Economy of Mexico

Economy of Mexico 

     United Mexican States are located in southern North America. This is a developing country with the absolute volume of GDP of about $ 800 billion and per capita GDP of more than 8 thousand dollars (PPP). Mexico is a party to NAFTA and the first among Latin American nations joined the elite OECD.  
Mexico - a federal republic consisting of 29 states, the Federal District and two outlying areas. The Mexican nation is formed by mixing Indian and Spanish settlers. The country has lived nearly 100 million people. Modern Ethnic groups: Mestizo - 60%, Indians - 30% of Europeans - 10%. Official language - Spanish. Entrails of the country rich in oil, natural gas, silver and polymetallic ores.

     Mexico - a country with a diversified economic structure. In industry, traditional industries are mining (oil, natural gas, polymetallic). They are the traditional source of foreign exchange earnings. Rapidly developing manufacturing industries - engineering, metallurgy, petrochemistry, and the decisive role in their development are foreign, mainly American, companies. Thus, over 90% of cars produced in the country are made in factories subsidiaries of American corporations, Ford, General motorc and Chrysler.  

     National monopoly groups are specialized mainly in traditional industries, construction, transport and communications, where until recently the involvement of foreign firms are not allowed. An example is the Mexican company Vitro, which acts a monopolist in the production of flat and container glass bottle in the country, controlling more than 90% of its production.

     Agricultural production is about 5% of GDP, although there until recently was occupied by the 1 / 3 of the active population. The reasons for such low efficiency of agriculture are rooted in failed government policies and conservative forms of land tenure and land use. On the 90 th years. they become a brake on development. As a result of the agrarian reform after the revolution of 1910-1917 years. land alienated from the landlords and foreign owners, moved to the state, which transferred its peasant communities (ehidos). Since then, the state exercised control over the development of agriculture, is regularly allocated to it grants, which are due to bloated management staff and corruption rarely came to manufacturers. In agriculture, because of the backward culture of productivity was extremely low.  
In the second half of the 90-ies. in agriculture was carried out a new policy, which is based on privatization ehidos and deregulation.

     Country's economy in recent decades is uncertain. Until the early 80's. Mexico policy was aimed at expanding production and export of minerals with a wide attraction for the foreign creditors. The result of such policies have relatively high output growth at the expense of the extractive industries (up to 8% per annum) and high external debt (second place in the world after Brazil).  
In the early 80's. it became apparent that the strategy focused on the regular receipt of foreign loans in the calculation to cover their income from exports of raw materials, especially oil, has not justified itself, moreover, in this period in global financial markets were growing interest on loans. In August 1982, the Mexican Government has declared the failure to make payments on foreign debt in full. The country has undertaken a course of austerity, aimed at limiting domestic demand. Almost all private banks were nationalized, and foreign investors do not have the right to participate in the equity of Mexican banks.

     Trade surplus was used mainly for the repayment of external debt, which in turn blocked the possibility of investment in the development of national economy. As a result, average annual GDP growth in the 80-ies. amounted to 2,5%, that is, the economy did not develop much faster than population growth (2,3% - in the 80 and 1,8% - in the 90-ies.), and Mexico worked exclusively on servicing external debt - related costs in 1986 reached 44% of the value of exports of goods and services (in 1993 - 24%).  
The sharp decline in earnings in the economy required new foreign loans. To rescue the Mexican economy IMF proposed creditor banks to provide it with additional credits. As a result, Mexico's foreign debt rose to the mid 90's. Approximately three times compared with the beginning of the last decades of the century, reaching about $ 160 billion, while the ratio of external debt to GDP increased from 24% in 1980 to 42% in 1989 and 44% in 1996.

     Rethinking the economic strategy based on the ideas of neo-liberalism has begun already in 1985, when the program was announced reorganization of the public sector, liberalization and privatization, the object which at first became unprofitable and marginal enterprises had overdue foreign debt. Widespread in the sale of assets of the public sector were the deal "swap" - the exchange of debt for shares of privatized enterprises.

     The peak came in the privatization of 1990-1992. In the privatization program included the largest enterprises of mining industry, ferrous metallurgy, aviation transportation, communications, major banks. In the auctions of state assets widely accepted as part of national financial and industrial groups and foreign companies and banks. The Government of Mexico has received from the privatization of $ 22 billion.

     Such a big revenue played an important role in stabilizing the monetary and financial situation of the country. Large-scale privatization has also contributed to stock market development in Mexico. The policy of financial stabilization and structural transformation of the economy has stimulated the influx of foreign direct and portfolio investment.

     Also in Mexico, with the beginning of privatization carried out activities to attract foreign investors, which have been reduced or eliminated restrictions on participation in the capital of Mexican companies. Thus, in the regulation of 1989 to the Law on Foreign Investment of 1973, foreign investors enjoy the right to 100% strength of participation in 58 types of industrial and commercial activities. In 36 industries, including petrochemical, mining and fisheries, especially where foreign capital is not allowed, now its limit set at 49%. As a result of these measures in 1990-1997. Foreign direct investment in the Mexican economy has increased almost threefold, reaching 87 billion dollars during this period, Mexico was in first place in the Latin American region for direct investment flows, which reached $ 12 billion a year.

     However, in 1994-1995. Mexico's new economic crisis erupted. Its causes, including excessive foreign capital in the form of short-term portfolio investments speculative nature without proper state control over them, typical of many developing economies, including Asian, experienced the subsequent crisis in 1997 Thus, the Mexican government in the late 80-ies. in pursuit of foreign investment was urgently undertake (without consequences) policy of opening the stock exchange to foreign investors, providing high interest rates and measures to protect foreign portfolio investment. The result of this policy has been poured into Mexico in 1989-1994,. flow of foreign speculative capital.

     The immediate impetus for the crisis of 1994-1995. was the devaluation of the peso, conducted by the Government of Mexico in late 1994 to promote exports and protect domestic producers from excessive imports. This economic factor has joined the political - the peasant-Indian unrest in the impoverished state of Chiapas. The first manifestation of the crisis was the start of flight of foreign speculative capital from Mexico, sparking fears of economic and political stability in the country. During 1995 the country had withdrawn about $ 10 billion in mass transfer of funds abroad led to the crisis of the banking system, the consequence of which was the bankruptcy of several commercial banks and the reduction of foreign exchange reserves.

     The crisis of 1994-1995. threatened with significant losses of foreign, especially American investors. U.S. is slow to help Mexico as a partner in NAFTA, as well as to demonstrate its role as an initiator from the American free trade zone under the auspices of the United States. Together with the IMF, the United States take urgent measures to rescue the Mexican economy and were the guarantors of an assistance package of $ 51 billion

     American corporations have become major beneficiaries of the Mexican government appropriations for activities in the country out of crisis yet, because they removed the undoubted benefits of their provision: first, the Mexican government to use these funds to repay their financial obligations to foreign investors, and secondly , the provision of assistance was due to several commitments from the Government of Mexico, in particular, to implement the privatization of strategically important industries, including petrochemicals.

     Dollar infusion into Mexico caused a relatively fast way out of crisis. The decline in production in 1995 at 6.6% and inflation 52% increase in output were replaced in 1996 by 5,2% and a decrease in inflation to "7%. The excess of exports over imports, since 1995, boosted the country's solvency. External debt declined from 160 to 156 billion dollars, however, remained high unemployment - over 20% of the economically active population, and the government has not yet created an effective mechanism for protection against unemployment.

     Prospects for further economic development in Mexico rather uncertain due to the fact that the main factor in stabilizing the economy remains external financing. Out of the crisis was caused by a prolongation of the previously received loans. A huge external debt continues to hang over the economy of the country, increasing its dependence on the situation in the world economy.

     The value of foreign economic relations in the economic development of Mexico has been steadily increasing. Only in the last decade the export quota on goods increased from 5.7 to 7%. The rate of growth of exports, Mexico is far ahead of other Latin American countries. So, in 1997, its exports in value terms increased by more than two times compared to 1990, particularly the rapid growth of foreign trade turnover was observed in Mexico after its entry into NAFTA. Gained momentum foreign economic relations with Canada. Growth rates of three-way trade turnover Mexico - USA - Canada from 1994 to 1997. year accounted for about 20%. Among the exporters in the world, Mexico has moved from 28 th to 16 th place.

     In the commodity structure of exports dominated by manufactured goods, petroleum, cotton, coffee, non-ferrous metals. Moreover, traditionally made up the bulk of export commodities and food products in the past two decades, concede his place of manufacturing - machines, equipment and vehicles. If in 1985 the share of manufacturing in Mexican exports was 38%, while in 1997 this figure exceeded 85%. In 1996, Mexico's exports reached a record amount - $ 100 billion, which allowed her to take first place in Latin America in terms of export of goods and services.

     As for Mexican imports, then it increases the share of capital goods - machinery and equipment and intermediate goods - semi-finished components for the assembly of specific types of raw materials. To these articles in 1997 accounted for 78% of imports.

     Importance for the Mexican economy are foreign tourism and maquiladoras. These plants are located in the border economic zones in the northern Mexican states bordering the United States. They are subject to rules of border trade. From 1990 to 1997. number of these enterprises increased from 1700 to 3650, while the number employed in them - from 450 to 920 thousand people. Almost all of them, the production is exported, with the 9 / 10 - in the U.S.. Of the assembly plants of the first generation of labor-intensive production with low technical capacity "maquiladoras" by the end of 90-ies. become a modern enterprise specialized in producing technologically complex products - automobiles, appliances, electronics and other dominant positions in these enterprises are U.S. investments.

     In the second half of the 90-ies. policy of financial stabilization and accelerate structural reforms in Mexico encouraged the inflow of foreign direct and portfolio investment. Annually into the economy of Mexico flowed up to 12 billion dollars of direct investment and the share of Mexico in the sum total of foreign investments accounted for Latin American countries exceeded 40%. The activity and the stock market. Intense flow of financial resources from abroad, and greatly increased export earnings have allowed Mexico to 1997 to increase its foreign exchange reserves to 17.5 billion dollars

     Development of Foreign Economic Relations of Mexico oriented toward the North American Free Trade Association. The share of NAFTA in Mexican exports by 1997 had risen to 87%, while in imports - up to 76%. At the same time, foreign economic strategy of this country also aims to diversify markets and seek new sources of funding. Therefore, expanding ties with neighboring Latin American countries, including the integration grouping Mercosur. Increased trade with Asian countries, mainly the Pacific.

     For many years, traditional trade and economic Soviet-Mexican connection, were symbolic. The volume of foreign trade, as a rule, do not exceed a few tens of millions of dollars. Was a similar pattern in the scientific and technical sphere. In 90-ies. Russian companies have made attempts to penetrate the Mexican market with small quantities of power equipment, aircraft (helicopters), chemical equipment, tractors, trucks Ural, some types of ores and ore concentrates, flat rolled steel products, agricultural fertilizers, etc. However, the problems out of Russian goods to the Mexican market is saturated with primarily American products, as well as Japanese and Western, are associated with the presence of competitive types of machinery and equipment, advanced technology development, patents and licenses. In the second half of the 90-ies. from Mexico to Russia imported steel, seamless pipe, zinc ore, coffee, beer, telephones, shoes, clothes, etc.

     Given that the main direction of modern foreign and economic policy in Mexico focused on NAFTA, we can assume that at the present time, and in the foreseeable future, Russia and Mexico are unlikely to be the priority partners.