Will Reforms Pay Off This Time? Experts Assess Mexico’s Prospects

Federal Reserve Bank of Dallas, Second Quarter 2013

Mexico’s sharp first-quarter slowdown isn’t entirely surprising. While the country has made considerable economic  advances in recent years, its growth is closely tied to that of its northern neighbor, and the U.S. economy stalled at  year-end. Some Mexico indicators, such as industrial production, have been flat since mid-2012. The lackluster performance,  although a cause for concern, gives impetus to the efforts of Mexico’s new president, Enrique Peña Nieto, who in his first months has worked with the nation’s major political parties to achieve labor, education and telecommunications reforms. Judicial, banking  and energy industry changes are in the  works.

The Pact for Mexico represents the latest attempt over a three-decade span to achieve reforms and propel the nation forward. The challenges Mexico confronts as it seeks to become a leader among emerging economies were considered  at a Federal Reserve Bank of Dallas  conference, “México: How to Tap Progress,” last fall in Houston. The meeting explored why economic expansion in Mexico has barely kept up with population growth and why the nation’s per capita income growth has trailed that of emerging-market economies such as  Brazil and Chile.

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Mexico pushes for direct ties with Canada, apart from U.S. influence

Photo by Flickr user I.A.M.

The Globe and Mail, 6/17/2013

New Mexican President Enrique Pena Nieto wants ties with Canada to be a priority in the country’s foreign policy, rather than the on-again, off-again interest of two countries distracted by relations with the United States, Mexico’s ambassador says. Ambassador Francisco Suarez Davila arrived in Ottawa a week ago with a mandate to pursue a new deepening of relations between the two countries – not just for dealing with the U.S., but also as direct trading partners, and potential diplomatic allies on the world stage.

“I think I have arrived at a very opportune time. The political stars are aligned,” Mr. Suarez said in an interview with The Globe and Mail. “That’s the indication I have received from President Pena, to go beyond the rhetoric to really establish that Canada is a priority for Mexico’s foreign policy. It’s a real priority: Canada, itself, apart from the North American [regional dynamic].”

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Op-ed: Immigration Reform — The Time for Free Trade

By Benjamin Powell, The Huffington Post, 6/16/2013

Consideration of the “gang of eight” proposal in the U.S. Senate has rekindled the national discussion about immigration reform and it’s high time that this discussion emphasizes a thorough understanding of the economic case for free trade in labor. A cursory understanding of recent history demonstrates that relatively free trade has lifted great masses of people out of poverty worldwide. The United States boasts a long record of relatively free trade and has always benefited from being essentially one big “free trade zone” internally. Goods and services, capital, and labor all move without governmental restriction throughout the nearly four million square miles of the United States.

Interference with the free flow of trade has always occurred along the arbitrary lines politicians have drawn on the map. During the 19th century, tariffs and other barriers restricted international trade in goods and services. However, for the most part, labor was free to enter or leave the United States. Following World War I, the federal government enacted a series of laws restricting immigration. The interwar years also witnessed significant restrictions on trade in goods and services.

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Mexico’s Growing Middle Class is Good News for U.S.

ABC / Univision, 6/14/2013

A new study on Mexico helps to explain the recent fall in Mexican immigration to the U.S. It suggests that Mexico is slowly becoming a “middle class country.”

The study by Mexico’s National Statistics and Geography Institute [INEGI] says that 42 percent of Mexican homes qualify as “middle class” while 39 percent of the country’s overall population falls into this social category. It also points out that at the turn of the century the middle class was only somewhat smaller, as it made up 38 percent of Mexico’s homes and 35 percent of the country’s inhabitants.

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Mexico economy: things get uglier still

Financial Times, 6/11/2013

Those hoping that April industrial production data out on Tuesday would provide some measure of comfort on the direction of Mexico’s economy would be sorely disappointed. Industrial output in Latin America’s second largest economy fell 1.7 per cent compared to March in seasonally adjusted terms. The drop was the biggest monthly decline so far this year and the worst since December 2012 when it fell 2 per cent. Year-on-year, industrial production rose 3.3 per cent compared to April 2012, far below analysts’ expectations of a 5.3 per cent increase.

Behind the headline figures, manufacturing, which provides the bulk of Mexico’s non-oil exports, fell 1.2 per cent in April compared to March on a seasonally adjusted basis. It’s the first drop of the year and the biggest decline since 2012. The manufacturing number, combined with the 3.1 per cent monthly drop in construction activities, were so disappointing that analysts said they would immediately go back to their economic models to recalculate this year’s growth rate – just less than two months after they lowered their GDP forecasts for the year.

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Wealthy Mexicans’ Investment In The United States Sharply Up in 2012

Forbes, 6/10/2013

As the United States economy improves, wealthy Mexican businessmen are pouring millions of dollars into the largest economy in the world. They seek to take advantages of their proximity to the U.S. and its foreign investment-friendly laws.

In 2012, Mexican investment in the U.S. went up by 11% and currently stands at $27.9 billion, the U.S. Embassy in Mexico City recently reported. Many of these investments come from companies controlled by Mexican billionaires such as Grupo Elektra, Mexico’s largest electronics retailer owned by Ricardo Salinas Pliego; Grupo Bimbo, Mexico’s largest baking company and distributor of U.S. brands like Sara Lee, Arnold and Entenmanns’s, owned by the billionaire Servitje family led by Roberto Servitje; and Gruma, the world largest tortilla maker founded by Roberto Gonzalez Barrera, whose wealth at the time of his death in 2012 was $1.9 billion.

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To learn more about U.S.-Mexico business ties, click here.

 

Mexico says it may suspend U.S. trade preferences over meat labels

Reuters, 6/7/2013

Mexico’s Economy Ministry said on Friday it was considering suspending preferential trade tariffs with the United States for a variety of products in a simmering dispute over meat labeling. The disagreement stems from a 2009 U.S. requirement that retail outlets specify the country of origin on labels on meat and other products in an effort to give consumers more information about the safety and origin of their food.

Canada and Mexico have complained to the World Trade Organization that the COOL (country-of-origin labeling) rules discriminated against imported livestock. The trade body ordered the United States to comply with WTO rules by May 23, but the U.S. government made revisions that Canada and Mexico say would only make the situation worse.

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Xi Jinping in America’s backyard: From pivot to twirl

The Economist, 6/6/2013

LIKE a veteran salsa dancer, Xi Jinping, the Chinese president, has responded to the United States’s “pivot” to Asia with his own twirl south of the Rio Grande. A month after a re-elected Barack Obama paid calls on Costa Rica and Mexico, Mr Xi followed in his footsteps, visiting San José and Mexico City from June 2nd to 6th.

He spent the previous weekend in Trinidad and Tobago, arriving in America’s mare nostrum four days after Joe Biden, America’s vice-president. As a welcome, the 280-strong Chinese entourage was greeted with the sound of “Ah Feel to Party”, a calypso classic, and China further enhanced the mood by promising $3 billion in (unspecified) soft loans to the eight Caribbean heads of government who trailed through to meet Mr Xi. Mr Biden, by contrast, got an earful of complaints that America no longer cared about the region.

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Why fixing the world’s busiest border crossing could save the US billions

Quartz, 6/6/2013

Ahead of a major vote on a US plan to reform its immigration system, one of its Republican authors is worried that it doesn’t do enough to secure the border. If it became law, the government would hire more border patrollers, build new bases for them and fund the construction of more walls. It even hires more judges and prosecutors to deport anyone who is detained.

Instead, the bill’s shortcomings have less to do with securing the border and more to do with boosting the Mexican economy, which would reduce the number of future unauthorized immigrants.

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Mexico’s Goldilocks Moment

The Huffington Post, 6/6/2013

With all the hype Mexico’s “booming” economy has been garnering over the past, it may have come like a dousing of iced water to see GDP growth screech to a halt during the first quarter of the year, the first full quarter under the administration of Enrique Peña Nieto. At first glance, the figures looked grim: year on year growth was a meagre 0.8%, the weakest since the 2009 recession, and far below the 3-5% rates Mexico watchers had been accustomed to over the past three years. Fortunately, behind this number was a statistical anomaly in that the Easter break fell in March rather than April, thereby knocking off a few days of activity when making the year on year comparison. However, a calendar adjustment showed that growth was still sluggish at 2.2%, a number which looked more fitting for the gloomy past decade than in the roaring era of the “Aztec tiger.”

Since then, there’s been a slight reversal in the tone about Mexico. After a smooth ride since 2010, it has now dawned on many of the formerly excited observers that there are some bumps on the road to prosperity. For all these recent jitters, it certainly doesn’t appear like the fiesta is over. There are still questions, however, over just how bombastic it will turn out.

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