economic development of mexico

  From the mid-1940s through the 1970s, Mexico generally enjoyed considerable economic growth, especially in industry. However, in the 1980s the economy, heavily dependent on sales of petroleum, incurred large international debts as petroleum prices fell. In the early 1990s, debt relief, diversification and privatization of the economy, and foreign investment showed positive effects, and the growth rate returned to historic levels. But a new crisis arose with the collapse of the peso in the mid-1990s, forcing the adoption of harsh austerity measures. A strong export sector helped the country to recover in the late 1990s, but the economy again went into recession in 2001, in large part because of the economic downturn in the United States. The Mexican government plays a major role in planning the economy and owns and operates some basic industries (including petroleum). However, the number of state-owned enterprises fell from more than 1,000 in 1982 to fewer than 200 in 1998.
About 25% of the country’s workers (including those largely outside the money economy) are engaged in farming, which is slowly becoming modernized. Because rainfall is inadequate outside the coastal regions, agriculture depends largely on extensive irrigation. Mexico produces a wide variety of agricultural products, including basic grains, sugarcane, citrus fruits, cotton, coffee, and tomatoes. Maguey is widely grown and is processed into the alcoholic beverages pulque and mescal. Livestock raising and fishing are also significant economic activities.
Mexico is among the world’s leading producers of many minerals, including silver, fluorite, zinc, and mercury, and its petroleum reserves are one of its most valuable assets. In the late 1970s and early 1980s, petroleum constituted about three quarters of Mexico’s exports. That figure fell drastically in the mid-1980s. While the petroleum industry has recovered substantially, diversification of industry is helping to keep Mexico’s trade economy from becoming dependent once more on a single export.
Next to oil, the most important source of exports are the industrial assembly plants that dot Mexico’s border towns. Since the early 1980s there has been considerable foreign investment in the maquiladoras, which take advantage of a large, low-cost labor force to produce finished goods for export to the United States. These plants have increased Mexico’s export production considerably. The economic importance of the maquiladoras, however, is exceeded by tourism. Favorite tourist centers include Acapulco, Cancun, Cozumel, Puerto Vallarta, Mazatlan, Cabo San Lucas, and Tijuana, as well as Mexico City itself and such highland centers as Guadalajara and Puebla. Remittances from Mexicans working, both legally and illegally, in the United States are also extremely important to the economy.
Leading manufactures include food and beverages, tobacco, chemicals, iron and steel, refined petroleum and petrochemicals, textiles and clothing, motor vehicles, cement, and electronic products. The country is also known for its handicrafts, especially pottery, woven goods, and silverwork.
The leading imports are machinery, steel, electrical and electronic equipment, chemicals, motor vehicle parts for assembly and repair, aircraft, manufactured consumer goods, and grain; the main exports are crude oil, petroleum products, coffee, sugar, cotton, tomatoes, shrimp, engines, motor vehicles, consumer electronics, silver, sulfur, and zinc. Until recently, the annual value of Mexico’s imports was considerably higher than the value of its exports. The principal trade partners are the United States, the European Union nations, Japan, and Canada. Mexico is a member of the United Nations, the Organization of American States, the North American Free Trade Agreement, the Latin American Integration Association, and the Latin American Economic System.

Economic summary: GDP/PPP (2005 est.): $1.068 trillion; per capita $10,100. Real growth rate: 3%. Inflation: 3.3%. Unemployment: 3.6% plus underemployment of perhaps 25%. Arable land: 13%. Agriculture: corn, wheat, soybeans, rice, beans, cotton, coffee, fruit, tomatoes; beef, poultry, dairy products; wood products. Labor force: 43.4 million; agriculture 18%, industry 24%, services 58% (2003). Industries: food and beverages, tobacco, chemicals, iron and steel, petroleum, mining, textiles, clothing, motor vehicles, consumer durables, tourism. Natural resources: petroleum, silver, copper, gold, lead, zinc, natural gas, timber. Exports: $213.7 billion f.o.b. (2005 est.): manufactured goods, oil and oil products, silver, fruits, vegetables, coffee, cotton. Imports: $223.7 billion f.o.b. (2005 est.): metalworking machines, steel mill products, agricultural machinery, electrical equipment, car parts for assembly, repair parts for motor vehicles, aircraft, and aircraft parts. Major trading partners: U.S., Canada, Spain, China, Japan (2004).

IN 70’S
The Mexican economy maintained its rapid growth during most of the 1970s, it was progressively undermined by fiscal mismanagement and a resulting sharp deterioration of the investment climate. The GDP grew more than 6 percent annually during the administration of President Luis Echeverria Alvarez (1970-76), and at about a 6 percent rate during that of his successor, Jose Lopez Portillo y Pacheco (1976-82). But economic activity fluctuated wildly during the decade, with spurts of rapid growth followed by sharp depressions in 1976 and 1982.
Fiscal profligacy combined with the 1973 oil shock to exacerbate inflation and upset the balance of payments. Moreover, President Echeverría’s leftist rhetoric and actions such as abetting illegal land seizures by peasants eroded investor confidence and alienated the private sector. The balance of payments disequilibrium became unmanageable as capital flight intensified, forcing the government in 1976 to devalue the peso by 58 percent. The action ended Mexico’s twenty-year fixed exchange rate.
Although significant oil discoveries in 1976 allowed a temporary recovery, the windfall from petroleum sales also allowed continuation of Echeverría’s destructive fiscal policies. In the mid-1970s, Mexico went from being a net importer of oil and petroleum products to a significant exporter. Oil and petrochemicals became the economy’s most dynamic growth sector. Rising oil income allowed the government to continue its expansionary fiscal policy, partially financed by higher foreign borrowing. Between 1978 and 1981, the economy grew more than 8 percent annually, as the government spent heavily on energy, transportation, and basic industries. Manufacturing output expanded modestly during these years, growing by 8.2 percent in 1978, 9.3 percent in 1979, and 8.2 percent in 1980.
This renewed growth rested on shaky foundations. Mexico’s external indebtedness mounted, and the peso became increasingly overvalued, hurting nonoil exports in the late 1970s and forcing a second peso devaluation in 1980. Production of basic food crops stagnated, forcing Mexico in the early 1980s to become a net importer of foodstuffs. The portion of import categories subject to controls rose from 20 percent of the total in 1977 to 24 percent in 1979. The government raised tariffs concurrently to shield domestic producers from foreign competition, further hampering the modernization and competitiveness of Mexican industry.

IN 80’S
The macroeconomic policies of the 1970s left Mexico’s economy highly vulnerable to external conditions. These turned sharply against Mexico in the early 1980s, and caused the worst recession since the 1930s. By mid-1981, Mexico was beset by falling oil prices, higher world interest rates, rising inflation, a chronically overvalued peso, and a deteriorating balance of payments that spurred massive capital flight. This disequilibrium, along with the virtual disappearance of Mexico’s international reserves by the end of 1982 they were insufficient to cover three weeks’ imports forced the government to devalue the peso three times during 1982. The devaluation further fueled inflation and prevented short-term recovery. The devaluations depressed real wages and increased the private sector’s burden in servicing its dollar-denominated debt. Interest payments on long-term debt alone were equal to 28 percent of export revenue. Cut off from additional credit, the government declared an involuntary moratorium on debt payments in August 1982, and the following month it announced the nationalization of Mexico’s private banking system.
By late 1982, incoming President Miguel de la Madrid had to reduce public spending drastically, stimulate exports, and foster economic growth to balance the national accounts. Recovery was extremely slow to materialize, however. The economy stagnated throughout the 1980s as a result of continuing negative terms of trade, high domestic interest rates, and scarce credit. Widespread fears that the government might fail to achieve fiscal balance and have to expand the money supply and raise taxes deterred private investment and encouraged massive capital flight that further increased inflationary pressures. The resulting reduction in domestic savings impeded growth, as did the government’s rapid and drastic reductions in public investment and its raising of real domestic interest rates to deter capital flight.
Mexico’s GDP grew at an average rate of just 0.1 percent per year between 1983 and 1988, while inflation stayed extremely high. Public consumption grew at an average annual rate of less than 2 percent, and private consumption not at all. Total investment fell at an average annual rate of 4 percent and public investment at an 11 percent pace. Throughout the 1980s, the productive sectors of the economy contributed a decreasing share to GDP, while the services sectors expanded their share, reflecting the rapid growth of the informal economy. De la Madrid’s stabilization strategy imposed high social costs: real disposable income per capita fell 5 percent each year between 1983 and 1988. High levels of unemployment and underemployment, especially in rural areas, stimulated migration to Mexico City and to the United States.
By 1988 inflation was at last under control, fiscal and monetary discipline attained, relative price adjustment achieved, structural reform in trade and public-sector management underway, and the preconditions for recovery in place. But these positive developments were inadequate to attract foreign investment and return capital in sufficient quantities for sustained recovery. A shift in development strategy became necessary, predicated on the need to generate a net capital inflow.
In April 1989, President Carlos Salinas de Gortari announced his government’s national development plan for 1989-94, which called for annual GDP growth of 6 percent and an inflation rate similar to those of Mexico’s main trading partners. Salinas planned to achieve this sustained growth by boosting the investment share of GDP and by encouraging private investment through denationalization of state enterprises and deregulation of the economy. His first priority was to reduce Mexico’s external debt; in mid-1989 the government reached agreement with its commercial bank creditors to reduce its medium- and long-term debt. The following year, Salinas took his next step toward higher capital inflows by lowering domestic borrowing costs, reprivatizing the banking system, and broaching the idea of a free-trade agreement with the United States. These announcements were soon followed by increased levels of capital repatriation and foreign investment.
Due to the financial crisis that took place in 1981, the total public investment on infrastructure plummeted from 12.5% of GDP to 3.5% in 1989. After rising impressively during the early years of Salinas’ presidency, the growth rate of real GDP began to slow during the early 1990s. During 1993 the economy grew by a negligible amount, but growth rebounded to almost 4 percent during 1994, as fiscal and monetary policy were relaxed and foreign investment was bolstered by United States ratification of the North American Free Trade Agreement (NAFTA).

IN 90’s
In 1994 the commerce and services sectors accounted for 22 percent of Mexico’s total GDP. Manufacturing followed at 20 percent; transport and communications at 10 percent; agriculture, forestry, and fishing at 8 percent; construction at 5 percent; mining at 2 percent; and electricity, gas, and water at 2 percent .Some two-thirds of GDP in 1994 (67 percent) was spent on private consumption, 11 percent on public consumption, and 22 percent on fixed investment. During 1994 private consumption rose by 4 percent, public consumption by 2 percent, public investment by 9 percent, and private investment by 8 percent.
In Aug., 1994, in an election that was closely watched by international monitors to prevent fraud, the PRI’s new candidate, Ernesto Zedillo Ponce de León, won the presidency by a narrow but mainly unquestioned margin. Shortly after his inauguration in December, the government allowed the peso to float against the dollar; the peso plunged rapidly, investors backed out of Mexican markets, and the country was propelled into an economic crisis. In Feb., 1995, Mexico reached agreement with the United States on a $12.5 billion rescue plan, which provided U.S. funds to shore up Mexican banks while requiring Mexico to adopt stringent austerity measures and giving the United States a significant say in Mexican economic policies. Mexico was subsequently able to refinance the debt privately at a lower rate, and much of the loan was paid back in 1996, more than three years ahead of schedule. Ex-president Salinas was blamed for contributing to Mexico’s economic crisis and was alleged to have been involved in misdeeds ranging from corruption to political assassinations.
However, the collapse of the new peso in December 1994 and the ensuing economic crisis caused the economy to contract by an estimated 7 percent during 1995. Investment and consumption both fell sharply, the latter by some 10 percent. Agriculture, livestock, and
fishing contracted by 4 percent; mining by 1 percent; manufacturing by 6 percent; construction by 22 percent; and transport, storage, and communications by 2 percent. The only sector to register positive growth was utilities, which expanded by 3 percent.
The Mexican economic crisis was the result of policy mistakes that led to an investor panic. The assassination of presidential candidate Donaldo Colosio caused foreign investors to demand a higher return on investments to compensate for increased perceived risk. The Mexican central bank fought the increase in interest rates through an expansion of domestic credit. This credit was converted to dollars and led to a drain on Central Bank foreign exchange reserves. Meanwhile the exchange rate remained moderately over-valued. Moreover, the Mexican government rolled over its short-term peso-denominated debt into short-term dollar denominated debt in an attempt to decrease the cost of government borrowing.
The result of Mexican economic policy in 1994 was to place the economy in a vulnerable position with respect to its external debt: the government held a large amount of short-term dollar donominated debt, reserves had dwindled, and expectations of a devaluation had developed. Once the first devaluation was announced on December 20, investors panicked and ran from the peso. The peso value of dollar-denominated government debt rose sharply, as did interest rates for new government debt. The result was a government liquidity crisis. This crisis in turn contaminated the private sector’s credit-worthiness and created the threat of a collapse of the banking system.
‘‘ Exchange rate over-valuation and the current account deficit were the two major problems in the Mexican economy in 1994. Given these problems, several additional factors helped to trigger the crisis: 1) elections, which are traditionally associated with devaluation, 2) the rise in U.S. interest rates, 3) loss of invester confidence due to politically linked assassinations, 4) loose monetary policy in response to the reduction in foreign capital flows, 5) expansion of quasi-fiscal expenditure via development bank credits, and 6) shifting fiscal borrowing to short-term, dollar-denominated instruments.
Dr. Williamson pointed out the importance of Mexico increasing its long-term domestic savings. A fall in savings contributed to the current account deficit. Williamson pointed to Chile’s compulsory savings program (pension program) and the East Asian system of postal savings as some examples of policies that have been used to raise savings. ‘’
( http://www.galbithink.org/topics/mex/william.htm )

IN 2000
In 2003 industry and services decreased at GDP flow of product approach becaus of earthquake and İgnacio storm. ‘’ Mexico is recovering from a massive earthquake that struck the country on January 21. The quake measured 7.6 on the Richter Scale and damaged or destroyed nearly 12,300 houses and other critical structures (schools, businesses, roads, etc.), and was strong enough to be felt in 13 states. A second quake, measuring 5.8 struck the following day escalating the damage. In the week following the quake, some 29 aftershocks of different magnitudes were recorded throughout the region ‘’.Many fields and business are affected by earthquake and İgnacio storm.
( http://www.geotimes.org/jan03/WebExtra012203.html )