of the population holding 55% of the income. This is changing, however, due to increased demand for Mexican exports and labor. Much of their economic success can be attributed to NAFTA starting in 1994. This agreement effectively eliminated many tariffs and opened the borders of Mexico, Canada and the US to facilitate increased movement of goods. It is now even more economically advantageous to import goods from Mexico. As a result, however, the agreement has increased Mexico’s dependency on the US. Nearly a quarter of their GDP comes from exports to the US, roughly 85% of their total exports.

Because of the heavy dependence on the US, the economy of Mexico is very in tune with the US economy. There was little to no growth in Mexico during the downturn of the US markets in 2001. This dependence on exports lends itself to Mexico’s very liberal trade policy, one of the most open the world over.

The economic strategy began to take shape during the early 1950s. There were many restrictions placed on imports in order to help develop the home market. They wanted to rely less on foreign goods, particularly from the US. This policy of “import substitution” made imports very expensive and as a result domestic goods became the best alternative. This strategy has lead to Mexico’s status as a global exporter, for if it were not for the development of the home market in such a way their dependency on imports would be much higher and the export market would be weak. Among the top exported items are petroleum, cars and car parts, consumer electronics, textiles, chemicals, tobacco, and clothing. Additionally, Mexico has a very large tourism industry, which some would consider a type of export since mobs of foreigners (mainly Americans) flock to the coastal resorts in the Gulf of Mexico during the spring.

Less than 100 years ago, Mexico’s economy was primarily agricultural. Reform began in 1917 to allocate land to farmers. History saw further land distribution in the 1930s, 1960s and 1970s. However, poor soil, low rainfall, and population growth caused a strain on Mexico’s subsistence farmers. As a result, agriculture accounted for less and less of the GDP, falling to 5.8% in 1999. During the 1990s the government took steps to increase the productivity of agricultural lands with the use of modern farming equipment and technology.

The industrial sector makes up about 22% of Mexico’s GDP; however, it has been declining in recent years due mostly to the stagnant US economy and reduced export demand. As the fourth largest supplier of oil to the US, however, Mexico stands to gain in the coming future from oil exports. As of 2001 oil production was 3.59 million barrels per day compared to 1.5 million barrels per day consumed. Exports were roughly 1.9 million barrels per day. Mexico stands to become an even more important supplier of oil to the US as the times dictate less reliance on middle-eastern oil supplies.
Mexico has a very modern transportation infrastructure, the most extensive in Latin America. More than 2,400 miles of four-lane highways stretch across the country. 16,268 miles of government-owned railroads have become privatized. Seaports have also been privatized, primarily to increase their efficiency. There are also many airports throughout Mexico, and they are currently undergoing privatization in response to the success of seaport privatization.

The peso is currently trading at 11.22 per 1 US dollar, which seems to be a continuation of the exchange rate crisis in 1994. The rate was set at 3.4 pesos to the dollar. Basically, the hold on the rate was dropped in an effort to stimulate exports by making them cheaper on the world market. The peso continued to devalue, and soon the Clinton administration granted $40 billion in foreign aid. To increase foreign investor confidence, Mexico had to raise short-term interest rates to attract those investments.

NAFTA has allowed greater free trade between the three North American countries. While it has created a looser border for material goods it has also raised concern over illicit drug smuggling. Mexico is a major US supplier of heroin and the largest foreign supplier of marijuana and methamphetamine to the US (cia.gov). Surely these issues have caused a great deal of strife at the border, however the US customs agents have developed strategies to catch more smugglers at the border without causing a greater disruption in legitimate commercial transportation. These types of border issues also pertain to the movement of illegal immigrants into the US. This has been an increasingly hot button issue in the past few years particularly due to the Bush administration’s stance on guest workers in our country. Some would argue that this huge source of foreign labor in the US is a burden on the American working man. However, the administration has argued that immigrants are taking jobs that are less desirable to American workers, jobs that are usually hard to fill or never get filled. There is a constant demand for labor in various sectors of the economy that will employ an unskilled labor force and are not attractive to most unskilled US workers. My reaction to this is neutral, because unemployment is not impacted by this source of labor. Unemployment is a call for change; the necessity to adapt and learn new skills, or take an undesirable job for the sake of income.

Other issues surrounding Mexican-US relations are the so-called “outsourcing” of jobs and manufacturing operations to Mexico. This seems to be the other side of the coin, what I like to call “corporate immigration.” The policies of the Mexican government make it attractive to foreign companies to have operations there. While these policies provide a significant amount of income to the Mexican government, they do not come without environmental costs. Fresh water resources are scarce and polluted throughout much of the country with raw sewage and industrial waste polluting rivers in urban areas. They also suffer from deforestation which is a major cause of erosion and river pollution. Agricultural lands are diminishing due to “desertification.”

The future of the Mexican economy is not bleak. There has been growth in recent years, and the outlook is positive. There has been growth particularly in the telecommunications, financial services and construction sectors. The new administration in Mexico is apparently less corrupt than previous administrations, and there is more political stability than ever before. With the growth of the US economy also comes the growth of the Mexican economy, and if this holds true then both economies will see increases and size and efficiencies in the coming future.

Mexico is not without its economic and social problems, however. The gap between rich and poor still remains large. Social structure is still very much based on skin color and heritage. Those who can trace their lineage to Spain are at the top, mixed Spaniard/Natives are in the middle, and the Native Mexicans (“Indians”) are at the bottom. Economically, growth is slow but positive, but still less than desired.

Mexico continues to strive to increase its export reach further around the globe. This is seen as a major strategy to improving the economy and raising the standards. There is a tremendous amount of pressure for countries to globalize and liberalize trade policies for the better of all mankind. Mexico has been among the leading countries in exporting of goods and manpower. By making it attractive to do business in Mexico, they have effectively opened their country to increased foreign investment for long term economic growth. A very important determining factor for economic growth is the level of “homeland security” practiced by the US, their number one trade partner. I mentioned the border situation earlier, and with increased paranoia over terrorist threats the US is sure to mark up security forces over the years, clogging traffic further at the borders and making it increasingly difficult for supply chains that include Mexico as a link. Although most experts speculate that this will not be a major factor on international commerce, if terrorist threats increase and security becomes compromised it will become a major barrier to North American trade, not only with Mexico but with Canada and all other countries doing business with the US. These policies are of great concern to the Mexican government as their economy is primarily export based. However, it is not my opinion that serious issues will arise in this respect for many years; in the meantime the Mexican economy is on a slow upward trend along with the United States.

References

http://wpcarey.asu.edu/seidman/eoc/mexico/

http://www.cia.gov/cia/publications/factbook/geos/mx.html
http://www.traveldocs.com/mx/economy.htm
http://www.traveldocs.com/mx/economy.htm
http://en.wikipedia.org/wiki/Economy_of_Mexico
http://www.traveldocs.com/mx/economy.htm

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