Mexico

MEXICO DEVELOPMENT

Mexico like Argentina, Brazil, and Chile is a semi-industrialized country. The country is rich in industrial resources, including petroleum and several metals. Mexico's manufacturing output includes many basic goods, such as steel, machinery, and petrochemicals, as well as a wide range of consumer goods. Agriculture still provides more jobs than industry, however. Many farm families earn barely enough to survive, and many city dwellers are unable to find jobs.

After World War II (1939-1945), Mexico became known for its continuously growing economy. During that time, Mexico's economy changed from a primarily agricultural one to an economy based on services and manufacturing. Beginning in the 1970s, however, the country's economy began to stagnate as Mexico fell deeply into debt. In the late 1970s Mexico borrowed billions of dollars at extremely high interest rates in anticipation of increased oil revenues. When the oil prices dropped sharply in the early 1980s, Mexico's oil revenues plummeted as well. This led to a large foreign debt and the nation began to fall behind on its loan payments. Mexico soon faced a severe economic recession, forcing the government to renegotiate the nation's foreign debt and begin instituting budget cuts and austerity programs.

The economic recession led the government to re-examine Mexico's national economic policy, which had protected the nation's young industries by imposing high tariffs on imported goods. These tariffs raised the price of goods imported from the United States, for example, and encouraged Mexicans to buy less expensive goods produced in Mexico. On the other hand, this policy reduced competition in the Mexican economy and induced many state-owned industries and private companies to become less efficient. The Mexican government began to replace this official protection of domestic industries with an aggressive policy of privatization, selling back government-operated and owned industries including banks, utilities, airlines, and manufacturing companies to the private sector. Privatization aimed to make Mexican companies and industries more efficient and competitive by allowing private owners, rather than government officials, to make decisions that would affect an industry's profitability.

Mexico also began working to integrate its economy into the larger and much more competitive global economy. These efforts culminated in Mexico's signing of the North American Free Trade Agreement (NAFTA), which went into effect in 1994. NAFTA is a trade pact between Canada, Mexico, and the United States that aims to foster free trade and eliminate tariffs among the three nations. The North American Free Trade Agreement and Mexico's other trade pacts are continuing to play a significant role in creating new opportunities for Mexican businesses. A number of U.S. companies have chosen to create co-production partnerships with Mexican firms over geographically more remote partners in Asia because of Mexico's proximity, modern infrastructure and industrious workforce. NAFTA is playing a key role in encouraging such partnerships. By reducing North American trade barriers, NAFTA is enabling firms which might otherwise manufacture in Asia to work with Mexican partners instead. The growth of business partnerships, along with Mexico's ongoing economic, legal, judicial and political reforms helps to explain Mexico's ability to attract long-term investment.

Moreover on the downside NAFTA's effect on Mexico's environment is becoming painfully obvious. The border region between the U.S. and Mexico has been hit particularly, due to intense industrialization associated with free trade zones. This area is known for its poor drinking water, inadequate sewage treatment, and mass squatter settlements with deplorable living conditions, exploding population rates, and rapid industrial expansion by industries whose air and water emissions are insufficiently monitored. Until very recently, Mexico has spent virtually nothing on environmental law enforcement, and thus powerful multinational corporations were able to get away with almost anything. Now, with the increasing industrialization as a result of NAFTA, the Mexican government struggles to even assess the environmental impact these corporations are having.

Despite promises about the benefits of NAFTA, the average Mexican did not experience these benefits after the implementation of the agreement. During the first two months of 1995, interest rates rose from 35% to 59%, reportedly causing more than $2.5 billion in investments to flee the country. The stock market dropped 24%, hundreds of companies closed down, and more than 250,000 Mexicans lost their jobs. The first year and a half of NAFTA saw the U.S. trade deficit with Mexico grow by $4 billion and nearly 80,000 U.S. workers lost their jobs. Workers to the south were no better off: wages in Mexico declined by 40%-50%. While the cost of living rose by 80%, salaries increased by only 30%. The inflation rate in 1996 rose to over 51% and 20,000 small and medium sized business went bankrupt due to increased competition from multinational corporations. As of 1996, more than 2.3 million Mexican people had lost their jobs since the implementation of NAFTA.

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