Economy Of Mexico
In the period of 1981–1982 the international panorama changed abruptly: oil prices plunged and interest rates rose. In 1982, president López Portillo, just before ending his administration, suspended payments of foreign debt, devalued the peso and nationalized the banking system, along with many other industries that were severely affected by the crisis, among them the steel industry. While import substitution had produced an era of industrialization in previous decades, by the 1980s it was evident that that protracted protection had produced an uncompetitive industrial sector with low productivity gains.
President de la Madrid was the first of a series of presidents that began to implement neoliberal reforms. After the crisis of 1982, lenders were unwilling to return to Mexico and, in order to keep the current account in balance, the government resorted to currency devaluations, which in turn sparked unprecedented inflation, which reached a historic high in 1987 at 159.7%.
The first step toward the liberalization of trade was Mexico's signature of the General Agreement on Tariffs and Trade (GATT) in 1986. During the Salinas administration many state-owned companies were privatized. In 1992, the North American Free Trade Agreement was signed between the United States, Canada and Mexico, and after the signature of two additional supplements on environments and labor standards, it came into effect on January 1, 1994. Salinas also introduced strict price controls and negotiated smaller minimum wage increments with labor unions with the aim of curbing inflation. While his strategy was successful in reducing inflation, growth averaged only 2.8 percent a year. Moreover, by fixing the exchange rate, the peso became rapidly overvalued while consumer spending increased, causing the current account deficit to reach 7% of GDP in 1994. The deficit was financed through tesobonos a type of public debt instrument that reassured payment in dollars. The Chiapas uprising, and the assassinations of the ruling party's presidential candidate, Luis Donaldo Colosio and the Secretary-General of the party and brother of the Assistant-Attorney General José Francisco Ruiz Massieu in 1994, sent a disquieting message to investors. Public debt holders rapidly sold their tesobonos , depleting the Central Bank's reserves, while portfolio investments, which had made up 90% of total investment flows, left the country as fast as they had come in. This unsustainable situation eventually forced the entrant Zedillo administration to abandon the fixed exchange rate. The peso sharply devalued and the country entered into an economic crisis in December 1994. The boom in exports, as well as an international rescue package crafted by American president Bill Clinton, helped cushion the crisis. In less than 18 months, the economy was growing again, and annual rate growth averaged 5.1 percent between 1995 and 2000.
President Zedillo and president Fox continued with trade liberalization and during his administrations several FTAs were signed with Latin American and European countries, Japan and Israel, and both strove to maintain macroeconomic stability. Thus, Mexico became one of the most open countries in the world to trade, and the economy base shifted accordingly. Total trade with the United States and Canada tripled, and total exports and imports almost quadrupled between 1991 and 2003. The nature of foreign investment also changed from portfolio to foreign-direct investment (FDI).
Macroeconomic, financial and welfare indicators
The industrial sector as a whole has benefited from trade liberalization; in 2000 it accounted for almost 90% of all export earnings.
Among the most important industrial manufacturers in Mexico is the automotive industry, whose standards of quality are internationally recognized. The automobile sector in Mexico differs from that in other Latin American countries and developing nations in that it does not function as a mere assembly manufacturer. The industry produces technologically complex components and engages in some research and development activities. The "Big Three" (General Motors, Ford and Chrysler) have been operating in Mexico since the 1930s, while Volkswagen and Nissan built their plants in the 1960s. Later, Toyota, Honda, BMW, and Mercedes-Benz joined in. Given the high requirements of North American components in the industry, many European and Asian parts suppliers have also moved to Mexico: in Puebla alone, 70 industrial part-makers cluster around Volkswagen. The relatively small domestic car industry still is represented by DINA Camiones S.A. de C.V. , that has built buses and trucks for almost half a century and the new car company Mastretta design that builds the race car Mastretta MXT.
Some large industries of Mexico include Cemex, the third largest cement conglomerate in the world; the alcohol beverage industries, including world-renowned players like Grupo Modelo; conglomerates like FEMSA, which apart from owning breweries and the OXXO convenience store chain, is also the second-largest Coca-Cola bottler in the world; Gruma, the largest producer of corn flour and tortillas in the world; and Grupo Bimbo, Telmex, Televisa, among many others. In 2005, according to the World Bank, high-tech industrial production represented 19.6% of total exports.
Maquiladoras (Mexican factories which take in imported raw materials and produce goods for export) have become the landmark of trade in Mexico. This sector has benefited from NAFTA, in that real income in the maquiladora sector has increased 15.5% since 1994, though from the non-maquiladora sector has grown much faster. Contrary to popular belief, this should be no surprise since maquiladora's products could enter the US duty free since the 1960s industry agreement. Other sectors now benefit from the free trade agreement, and the share of exports from non-border states has increased in the last 5 years while the share of exports from maquiladora-border states has decreased.
Currently Mexico is focusing in developing an aerospace industry and the assembly of helicopter and regional jet aircraft fuselages is taking place. Foreign firms such as MD Helicopters and Bombardier build helicopter and regional jets fuselages respectively in Mexico. Although the Mexican aircraft industry is mostly foreign, as is its car industry, Mexican firms have been founded such as Aeromarmi, which builds light propeller airplanes, and Hydra Technologies, which builds Unmanned Aerial Vehicles such as the S4 Ehécatl.
As compared with the United States or countries in Western Europe a larger sector of Mexico's industrial economy is food manufacturing which includes several world class companies but the regional industry is undeveloped. There are national brands that have become international and local Mom and Pop producers but little manufacturing in between.
Energy and mineral resources
Mineral resources are the "nation's property" (i.e. public property) by constitution. As such, the energy sector is administered by the government with varying degrees of private investment. Mexico is the sixth-largest oil producer in the world, with 3.7 million barrels per day. Pemex, the public company in charge of administering research, exploration and sales of oil, is the largest company (oil or otherwise) in Latin America, making US $86 billion in sales a year, a sum larger than the GDP of some of the region's countries. Nonetheless, the company is heavily taxed, a significant source of revenue for the government, of almost 62 per cent of the company's sales. Without enough money to continue investing in finding new sources or upgrading infrastructure, and being protected constitutionally from private and foreign investment, some have predicted the company may face institutional collapse. While the oil industry is still relevant for the government's budget, its importance in GDP and exports has steadily fallen since the 1980s. In 1980 oil exports accounted for 61.6% of total exports; by 2000 it was only 7.3%.
Services
History
Overview
The tertiary sector was estimated to account for 70.5% of the country's GDP, and employs 58% of the active population. This section includes transportation, commerce, warehousing, restaurant and hotels, arts and entertainment, health, education, financial and banking services, telecommunications as well as public administration and defense. Mexico's service sector is strong, and in 2001 replaced Brazil's as the largest service sector in Latin America in dollar terms.
Tourism
Tourism is one of the most important industries in Mexico. It is the fourth largest source of foreign exchange for the country. Mexico is the eighth most visited country in the world (with over 20 million tourists a year).
Financial sector
Banking system
According to the IMF the Mexican banking system is strong, in which private banks are profitable and well-capitalized. The financial and banking sector is increasingly dominated by foreign companies or mergers of foreign and Mexican companies with the notable exception of Banorte. The acquisition of Banamex, one of the oldest surviving financial institutions in Mexico, by Citigroup was the largest US-Mexico corporate merger, at US $12.5 billion. In spite of that, the largest financial institution in Mexico is Bancomer associated to the Spanish BBVA.
The process of institution building in the financial sector in Mexico has evolved hand in hand with the efforts of financial liberalization and of inserting the economy more fully into world markets. Over the recent years, there has been a wave of acquisitions by foreign institutions such as US-based Citigroup, Sp Error - Nothing was found