Society, Economy and Politics of Mexico

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  • 1. Instituto Tecnológico y de Estudios Superiores de Monterrey Campus Estado de México Alger Torres Martínez A01169155 Carmen Hernández Sánchez A01169533 Ángel Guillermo Ortiz García A01370218 Yael Alejandro Mendoza Bonilla A01370626 Group 3 Society Economy and Politics Prof. Miguel Angel Sánchez C. 3RD PERIOD: MIDE Delivery: April 16th , 2013
  • 2. 1. GROSS DOMESTIC PRODUCT1980 – TO DATE (2013) GRAPH: Historically, from 2004 until 2012, Mexico GDP Annual Growth Rate averaged 2.7 Percent reaching a maximum of 7.6 Percent in 2010 and a minimum of -9.6 Percent in 2009. The service sector is 62 percent of total GDP. Retail trade is 16 percent of GDP; transport, and communications (7%) and financial services with a 6 percent. Industry uses the 18 percent in the sectors of: automobile industry (4 percent of total GDP) and food industry (3.8 percent). Water and electricity distribution creates 8 percent. The government fuels 4 percent of the GDP and the agriculture sector uses 3 percent of the output. In 1980, Mexico’s GDP reached $637 billion, above India and Canada for the first time in over 100 years. International economies grew quickly during this thirty period. Japan with 7.9% per year, and Brazil at 7.5% per year. “China grew 4.9% per year; in 1956 reached the GDP level it had in 1820. In 1980 Mexico’s GDP was about 70% that of China compared to only 7% in 1930 and 2% in 1820.” (Geo-Mexico) From 1980 to 2008, Mexico’s GDP increase of 2.7% per year which doubled its GDP from $637 billion to $1.334 trillion. This growth rate was better than the
  • 3. one of Japan and western economies. It went behind four large Asian economies: China, India, South Korea, and Indonesia. In 1980 India’s GDP was less than that of Mexico, but by 2008 it was doubled. Mexico’s GDP in 2008 of $1.3 trillion puts it in 11thplace of all the countries. So we can see that to 1900 from 2008 dramatic changes occurred. Some Asian countries, especially China, expanded drastically and quickly in recent decades. Mexico increased its GDP 3.8% per year from $23 billion in 1900 to $1.3 trillion in 2008. The total GDP of 12 countries (Brazil, Canada, China, France, Germany, Indonesia, Italy, Japan, Mexico, South Korea, UK and USA) was considerably increased. In this case, Mexico has dramatic changes in 2009, and 1995 due to political and foreign crises. 2. Gross National Product 1980 – TO DATE (2013) As GNP is part of GDP, it is important to mention the crisis in 1982, which forced the Mexican government to consider some economic reforms, like lowering trade tariffs, and encourage foreign investment. Second, the drop in international oil prices in 1986, which reduced México Gross National Product in approximately 8%, and this has relation with inflation that rose reaching a peak on 159%. These reforms included a new monetary policy and the privatization in public enterprises.
  • 4. The reforms of Salinas de Gortari reduced inflation, and the NAFTA influenced GNP, as this is a trade agreement with USA and Canada. Mexican economy was able to recover, on the other hand, it was helped by USA government with a credit of $20 billion, in order the economy could improve in the 1990’s. It is important to mention that environmental factors affected the GNP in 1990, this problems reduce the size of the country’s Gross National Product by 11%. 3. Interest rate 1980 – TO DATE (2013) Graph: 1980´s: The nominal interest rate went from 46.12% in 1982 to 56.44% in 1983 and the real interest rate increased from -52.78% to -24.36%. There also increased the prices of the services provided by the state and tax revenues, offsetting the decline in revenues from PEMEX that passed from 11.7% to 9.9% of GDP between 1987 and 1988. Privatization of public sector enterprises. Privatization revenues increased from 0.31% to 0.67% of tax revenues between 1987 and 1988 and reached 14.4% in 1991. 1990´s:
  • 5. In 1990 banks were privatized. Insurance companies were differentiated and banks created a new regulatory authority for insurance. Also companies could set their own rates based on actuarial calculations. The advantage is that a competitive exchange rate is the key to increasing exports and a crisis-free economic growth and therefore favors the interest of the country, including the poor. 4. Inflation 1980 – 2013 Graph: The inflation rate in Mexico was recorded at 3.55 percent in February of 2013. Inflation Rate in Mexico is reported by the Banco de Mexico. From 1974 until 2013, Mexico Inflation Rate averaged 27.78 Percent reaching an all-time high of 179.73 Percent in February of 1988 and a minimum of 2.91 Percent in November of 2005. In Mexico, the most important categories in the CPI basket are Nonfood Goods (19.7 percent of the total weight); Housing (18.7 percent) and Other Services (18.4 percent). Food, Beverages and Tobacco account for 14.8 percent and Energy for 9.5 percent. Others include: Education (5.1 percent); Meat and Eggs (4.8 percent) and Fruits and Vegetables (3.7 percent). The national index tracks 46 large, medium and small cities. After the debt crisis of 1982, the Mexican peso was devalued by 466% and then Mexico experienced years of economic stagnation and rising rates of inflation. In 1987 the inflation rate was as high as 160%. In this situation adopted a
  • 6. stabilization program to reduce inflation gradually achievement. The December 15, 1987, President Miguel de la Madrid announced the Economic Solidarity Pact (PSE), an agreement signed by representatives of government, labor, agricultural sector and the private sector. This proposed agreement and committed the signatories, to the following: Fiscal consolidation achieved a fiscal surplus by reducing public spending and increasing some prices and rates of government enterprises. Keep a tight monetary policy by controlling domestic credit bank of Mexico. Begin the process of trade liberalization by reducing import tariffs and elimination of import permits. Maintaining fixed exchange rate Granting wage increases according to predetermined percentages, without exceeding the expected rates of inflation Inflationary expectations that had been formed by the experience of recent inflation and lack of confidence in economic policy were imperative to seek ways by both the demand side and the supply side, which would ensure a reduction in inflation. Thus, the program described (PSE) incorporate aspects of demand and supply. The restrictive monetary and fiscal policies act to control growth in aggregate demand, while trade liberalization policies and exchange rate would help control costs on the supply side. As you advance in the implementation of the program will remove the indexation of wages to inflation, to break this relationship could extend the inflationary process that was trying to remove. It was agreed that wage increases would be granted by periodic agreements concluded between sectors of society, but not automatically based on the inflation rate. Finally, it is important to add that in 1988 began the process of privatization of state enterprises with the aim of contributing to the government's fiscal consolidation and increase production efficiency. The effects of the stabilization program began to show since 1998 when inflation low at 52%, then 20% in 1989, 30% in 1990, 19% in 1991, 12% in 1992, 8% in 1993 and 7.1% in 1994
  • 7. 5. Stock Market Index Graph: Stocks in Mexico had a negative performance during the last month. Mexico Stock Market (IPC), declined 724 points or 1.65 percent. From 1988 until 2013, Mexico Stock Market (IPC) averaged 11949 Index points reaching an all- timehigh 45913 Index points in January of 2013 and the minimum of 87 Index points in January of 1988. The Mexican IPC index (Indice de Precios y Cotizaciones) is a major stock market index which tracks the performance of leading companies listed on the Mexican Stock Exchange. The IPC index has a base value of 0.78 as of October 30, 1978. This page includes a chart with historical data for Mexico Stock Market (MEXBOL) The stock market index is a statistic made up by one number that allows studying all the variations of the values of the actions, which compound this index in a certain period of time. The most representative companies of the market are the ones that take part in this index, which means that the stock market index is the indicator of a concrete market. Some index, such as the S&P 500, have multiple versions. 6. Unemployment 1980 – 2013
  • 8. Unemployment rate gives the number of unemployed persons as a percentage of labor force which is the percentage of number of people employed plus unemployed. Unemployed workers are those who are not working but they want to have a job, and have searched for work. Graph: In this graph we can see that the unemployment rate has increased, but decreased at certain times according to political situations, according to the INEGI, historically from 1980 to 2013, the unemployment rate has averaged 3.69 percent, reaching peak at 6 percent in May 2009, and the lowest point in March 1997 to 2.2 percent. Unemployment this year, unemployment fell from 5.42 to 4.85 in February 2013. It is noteworthy that there were significant events since 1980 that allowed this unemployment rate down, or to rise, in the 80’s it is shown a deterioration of Mexico production, and increase in employment rates for women. The crisis in this year affected the agricultural industry and the minimum wage furthermore, the available employment, as GDP falls 10 points. From 1990 to 1994 Mexico performs the economic adjustment period, influenced by the situation of several countries, for Mexico this meant an increase of jobs and a stopped the fall in the minimum wage after the minimum
  • 9. was reached in 1991, industry wages increased by 2.4 percent. Besides the influence of NAFTA in the next decade, where the economy was improved, but employment decreased. (GDP growth does not increase employment.) In 1995, economic growth slowed and reducedindustrial wages, employment had more generators of employment by private companies. Since 1996, unemployment is around 2.2% as the government offered the creation of small businesses and small informal businesses. In the first decade of the century, the informality and unemployment grew in the economy. Then, from 2002 to 2009 there was increased by the global financial crisis. Between 2004 and 2008 employment grew by an increase in Gross Domestic Product, but with the economic crisis of 2010, the employment rate was accentuated. Formal employment (industry, business) and has become informal because workers no longer have benefits. It is noted that according to INEGI actually informal or casual jobs, and independent jobs, are abundant. 7. Exchange rate GRAPH:
  • 10. The exchange rate for dollars from 1972 to 2013, the maximum average was of 15.53 in March of 2009, and the minimum was of .01 in 1972. The historical average is of 7.78 USDMXN (One dollar worth –x- pesos). We can see that in the last year’s exchange rate has been oscillating between 13 and 14 pesos per dollar. From 1978 to 1982 Mexico experienced higher rates of inflation than USA, but they also maintained a fixed exchange rate. The peso had a period of enhanced buying power in USA market and increased numbers, so USA started to accept pesos rather than dollars, because the value of the peso increased in relation to the dollar, USA goods were attractive to Mexican buyers due to the price in dollars. A devaluation occurred in February 1982 with a 30%. With this, it was not possible to resolve the obligations with foreign creditors. In July, the peso was devalued by 75%. In the following years the exchange rate of Mexican Peso depreciated continuously. Actually, the Mexican Peso exchange rate for March 2013, averaged 12.50 MXN to USD, lower than in February 2013, with 12.70. The fall in the MXNUSB gives us the fact in which a weakening of the US dollar against the Mexican Peso happened. The average Mexican Peso in the last 12 months was 13.06, over the last 10 years was 11.81. This says that the long term trend in MXN, USD is up. 8. RELATIONSHIP Anormal person request for a credit in the bank to buy a good or service (that good or service is produced by the GDP in Mexico). The moneylender gives the money and charges an extra amount that is the interest rate, if that person pays on time he has no problems with their credit, But if that person does not pay interest and besides all become unemployed, that money with interest will never be returned, so there will be no money and begin to be layoffs at the company where the money was missing and even the
  • 11. stock market will be affected by the global economy. This is considered a domino effect. If the GDP and GNP increase, there is less unemployment, if inflation rate increases, there is less inversion due to the high interest rate, so there is less production and more unemployment. If there is employment, plus better wage, the interest rate decreases and people request for credit at the banks, so the economy improves and demand increases. Businesses would have a big demand of products and it has to hire more people. 9. References Anonymous. Economipedia. 22 February 2012. http://www.economipedia.com/2012/02/indice-bursatil.html. 27 de February de 2013. Barrios, Luis. La eterna historia de las recurrentes crisis económicas en México. 14 January 2009. http://www.militante.org/node/628. 06 de April de 2013. Duarte, Ricardo. México Inflation Rate. 03 March 2012. http://www.tradingeconomics.com/mexico/inflation-cpi. 06 de April de 2013. Economics, Trading. MEXICO STOCK MARKET (IPC). 2012http://www.tradingeconomics.com/mexico/stock-market. 06 de April de 2013. Hernández, Esther Figueroa. "ANÁLISIS DEL DESEMPLEO, LA MIGRACIÓN Y LA POBREZA EN MÉXICOANÁLISIS DEL DESEMPLEO, LA MIGRACIÓN Y LA POBREZA EN MÉXICO." Revista Mexicana de Agro Negocios. Versión PDF. Web. 6 Apr. 2013. <ageconsearch.umn.edu/bitstream/120465/2/5.AN%C3%80LISIS%20De sempleo%20Migracion%20y%20Pobreza.pdf>. INEGI. " Mexico Unemployment Rate." TRADING ECONOMICS | 300.000 INDICATORS FROM 196 COUNTRIES. Web. 6 Apr. 2013. <http://www.tradingeconomics.com/mexico/unemployment-rate>. Index Mundi. "Mexico Unemployment rate - Economy." Index Mundi - Country Facts. Web. 6 Apr. 2013. <http://www.indexmundi.com/mexico/unemployment_rate.html>.
  • 12. Nápoles, Pablo Ruiz. "Recent evolution of Mexico´s employment and unemployment." UNAM. 9 Sept. 2011. Web. 6 Apr. 2013. <www.economia.unam.mx/publicaciones/nueva/econunam/23/05napoles .pdf>. Trading Economics. " Indicators for MEXICO." TRADING ECONOMICS | 300.000 INDICATORS FROM 196 COUNTRIES. Web. 6 Apr. 2013. http://www.tradingeconomics.com/mexico/indicators “Mexican Peso." TRADING ECONOMICS | 300.000 INDICATORS FROM 196 COUNTRIES. Web. 16 Apr. 2013. http://www.tradingeconomics.com/mexico/currency Harrell, Louis. "BLS.GOV." The 1982 Mexican peso devaluation and border area employment. Web. 15 Apr. 2013. <www.bls.gov/opub/mlr/1985/10/art3full.pdf. Chinese University of Hong Kong. "Historical Exchange Rate Regime of Asian Countries." International Economics. Web. 15 Apr. 2013. <http:/http://intl.econ.cuhk.edu.hk/exchange_rate_regime/index.php?cid= 17>. "Mexico’s position among the world’s largest economies: 1900 to 2008 » Geo-Mexico, the geography of Mexico. Web. 16 Apr. 2013. <http://geo- mexico.com/?p=6808>. Stacy, Lee. Mexico and the United States. Marshal Cavendish, 2002. 960 pp. MIDE. ECONOMY. 2013. March 2th, 2013 <http://www.mide.org.mx/ >. BANXICO, "Preguntas frecuentes de política monetaria, dudas, Banco de México. “Banco de México. Web. 2 Mar. 2013. <http://www.banxico.org.mx/politica-monetaria-e-inflacion/material-de- referencia/basico/preguntas-frecuentes-de-politica-monetaria-e- infla/preguntas-frecuentes002.html#inpc>. Index Mundi. "Mexico - Gross national income." Index Mundi - Country Facts. Web. 16 Apr. 2013. <http://www.indexmundi.com/facts/mexico/gross-national-income>.