Economy of Mexico

Contents

1 Overview 1.1 Trade 1.2 Agriculture 1.3 Manufacturing and foreign investment 1.4 Oil and gas 2 National accounts 2.1 GDP 2.2 Poverty and wealth 2.3 Inflation 2.4 Labor 2.5 Budget 2.6 Industries 2.7 Energy 2.8 Agriculture 2.9 Cross-border 2.10 Imports 2.11 Debt 3 References 4 See also 4.1 Central bank 4.2 Lists

Overview

Mexico has a free market economy with a mixture of modern and outmoded industry and agriculture, increasingly dominated by the private sector. The number of state-owned enterprises in Mexico has fallen from more than 1,000 in 1982 to fewer than 200 in 1999. The administration of President Ernesto Zedillo Ponce de Leon continued a policy of privatizing and expanding competition in sea ports, railroads, telecommunications, electricity, natural gas distribution, and airports which was initiated by his predecessors Miguel de la Madrid and Carlos Salinas de Gortari. A strong export sector helped to cushion the economy's decline in 1995 and led the recovery in 1996-99. Private consumption became the leading driver of growth, accompanied by increased employment and higher wages. 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% of income earners accounting for 55% of income. Trade with the US and Canada has nearly doubled since NAFTA was implemented in 1994. Mexico is pursuing additional trade agreements with most countries in Latin America and has signed a free trade deal with the EU to lessen its dependence on the US. The government is pursuing conservative economic policies in 2000 to avoid another end-of-term economic crisis, but it still projects an economic growth rate of 4.5% because of the strong US economy and high oil prices.

Mexico is highly dependent on exports to the U.S., which account for almost a quarter of the country's GDP. The result is that the Mexican economy is strongly linked to the U.S. business cycle. With the downturn in the U.S. economy in 2001, there was little or no growth in Mexico in 2001. Depending on the strength of the recovery in the U.S. in 2002, growth in Mexico in 2002 will probably be between 1%-1.5%.

Mexican trade policy is among the most open in the world, with Free Trade Agreements with the United States, Canada, the EU, and many other countries. Since the 1994 devaluation Mexican governments have improved the country's macroeconomic fundamentals. Moody's (in March 2000) and Fitch IBCA (in January 2002) have issued investment-grade ratings for Mexico's sovereign debt. The upgrade from Fitch IBCA was based in part on the determination that Mexico has not been significantly affected by "contagion" from Argentina's debt crisis.

Corruption and crime continue to be serious and chronic problems; together they may make up as much as 25% of Mexico's GDP. The crime sector is made up of all the usual suspects: drug trafficking, robbery, extortion, kidnapping, and counterfeiting. Even worse is that all these occupations rarely return tax revenue to the government, so they directly increase the burden for honest taxpayers.

In 2004, under pressure from large corporations, particularly multinationals, the federal government attempted a crackdown on crime but met strong resistance from protesters demanding legitimate jobs. To protect their interests, and to encourage people to move into legal taxpaying economic sectors, the disgusted business sector has begun to form self-help associations like the Alliance for a Legal Mexico.

Because of the government's continuing financial problems, it cannot even adequately subsidize its universities (or the basic research that would provide full employment for Mexican scientists and engineers, and ultimately improve the national economy). The College of the Northern Frontier in Tijuana did a survey and estimated that more than 100,000 of the illegal immigrants entering the U.S. each year are university-educated.

Trade

Mexico is one of the world's most trade dependent countries, and it is particularly dependent on trade with the U.S, which buys approximately 85% of its exports. Top U.S. exports to Mexico include motor vehicle parts, electronic equipment, and agricultural products. Top Mexican exports to the U.S. include petroleum, cars, and electronic equipment. There is considerable intra-company trade.

Mexico is an active and constructive participant in World Trade Organization (WTO) matters, including in the launching of the Doha trade round. The Mexican Government and many businesses support a Free Trade Area of the Americas.

Given the overall size of trade between Mexico and the United States, there are remarkably few trade disputes, involving relatively small dollar amounts. These disputes are generally settled in WTO or NAFTA panels or through negotiations between the two countries. The most significant areas of friction involve trucking, sugar, high fructose corn syrup, and a number of other agricultural products.

Agriculture

Mexico's agrarian reform program began in 1917, when the government began distribution of land to farmers. Extended further in the 1930s, delivery of land to peasants continued into the 1960s and 1970s at varying rates. This cooperative agrarian reform, which guaranteed small farmers a means of subsistence livelihood, also caused land fragmentation and lack of capital investment, since commonly held land could not be used as collateral. Regionally poor soils, several recent years of low rainfall, and rural population growth have made it difficult to raise the productivity and living standards of Mexico's subsistence farmers.

There have been programs that provide money to pay off loans and help banks with their debt burdens. While high credit costs are still a major problem impeding agricultural development, the burden of debt has been reduced. High interest rates for loans have compounded the difficulty for producers, and the 1994 peso crisis exacerbated the decline in productivity. Agriculture accounted for 5.8% of GDP in 1999.

In an effort to raise rural productivity and living standards, Article 27 of the Mexican Constitution was amended in 1992 to allow for the transfer of communal land to the farmers cultivating it. They then could rent or sell it, opening the way for larger farms and economies of scale. By early 1996, however, only six farmers' cooperatives had voted to dissolve themselves, perhaps because the government provides subsidies for communal land seeded by farmers. (The subsidy was 708 pesos per hectare in 1999-2000 and 829 pesos per hectare in 2000-01.) Since communal land use is formally reviewed only every 2 years, privatization of these communal lands may continue to be very slow.

In the past, the government encouraged production of basic crops such as corn and beans by maintaining support prices. In order to stimulate its agricultural sector, Mexico is restructuring its support price scheme. The government in 1996 crafted federal-to-state agreements targeted at each states' most urgent needs, with the goal of increasing the use of modern equipment and technology in order to increase land productivity. In addition to this new initiative, the government is continuing PROCAMPO, the rural support program which provides the approximately 3.5 million farmers who produce basic commodities--about 64% of all farmers--with a fixed payment per unit area of cropland.

Manufacturing and foreign investment

Manufacturing accounts for about 22% of GDP and grew by 9.4% in 2000. Manufacturing probably fell or was stagnant in 2001 because exports to the U.S. probably fell. Construction grew by almost 7% in 2000 but was probably stagnant in 2001.

Foreign Direct Investment (FDI) presents a bright picture in the Mexican economy. In 2000, Mexico was the largest recipient of FDI ($22.5 billion) in Latin America. Net U.S. FDI in Mexico in 2000 was $3.2 billion, and the 2000 U.S. stock of FDI in Mexico was $34.5 billion (U.S. BEA numbers). U.S. FDI is concentrated in the manufacturing (mostly maquiladora or in-bond plants) and financial sectors. Final numbers for 2001 have not been published; the largest U.S. investment in 2001 was Citigroup's $12.2 billion acquisition of Banamex. This investment was the main reason Mexico received more FDI than Brazil in 2001.

Oil and gas

In 2000 Mexico was the world's fifth-largest oil producer, its 10th- largest oil exporter, and the fourth-largest supplier of oil to the United States. Oil and gas revenues are expected to provide about one-third of all Mexican Government revenues in 2002.

Mexico's state-owned oil company, Pemex, holds a constitutionally established monopoly for the exploration, production, transportation, and marketing of the nation's oil. Since 1995, private investment in natural gas transportation, distribution, and storage has been permitted, but Pemex remains in sole control of natural gas exploration and production.

National accounts

GDP

GDP by purchasing power parity - $1.065 trillion (2005 est.)

GDP - real growth rate: 1.3% (2004 est.)

GDP - per capita: purchasing power parity - $10,090 (2004 est.)

GDP - composition by sector: (2004 est.)

agriculture: 4%

industry: 26.4%

services: 69.6%

Poverty and wealth

Population below poverty line: 39.4% (2003 est.)

Household income or consumption by percentage share:(2002)

lowest 10%: 1.6%

highest 10%: 35.6%

Inflation

Inflation rate (consumer prices): 4.5% (2004 est.)

Labor

Labor Force: 34.11 million (2004 est.)

Labor force - by occupation: agriculture 18%, industry 24%, services 58% (2003)

Unemployment rate: 3.3% plus underemployment of perhaps 25% (2004 est.)

Budget

revenues: $148.3 billion

expenditures: $152.4 billion, including capital expenditures of $NA (2004 est.)

Industries

Food and beverages, tobacco, chemicals, iron and steel, petroleum, mining, textiles, clothing, motor vehicles, consumer durables, tourism

Industrial production growth rate: -0.7% (2004 est.)

Energy

Electricity - production: 194,367 GWh (2000)

Electricity - production by source:

• fossil fuel: 75.91%
• hydro: 16.88%
• nuclear: 4.02%
• other: 3.19% (2000)

Electricity - consumption: 182,829 GWh (2000)

Electricity - exports: 77 GWh (2000)

Electricity - imports: 2,145 GWh (2000)

Agriculture

Agriculture - products: corn, wheat, soybeans, rice, beans, cotton, coffee, fruit, tomatoes; beef, poultry, dairy products; wood products

Cross-border

Exports: $164.8 billion (f.o.b., 2004 est.)

Exports - commodities: manufactured goods, oil and oil products, silver, fruits, vegetables, coffee, cotton, honey (2004)

Exports - partners: US 87.6%, Canada 1.8%, Germany 1.2% (2003)

Imports

Imports: $168.9 billion (f.o.b., 2003 est.)

Imports - commodities: metal-working machines, steel mill products, agricultural machinery, electrical equipment, car parts for assembly, repair parts for motor vehicles, aircraft, and aircraft parts

Imports - partners: US 61.8%, China 5.5%, Japan 4.5% (2003)

Debt

Debt - external: $159.8 billion (2004 est.)

Economic aid - recipient: $1.166 billion (1995)

Currency: 1 Mexican peso (Mex$) = 100 centavos

Exchange rates: Mexican pesos per US dollar - 11.125 (4/28/05), 11.186 (2004), 10.789 (2003), 9.656 (2002), 9.3423 (2001), 9.4556 (2000), 9.5604 (1999)

Fiscal year: calendar year

References

• Richard Boudreaux, "Deadly Journey of Hope," Los Angeles Times, Oct. 13, 2004, at A1.
• Marla Dickerson, "Mexico Runs on Sidewalk Economy," Los Angeles Times, May 9, 2005, at A1.

See also

• 1994 economic crisis in Mexico
• Bolsa Mexicana de Valores
• Ejido
• GDP of Mexico
• Inflation in Mexico
• Mexico

Central bank

• Banco de Mexico

Lists

• List of Mexican Companies

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