Mexico's+Economy

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The Economy



Despite the Mexican Miracle* that lasted from 1940-1960, Mexico is still plagued by economic problems and is currently trying to recover from the economic crisis of 2008; however, the country's fiscal situation is nevertheless trending upward long-term. Currently, Mexico's economy ranks between 11th and 13th of the world's richest, yet remains much lower (56th) when comparing overall development. Several international organizations predict that Mexico will be one of the world's strongest economies by the year 2050, joining China, the United States, Brazil, India, and others.


 * Mexican Miracle- from 1940 to 1960, the Mexican economy grew by 6% a year; in addition, industrial production rose an average of 9% a year for most of the '60's. Also, agriculture's share of the economy dropped 14% while manufacturing rose from 25% to 34%. Perhaps most importantly, this growth occurred with out the inflation with which it is commonly associated.

__Current Policy __

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The Mexican government sees the best way of combating economic downturn is a strict policy to curb inflation. The Mexican economy is integrally tied to the United States; in the past ten years, exports to the United States accounted for a full 80% of non-oil exports. While the economy may be unevenly distributed, the recent recession was unlike previous Mexican recessions because it came at a time of strong macroeconomic fundamentals including a solvent fiscal position, a floating exchange rate system, and an independent central bank committed to price stability. ======



Surprisingly, despite its problems, Mexico has done well in recovering from the 2008 financial crisis, considering the circumstances. By the end of 2010, the Mexican economy had accelerated and was growing at the fastest rate in the previous 10 years. Most importantly, it was the service industry that grew the most to become more robust during this time.Reforms over the previous decade, such as a balanced budget rule and reduced levels of debt, combined with the central bank's sizeable interest rate cut helped the country weather the crisis fairly well. The International Monetary Fund has said that signs of recovery have strengthened and that a 4.5% growth rate is expected in 2011. However, much of Mexico's economic fate rests with the situation of the United States and the rest of the global community. As the famous saying goes: when the U.S. catches a cold, Mexico gets pneumonia.

In the public sector, the Mexican government does a lot of business in the economy. It has varying degrees of involvement in companies like Pemex (petroleum), Aeromexico (airline), and Televisa (media). The government often plays an all-too-active role in the economy, hurting growth, fairness, and competition and subsidizing businesses that are not profitable.

In terms of the private sector, once entrepreneurs have passed the difficult stage of opening a new business, the economic opportunities open to them in Mexico are significant, especially considering the low cost of labor, rent, and living. Since his election, Felipe Calderon has launched new policies aimed at economic growth: __The First Employment Program__ is aimed at creating new job opportunities for people entering the job market and stopping the emigration of workers to the U.S. The program gives cash incentives to employers who hire first-time job seekers. This program has been criticized as being too modest, but it has allowed students coming out of school and women who have never held jobs the opportunity to work. __The Tortilla Price Stabilization Act__ showed Calderon's willingness to use price ceilings on the rising cost of the tortilla, the main food product of the poorest Mexicans. This is an example of the government actively intervening in the economy and protecting the interests of the consumer. __A public servants salary cap__ limited the salaries of elite government officials as part of an effort to reduce public debts. __Escalated security policy__ has been undertaken to protect economic growth from the instability threatened by the drug cartels, but so far those efforts have been mostly unsuccessful.

Challenges still exist to current policies, however. Oil production has been dropping and the government needs to find alternative methods of raising revenue. This means expanding the tax base and raising millions of Mexicans out of poverty, no small feat. Another problem is that the top 10% of citizens control 42% of the wealth, which excludes much of the rest of the population from enjoying Mexico's projected future economic growth. Mexico must also improve its infrastructure if it hopes to be a competitive world economic power. In addition, the ongoing drug war has caused many foreign investors to lose faith in the stability of the Mexican economy and pull support a well as cripple tourism. Many experts say that the drug war has cost the economy a full 1-2 growth percentage points.

__Public Opinion __ media type="custom" key="8897638"

[|Mexico's Best Hope for Growth]

media type="custom" key="8897728" Many of the people in Mexico have lost hope for an immediate change, believing that the way to success is through emigration to America. The views of NAFTA (North American Free Trade Agreement) are mixed. The media normally tends to highlight the anti- NAFTA viewpoint, but in unbiased surveys, its been shown that the majority of Mexican citizens do support NAFTA. Mexicans have, in general, a positive view of globalization and it's effect on the economy. However, many feel NAFTA is good thing, but should be renegociated so it does not harm the agriculture section. It has been groups representing farmers that have lobbied against the agreement. __Party Opinion __

PAN: The PAN stands for free enterprise and thus advocate trade agreements. They have been strong supporters of NAFTA and often criticized for taking this stand. They fall to the right on the political spectrum so, in addition, thy also favor small government and little intervention. Privatization of oil remains a controversial issue.

PRI: Throughout the PRI's time in power, they successfully rebounded Mexico from a previous recession and made significant changes to the fundamental systems in Mexico. One of the contributions has been the floating exchange rate to ensure that Mexico can always been a player on the international stage.

PRD: The PRD has been the strongest opponent to current remedies to the economic problem. In order to raise money, they propose to enforce tax collection on companies. In addition, the PRD plans budget cuts that could save Mexico over 100 billion pesos. __Implications __

If Calderon's policies can, first of all, create a flourishing economy, and then more importantly, ensure that all classes can partake in its success, then Mexico should enjoy a prosperous few decades. Economic growth could solve some of the cleavages present that currently divide Mexican society. If the gap between rich and poor can be narrowed, then their relationship could be less antagonistic and the political parties might not be so divided along class lines. The cleavage between the urban and rural populations could also be lessened, if infrastructure could be improved and citizens outside of cities could be included in financial gain. Another important implication of the economy's well-being is its impact on poverty. Poverty causes much of the crime, corruption, and political ignorance in the country. If economic growth continues and the government can spread some of the wealth to lift some of the millions of Mexicans out of poverty, then the country could see a significant drop in violence, more political participation, greater voter turnout, and more respect for the law. All of these developments would be important steps toward consolidating Mexico's improving democratic government.

Perhaps most importantly, economic growth could revitalize the Mexican middle class--which is now mostly absent. The combination of economic success and a prosperous middle class has in the past been the road to establishing a strong democracy, and Mexico could take a similar path.