VIEWPOINTTM

Does Mexico Have a Financial Foundation
To Weather the Storm?
By Harriet Cochran Murrray • Cochran Real Estate - September 2009

Recently, I realized the importance of knowing the basic economic strengths and weaknesses of Mexico. Her strengths are needed to weather recent negative publicity and instability of financial markets worldwide. The renewal of our real estate market is tied not only to the economic stability of the USA and Canada, but to Mexico’s as well.
 
The majority of information sourced was from Wikipedia, which uses references to governmental reports for statistical information.

Mexico has a huge young labor force and is rich in natural resources. Its major trade partners are the USA and Canada. Mexico is dependent upon the USA for its exports. When the USA has problems, it certainly affects the financial health of a country which depends on another to purchase over 75% of its products and services.

Here are some interesting statistics which give us a clearer picture of Mexico’s place in the global economy:

1. The economy of Mexico is 11th to 13th largest in the world. Since the 1994 crisis, presidential administrations have advanced the country' economic progress.

2. The most influential agreement for Mexico is FTA, the North American Free Trade Agreement (NAFTA), which came into effect in 1994, and was signed in 1992 by the governments of the United States, Canada and Mexico. In 2006, trade with Mexico's two northern partners accounted for almost 90% of its exports and 55% of its imports.

3. The Mexican Congress of the Union continues to approve important tax, pension and judicial reforms, and reform the oil industry.

According to the Forbes Global 2000 list of the world's largest companies in 2008, Mexico had 16 companies in the list.

4. The labor force is 44.71 million (2007 est.) By occupation -agriculture: 18%, industry: 24%, services: 58% (2003) Unemployment  is 3.7% plus considerable underemployment (26%) (2007 est.)

Main industries are: food and beverages, aerospace, electronics, tobacco, chemicals, iron and steel, petroleum, biotechnology, mining, shipbuilding, electricity, defense products, textiles, clothing, motor vehicles, computers, consumer durables, information technologies, tourism and ecotourism.

5.  Exports are $419.9 billion f.o.b. (2009 est.) Export goods are: manufactured goods, electronics, oil and oil products, aircraft, silver, computers and servers, fruits, meats, consumer electronics, processed foods, vegetables, ships, coffee, LCD screens, electricity, biotechnology, cotton, automotive and aircraft engines, cellular phones, metals, industrial equipment, granite and marble and lithium batteries. Main export partners US 76.5%, Canada 6%, Germany 1.7% (2008)

6. Imports are $283 billion f.o.b. (2007 est.) Import goods are steel mill products, agricultural machinery, and electrical equipment, repair parts for motor vehicles and aircraft parts. Main import partners: United States 55.5%,Brazil 31.4%,Chile 9.3%,China 5.4%,South Korea 5.4%,Japan 4.1% (2008)

7. Public Debt is $92.7 billion (October 2008) Revenues $391.2 billion (2008) Expenses $321.2 billion (2000 est.) Economic aid $189.4 million (2008) Main data source: CIA World Fact Book History of Economic Change 1800’s-1970’s

After five decades of political turbulence and the independence of Mexico, the four consecutive administrations of President Porfirio Díaz (1800’s) brought unprecedented economic growth. This growth was accompanied by foreign investment and European immigration, the development of an efficient railroad network and the exploitation of the country's natural resources. GDP per capita levels circa 1900 were on par with Argentina and Uruguay, almost three times that of Brazil and Venezuela. Annual economic growth between 1876 and 1910 averaged 3.3%.

Political repression and fraud, as well as huge income inequalities, were exacerbated by the land distribution system where large haciendas (owned by a few) were worked by millions of underpaid peasants. This inequity led to the Mexican Revolution (1910–1917). This armed conflict drastically transformed Mexico's political, social, cultural, and economical structure during the twentieth century with the promise social democracy. The war itself left a harsh toll in the economy. The population decreased over an 11-year period between 1910 and 1921. The reconstruction of the country was to take place in the following decades.

The period from 1930 to 1970 was called the "Mexican Miracle" by economic historians. This was a period of economic growth spurred by a model of import substitution industrialization (ISI), which protected and promoted the development of national industries. Through the ISI model, the country experienced an economic boom and industries rapidly expanded their production.

Important changes in the economic structure included free land distribution to peasants under the concept of ejido, nationalization of the oil and railroad companies, the introduction of social rights into the constitution, the birth of large and influential labor unions, and the upgrading of infrastructure. The population doubled from 1940 to 1970; GDP increased six fold.
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Harriet C. Murray
E-mail: harriet@casasandvillas.com.

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