MEXICO
AND THE WORLD MARKET
by Bob
Brooke
Mexico
has gone from an economy dominated by state-owned companies to one
increasingly dominated by private enterprise. The number of state-owned
companies in Mexico has fallen from more than 1,000 in 1982 to fewer
than 200 in 2000. With a mixture of modern and agrarian industry,
Mexicos free market economy has begun to prosper since the inception
of the North American Free Trade Agreement (NAFTA) in 1994.
The previous
administration of President Ernesto Zedillo began privatizing and
expanding competition in sea ports, railroads, telecommunications,
electricity, natural gas distribution, and airports. The Mexican economy
is still recovering from dramatic recession of 1995, touched off by one
of the worst financial crisis in recent years. After declining 6.2
percent in 1995, Mexicos real Gross National Product (GDP) grew from
5.1 percent in 1995 steadily until leveling off in 1997. If it werent
for the countrys strong export market which helped cushion the
economy's decline in 1995, leading to the recovery in 1996 and 1997,
Mexico would have been in big trouble. According to the latest
statistics, Mexicos GDP for 2000 was 5 percent, which translates to a
little less than $8,000US per capita.
However, at the end of
the first second quarter of 2001, the growth of the GDP had dropped to
zero, according the Mexican Ministry of Finance and Public Credit. At
the end of the Zedillo administration, Mexico had registered five years
of steady growth at an annual average rate of no less than 5 percent,
the highest rate for a similar period in the past 20 years. So far,
President Vincente Foxs administration hasnt been able to keep up
with that level of growth.
According with the IMSS
(Mexican Institute of Social Security) data, more than 3 million new
jobs have been created, of which 2.3 million are permanent, during the
last five years, dropping the unemployment rate to 2.44 percent (July,
2001), its lowest level since 1985. But Mexicos exploding population
generates a need for some 800,000 new jobs a year, so its a constant
battle.
The 1994 devaluation
triggered a high rate of inflation in 1995 up to a yearly rate of 51.97
percent. In contrast, at the end of 1999, the rate of inflation was
12.32 percent, below the goal of 13 percent set in the 1999 Economic
Policy Guidelines. At the end of 2000, the annual inflation rate dipped
below 10 percent. And by the middle of 2001, it had dropped to 5.61
percent. Interest rates have been reduced considerably and the foreign
exchange rate has been relatively stable, after adopting a floating
exchange rate.
By 1998, consumer
spending rose by 4 percent bolstered by increased employment and rising
real wages. And Mexicos troubled banks increased lending for the
first time in three years.
The long-term economic
outlook for Mexico remains positive. However the projected growth of 4
to 5 percent predicted by government and private sector economists has
failed to materialize. By the end of June of this year, the Mexican
growth of the economy had come to almost a complete standstill.
But Mexico still needs to
overcome many structural problems as it strives to modernize its economy
and raise living standards. Income distribution is very unequal with the
top 20 percent of wage earners accounting for 55 percent of income. The
inefficient agricultural sector employs 20 percent to 25 percent of the
labor force but produces only 8 percent of the GDP.
Trade with the United
States and Canada has nearly doubled since NAFTA. Mexico is pursuing
additional trade agreements with most countries in Latin America and
with the European Union to lessen its dependence on the United States,
which accounts for 80 percent of Mexico's total trade.
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Bob Brooke, please visit his Web
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