1. 1
An economical and political perspective of the influence of the United
States on Mexico during the global financial crisis (2008)
By Luis Rodrigo Anaya Villafaña
Autonomous University of the State of Mexico
January 2015
Introduction
A short historical background of the economic/political ties between Mexico and
the United States, making an emphasis on North American Free Trade
Agreement, the economical model adopted by Mexico since the signing of this
treaty and other events that have shaped the economy ever since then.
The global economical crisis and its effect in Mexico
Very briefly, I describe how the global economic crisis was wrought and how it
spread throughout the world financial system, which in turn plundered various
countries into recession and austerity. Then, I proceed to explain the side effects
on the Mexican economy that came as a result of the global recession.
The Mexican government´s contingency plan for the 2008 recession
In this third part, I examine the measures that the Mexican government
undertook the strategies to stave off the regressive effects of the economic crisis.
Additionally, I point out that the public expenditure was not used as a
countercyclical tool to boost national productivity.
The present and future of Mexico
This final part of this essay will show the low economical productivity of the
Mexican economy, a broad current scenario about some social circumstances
that have predominated in Mexico and finally I examine some of the current
reforms that the Peña Nieto administration has brought forth as well as the
economic outlook for Mexico.
2. 2
Introduction
“If the United States is coughing, Mexico is already ill with a cold”. This is the
dreaded saying that echoes around Mexico when the United States is going
through political or economic disturbances that have a considerable damaging
effect on Mexico. This chain of events can be attributed not only to the long
standing economic ties that both countries have sustained for centuries, but also
because the U.S. foreign policy controls the Mexican political and economic
agendas to serve the American interests first.
Since it was formally established as a Republic in 1824, Mexico has gone
through tumultuous economic crises and numerous debt defaults. Most of the
presidential administrations of the 19th century dealt primarily with substantial
debts due to the fact that the Mexican federal government could not attain
sufficient public resources to pay for the operations of the State. In addition to
this disadvantage, the political situation in Mexico was anything but uproarious.
The administrative transitions, the disputes of different political factions, the
power struggle between the authorities and the church and civil unrest were core
elements during this period, thus foreign resources needed to be secured by the
government and other parties. The volatility of the Mexican State pervaded,
especially during the period in which the French empire sought to reestablish the
European monarchical power in the American continent when it invaded Mexico
in 1863. After this campaign ended with the death of the Maximilian I of Mexico,
the U.S. grasp on Mexico would not only intensify, but it would determine
Mexico´s political direction, which would limit the country´s own sovereignty.
From the reception of weaponry to fight against the conservatives in exchange
for free transit rights of the Isthmus of Tehuantepec1 to the 20 billion dollar loan
1 Although the weapons did reach Benito Juarez and his forces, the McLane –
Ocampo treaty that would have granted the free transit of Americans through this
vast southern territory was not ratified by their Northern Congress because of the
political turmoil caused by the secession of the Southern States. The original
3. 3
to the Mexican government during the 1994 Mexican economical crisis2, the
United States has exercised a hegemonic influence on Mexico for more than 200
years. At some levels, this relationship has been beneficial and positive for the
Mexican State and its population, but it has always come at a substantial price
for the Latin American country. One clear example of this is the North American
Free Trade Agreement (NAFTA). This trilateral enterprise promised to be the
gateway of national economic growth for the involved nations. Particularly for
Mexico, NAFTA had the potential to radically transform the economy into a
production juggernaut that would rightfully ratify the country as one of the most
important economic players in the world.
Despite the considerable job creation in the manufacturing and industrial sectors,
Mexico has not increased its productivity significantly since the treaty came into
effect 20 years ago. As a matter of fact, a study regarding the results of NAFTA
conducted by the Center for Economic and Policy Research points out that
Mexico ranks in the 17th place (out of 20 Latin American nations) in terms of
economical growth from 1994 to 20143. With this in mind, the main benefactors
of the NAFTA were Canada and the United States. The American financial and
industrial spheres soared to unprecedented growth levels in the 1990´s.
American Industry and the financial sector flourished during this period thanks to
the deregulation of both markets 4 during the Clinton years and previous
American project consisted of building a road or a canal that would unite the trade
coming from the Pacific and Atlantic Oceans (Schlarman, 2012).
2 Carstens and Werner (2001).
3 The economic growth of Mexico clocked in an average of 0.9% of GDP in this
period of time. In addition, the growth of GDP per capita has been lower than the
other Latin American nations combined and the national poverty statistics indicate
that there are more people below the poverty line than there were prior to the
signing of NAFTA (Weisbrot, Lefebvre & Sammut, 2014).
4 In part because the production costs of various goods were decreased significantly
because a grand majority of American companies moved their manufacturing
operations to Asia or to neighboring nations, like Mexico, where they did not have to
remunerate the workers with wages like the ones that were given in the United
States. A lot of Americans were downsized during the 90´s and this trend has not
disappeared.
4. 4
administrations. This is one of the many chapters in the history of the
socioeconomic chasm that has been forged by these American countries. Simply
put, one nation succeeds in economical and political terms at the expense of an
inferior power that lags continuously.
In the case of the global financial crisis of 2008; both the U.S. and Mexican
economies plummeted considerably as a result of the decrease of economical
productivity that was caused by the erratic operations from the American financial
market. Although the impact in Mexico was not as profound as the one in the
U.S., the damage to the Mexican economy as a whole took a tremendous toll on
the labor market, as well as a decline in productivity in terms of GDP. The
purpose of this essay is to analyze the effect of the global financial crisis in
Mexico, identify the policies and actions that were adopted by the Mexican
government to isolate the baneful side effects of this economical debacle, to
clearly distinguish the ramifications of the endeavors undertaken by Mexico
during this period and to give a brief perspective of Mexico´s future. The present
work is the result of a lengthy research that originally stemmed from an interest
of the global financial crisis that later led to the management of the Mexican
economic crisis of 1994 and 2008. Along the way I realized that in order to
construct a concrete scrutiny about Mexico and its economic crisis that the
origins of the crisis and the United States bonds should not be left out of the
scope of this research. For this paper, I chose to focus on the economic, financial
and banking phenomena because these categories provide a broad set of
quantifiable information that percolate the circumstances and attributes of Mexico
– U.S. cooperation. Also, in this essay I intend to highlight some of the
economical and social conditions that are determining the present and future of
Mexico, so as to offer an alternative that dissipates the continuity of the
socioeconomic straggle of this nation.
5. 5
o Overview of the American economy during the 20th century and the
financial crisis of 2008
Starting in the 1980´s, the American economy began to reinvent itself due to the
low economic growth that the country managed to produce the previous decade.
The 1970´s marked predominantly by the decay of the prevalent economic model
that was an offspring of the protectionists trends that were imposed for a large
part of the 20th century. The American economy was led by the public sector and
as a result numerous public works projects and social programs expanded
throughout the years. At one point, the government declared a war against
poverty in order to create a new society in which the American people would
surge and maintain social prosperity that had been sustained after the Great
Depression. But the hard reality struck in the form of stagflation, the
unsustainability of the Bretton Woods system and the oil crisis. Short after, the
neo classical economist took over the design of economic policies, which aimed
to position the private sector as the main engine of the American economy
(Samuelson, 2006).
To accomplish this, the market needed to be reconfigured and certain
government restrictions needed to be eliminated. Hence, the deregulation of the
most important American industries began and, by default, public expenditure
had to be lowered. The American economy clutched several times (especially on
October 19, 1987 when the stock markets of the world lost a lot of value in a
small interval of time) but it eventually grew to its full potential during the 1990´s.
The rite of the financial market marked this new decade of economic bonanza.
New financial products such as CDS´s, CDOs´ and ABS´s5 opened the door for
the financial sector to offer up immense quantities of capital to companies and to
consumers. The use of financial derivatives not only increased the profits of the
5 Credit Default Swaps, Credit Debt Obligations and Credit and Asset Backed
Securities.
6. 6
financial institutions, but, as the portfolios were clustered the risk of investment or
loss of capital diminished significantly. This deregulation campaign was powered
by the captains of Wall Street and by the Federal Reserve Chairman, Alan
Greenspan. The efforts of these parties successfully fought off Brooksley Born
from the Commodity Futures Trading Commission (CFTC)6 and abrogated the
Glass – Steagell Act, which prohibited the fusion of banking and financial
institutions (Stiglitz, 2010).
Before long, the American market was overflowed with capital, so the goal now
was to offer up loans to a large array of Americans of profit generation in the long
term. The plan to expand the issuing of home loans and credit lines was
schemed by the private and public sector. Freddie Mac and Fannie Mae, which
are the equivalent of the Federal Reserve for mortgaging homes, drafted new
types of home loans, which were denominated as “sub – prime mortgages”
(Sorkin, 2009). These loans were of very bad quality for the homeowners
because the interest rates were not fixed, so it could either be raised or
decreased depending on the current conditions of the market. The availability of
credit to people with bad credit history was facilitated under the assumption that
lenders could not lose money either way. Thanks to the lax regulation of credit,
the worth of all the subprime mortgages shot up from 640 billion to 2 trillion
dollars by 2005 (Morín, 2010: 65).
Real Estate development in America during the 2000 was perceived as one the
most profitable ventures available at the time. Now that there were considerable
amounts of loans out in the market, the financial institutions looked to profit from
these portfolios by clustering them and then creating securities that could be sold
6 This appointed official was concerned with the lack of regulations of financial
derivatives and she had a prolonged debate against the unleashing of this industry.
Her efforts were futile because the financial lobby campaigned hard against her and
eventually she stepped down from the CFTC.
7. 7
not only stateside7, but also worldwide. With the apparent low risk of investment
and high returns, various international institutions bought in to the idea of
investing on these financial speculative schemes. Add in that the world financial
system was closer than ever as a result of the merging of various international
financial institutions, the international financial system resembled the very
definition of “too big to fail” as many analysts stated when they assured investors
that their interests were very well protected.
The new homeowners that had acquired real estate assets quickly realized that
the interest rates were skyrocketing mercilessly and many of them could not
sustain their considerable bills. In succession, many debtors ceased paying their
creditors and eventually left their newly acquired properties. The banks were left
off with a great amount of assets that were losing their values at rapid paces. The
creditor’s burden was conspicuously growing as months went by and the balance
sheets of both financial and banking institutions initiated to flood with hard losses.
Sequentially, the derivatives and securities that were spread out through the
whole global financial system turned toxic and in time became poisonous
liabilities.
By 2007, it seemed that the warnings of danger made by several regulatory
advocates, such as Brooskley Borne, were becoming an imminent reality. The
banking institutions rebutted these fiery allegations stating that the financial
system was not collapsing and that they were ready for just about anything. The
following year Bear Stearns was absorbed by JP Morgan as a result of a “fire
sale” orchestrated by the Federal government, Lehmann Brothers ceased to exist
and AIG was bankrupted by September 16. The American financial system was
on the verge of oblivion, so the Federal Government, through the Secretary of
Treasury and the Federal Reserve, worked tirelessly to preserve the integrity of
the American economy. After evaluating numerous courses of action, Henry
7 From 2000 to 2007, the value of financial securities in the United States rose from
2.6 billion to 11 billion dollars (Irwin, 2013: 256).
8. 8
Paulson in conjunction with Ben Bernanke devised a plan in which the Federal
Government would invest 800 billion dollars in the most important banks and
financial institutions of the country (Sorkin, 2009). This course of action worked
temporarily, because since there was a lack of credit availability during this
austerity period, other industries (especially the manufacturing sector and the car
industry) began having problems of their own that briskly translated into high
unemployment and an economic recession. In the end, the federal government
spent up to three trillion dollars to save the economy (Graeber, 2011: 23).
Today, the whole world is still feeling the side effects of the most detrimental
financial crisis since the Great Depression. A lot of regulations have now come
into effect and the markets are evolving with new trends that are themselves
defined by technology and other consumer inclinations.
o Overview of the Mexican economy during the 20th century and the side
effects of the financial crisis of 2008
During a large part of the 20th century, the Mexican financial system has waned
in comparison with other international markets because the State had been in
charge of the economic activities until the late 1980´s. Since the 1930´s, the
economic model in Mexico focused on the exportation of oil and different goods
since the Second World War spawned a huge demand of resources that could
not be generated in the frontlines of the conflict. Later, more protectionist trends
came into effect and as a result, Mexico reached an economical high – point with
the imposition of the “Stabilizing Development” model which invested great public
resources on public projects that were financed by the high returns of oil exports
(Reynolds, 1973).
But during the 1970´s the country, as well as the United States, was affected by
the oil crisis that originated in the Middle East. Since the oil exports revenue
declined predominantly, the fiscal authorities had no other choice but to acquire
9. 9
foreign debt to finance public expenditure. As the years went on, this temporary
measure prolonged, the national debt rose to exorbitant levels and the oil
revenue was not enough to sustain an abundant federal budget and the
ascendant debt obligations. In 1982 and 1986 Mexico experienced two economic
crises as the State – driven economy was proving to be inefficient and outdated
compared to the new economic trends that ruled the decade. As the 1990´s
loomed, Mexico adopted neoliberalism as the new economic model and a
modern private sector was modulated to embrace globalization. Certain
economics restrictions were lifted and the signing of NAFTA opened the doors for
the expansion of the Mexican export market (Muñoz, 2004).
At the beginning of the 1990´s, the Mexican economy welcomed in a colossal
influx of foreign capital, which in time produced speculations and doubts
regarding the stability of the Mexican banking system. When foreign banking
institutions bought off 18 out of the 20 banks in Mexico, they realized that these
new acquisitions were sub capitalized and that the previous management of
these entities was not undertaken according to quality banking standards.
Coupled with the political events in 1994, even more concerns grew regarding
and this led to the induced devaluation of the Peso. A massive bank run of
American dollars ensued and this led to the crippling of the foreign exchange.
Soon right after, the Mexican government had to create a tight regulated banking
and financial markets that would ensure security and prosperity for all the
operations that were made. This meant that loans, credit lines and financial
products had to be backed by collateral and assurance from the Mexican
regulators in order to obtain the trust of the foreign markets8. The result of these
actions was the consolidation of a financial and banking system that was young,
restricted and highly regulated; these particular characteristics were restraints
that limited the growth of these economic sectors.
8 The Banking Institutions Law states that banks must have at least 50.0 % of
collateral in all the loans that these entities make (Banxico, 2009).
10. 10
Consequently, the Mexican economy was not directly exposed to the malignant
effects caused by the real estate and financial sector of the United States
because the architecture of Mexican financial system had a strong capital base
to fight off investment risks, there was an absence of availability of financial
products (CDS´s, CDO´s, COO´s, etc.) and the international reserves of the
central bank (Banxico) were solid (Thorne, 2008). Although the Mexican was not
affected like the first world economies, the repercussions of the economic
slowdown ended up causing a recession in the Latin American nation, mainly
attributed to the dawdled demand of exports at the end of 2008. As a result of the
economic transformation of the 1990´s, Mexico had become one of the largest
exporters in the world, and during the crisis of 2008 several companies went into
austerity cycles causing massive layoffs and the closing of several manufacturing
plants.
In specific terms, Mexico´s economy was not afflicted immediately after the U.S.
financial system was crippled, but it perceived a momentous economic slump
when the second wave of side effects struck worldwide. As a result, Mexico´s
GDP in 2009 decreased -5.95% 9 compared to the previous year, economic
activity shrank -6.27% in the same period, foreign investment declined from the
third trimester of 2008 until the second trimester of 2010, the money remittances
from the U.S. to Mexico did not surpass 2 billion dollars from November 2008
until May 2010 and inflation skyrocketed 45% between August 2008 to March
2009 (Banxico, 2013). Additionally, 700,000 jobs in the formal sector were lost10,
another 5 million Mexicans fell under the extreme poverty line, the AH1N1 health
crisis broke out and the oil revenue in 2009 plummeted -41.0%11.
9 From this point forward, the statistics that regard economic performance, tax
revenue and public expenditure were deflated to the value of the peso during 2003.
10 The number of lost labor positions during this period accumulated to 20% of the
formal jobs that were created in the last 20 years (Vanegas, 2009).
11 According to Vanegas (2009), Moreno (2010) and Hernández (2010) these were
the factors that caused the deepened economical debacle in Mexico: a) the lack of
11. 11
In this particular moment the economical and political analysts were devastated
because they had forecasted that the Mexican economy would finally live to its
potential during the late 2000´s. Instead, the nation struggled like it previously did
during the 1994 “tequila” crisis. With that in mind, what did the authorities do to
suppress the tumble? Did they have the ability to do what was best for the
country, or would they act in the best interests of the United States?
The Mexican government´s contingency plan for the 2008 recession
A little under two years into his administration, the President of Mexico, Felipe
Calderón encountered a very grim economic scenario compared to the one he
promised on his campaign trail. The Mexican government could not have
prevented the debacle due to the fact that it was originated in other nations and
as a consequence Mexico suffered from collateral damage. In order for Mexico to
solve its dire predicament, it had to aid the U.S. monetarily so that both countries
could stave off further damage. It was up to the technocrats in charge of Banxico
to work in conjunction with the Federal Reserve to achieve macroeconomic
stability. The main resource used by these central banks was the Foreign
Exchange Market. It was through this global decentralized institution that the
Banxico could swap dollars with the Federal Reserves so that liquidity could be
reestablished in the depleted American economy. In 2008, Pemex 12 had a
tremendous year as far as sales to the international markets, so the government
decided to convert most of these gains into dollars and then they would be
transferred to the international reserves of Banxico. The Mexican central bank
also auctioned dollars at very low rates. In total, 4.18 billion dollars were
impulse given to the development banks, b) the intervention of Banxico just as a
institution that regulates inflation and not as a thruster of economical growth, c) the
upheaval of the informal labor market, e) the deficiencies of the fiscal system that
fueled external uncertainty, f) the unequal distribution of wealth, g) the inefficiency
and high dependence of oil, h) the poor market competitiveness in comparison to
other economies and i) the hegemonic control of foreign companies on the national
market.
12 The Mexican state owned Oil Company.
12. 12
auctioned by both entities (Sidaoui, 2010: 10). During these operations, the
national currency inflated as a result of these swaps and other macroeconomic
factors13.
As far as the Mexican financial market is concerned, there were weaknesses that
rose as a consequence of the lack of the foreign credit availability. Since almost
of all of the banks that operate in Mexico are owned by larger foreign
conglomerates, the disposal of credit was scarce. The government branches in
charge of the financial sector 14 acquired 50 billion pesos (around 3.8 billion
dollars) in bonds and securities to assure the low risk of the Mexican financial
market. At the same time, Banking Savings Protection Institute (IPAB) reissued
and bought back bonds to keep the banking system afloat15 and Mexico received
two credit lines from the International Monetary Fund (IMF) of 50 billion and 47
billion dollars16. These actions managed to contain the degenerative effects that
the Mexican private sector underwent.
As for fiscal policy, the Mexican authorities executed two major responses. First
they raised the rates of almost all of the federal taxes17 since the oil revenue for
2009 was lower than expected. The Secretary of Finance estimated that it
collected an additional 2.0% of the GDP from these taxes (Sidaoui, 2010), but it
also took a considerable toll on the domestic consumption for that year. The
second measure orchestrated by the government was to raise public
13 Since the revenue of oil decreased in 2009, speculation about the sustainability of
the Mexican economy grew because it was unclear if the country could continue the
currency swaps at the current level at that time.
14 NAFINSA and BANCOMEXT.
15 These exercises amounted to 146.7 billion pesos (around 11.28 billion dollars).
16 Mexico had to reinforce its presence internationally, thus it turned to the IMF for
funds to strengthen the value of the Peso and to finance the Federal Government´s
expenditure for 2009 (Banxico, 2009).
17 Value added tax: from 15% to 16%; income tax: from 28% to 30%; the tobacco
and alcohol tax: from 25.0% to 26.5%; the lottery tax: from 20% to 30%. Moreover,
a new tax on telecommunications was introduced that would take 3.0% of the total
value of the acquired service (Banxico, 2009).
13. 13
expenditure. Unfortunately, since there were lower returns of tax revenue for
2009 federal expenditure went down -2.07% in 2009, but it went up 8.45% in
2010. During the three-year period of 2008 – 2010, the federal budgets for
education (7.18%), health (10.17%), social security (0.84%), welfare programs
(9.82%) and public works for water and drainage (64.22%) were expanded
(Office of the Presidency of Mexico, 2012). Furthermore, the federal government
created 400,000 temporal jobs in the same span of time.
With this set of facts we can identify that the Mexican government fortified itself
against the economic debacle with monetarist maneuvers, acquisition of credit
lines, invigoration of financial and banking institutions, tax hikes and a slight
increase in public expenditure. By far, the most important macroeconomic
actions were the foreign exchange market transactions and the currency swaps
with the United States because both countries ensured that there would be a
degree of availability of credit for the private sector. These strategies followed the
paradigm imposed by Ben Bernanke, 18 in which he predicted that the world
economy would plunge the same way it did during the Great Depression if the
governments didn’t rally together to provide the markets with a great liquidity
base. Accordingly, Mexico got behind these guidelines imposed by the United
States and limited its national growth as a result of this. Now the question posed
is, what else could have Mexico done in this dreadful scenario?
The present and future of Mexico
Naturally, there were various figures that denounced the strategies that were
executed by the Mexican government, including the renowned economist Joseph
Stiglitz (Lombera, 2009). The latter argued that Mexico mismanaged their assets
because instead of swapping dollars in the foreign exchange market they could
have invested all those international reserves in social projects or other profitable
ventures to create a multiplier effect on the economy. These alternatives offered
18 The Chairman of the Federal Reserve at the time.
14. 14
the opportunity of economic advantage for Mexico, but its clear that the United
States wouldn´t have allowed Mexico to jeopardize their plans for economic
recovery. If Mexico went on another direction the country might have suffered
more negative effects because they would have been either penalized by the
American government or staggered internally to a higher degree. Taking into
account all of the political and economic circumstances at that time, Mexico was
right to act the way it did, otherwise the Latin American nation would have faced
more problems. The ties between both countries are very tight; as a result,
Mexico is still highly dependent on the United States. One could assume that if
Mexico continues with the present U.S. dependence the economy will not reach
its potential. If Mexico is not able to erect consolidated foundations for the
blossoming of national wealth, then the destiny of this country is to always be
controlled by a foreign entity. Going back to Stiglitz, he argued that most of the
nations that retaliated against the symptoms of the financial crisis did so with
increased public expenditure to counterbalance the private sector slump; Mexico
did not go through this path even though it had the ample resources to prompt an
enterprise of this nature because this would have gone against the American
guidelines. To be clearer, I acknowledge that Mexico acted correctly within the
rigid framework established by the economic and political relation that the
country holds with the United States. This multinational bond is the main restraint
that inhibits the development of Mexico in social, political and economic
dimensions.
Currently, Mexico is not performing to its potential; to show that I refer to the
following statistics in the following pivotal categories:
Governance: The World Governance Index points out in its 2014th edition that
Mexico´s government has languished in the following areas: Voice and
Accountability (53.3 out of 100.0); Political Stability and Absence of Violence
(22.7 out of 100.0); Government Effectiveness (63.2 out of 100.0); Regulatory
Quality (67.0 out of 100.0); Rule of Law (36.1 out of 100); Control of
15. 15
Corruption (39.2 out of 100.0) (World Bank, 2015). In addition, World
Transparency ranked Mexico in the 103rd position out of 171 countries
evaluated in the 2014 report (Transparency International, 2014).
Education: In the 2009 PISA scores, Mexico came in the 50th place of
academic performance out of all of the nations that took part in these
evaluations (Murillo, 2013). After Australia and Chile, Mexico is the OECD
member state that spends more on private education with approximately
1.2% of its GDP. In the education category of the Legatum Prosperity Index,
the Mexican education system was ranked at the 73th position because a
great percentage of Mexicans do not finish secondary and tertiary levels of
education (Legatum, 2014).
Health: 55% of the total amount of money spent on health services comes
directly from the citizen´s pocket. Up until 2006, two thirds of the total
populations didn’t have access to a healthcare system (Sosa, et al., 2009).
The Legatum Prosperity Index ranks the Mexican healthcare system in the
53rd place. The principal two reasons for this low ranking is that national
health information system is not on track with international standards and that
the infrastructure in most hospitals is of inferior quality (Legatum, 2014).
Social security: The OECD points out that Mexico is the member state that
allocates the least amount of resources for social expenditures with only 7.3%
of its GDP. The average expenditure of other member states is 19.4%
(OECD, 2014).
Employment: 28.0% of the current labor force works on the informal market,
where they do not have access to a wide range of social programs, health
coverage or even fair wages (Hernandez, 2010).
Economic competitiveness: The Global Competitiveness Report put Mexico in
the 61st place out of 144 evaluated economies. Mexico was scored low due to
the untrustworthiness towards institutions, diminished efficiency in the goods
market and poor financial market development (Schwab & Sala-i-Martín,
2014).
16. 16
Energetic sector: Pemex ranks in the 37th place of revenue efficiency out of all
the oil companies in the world (Cañas, Coronado & Orrenius, 2013: 21).
Financial and Banking: Mexico is the OECD member state that has the
smallest financial market in relation to its GDP (16.0%). The average size of
the financial markets of the other member states is 60.0% (Ibarra, 2011). The
bank penetration in Mexico only amounts to 14.7% of GDP; it is lower than in
other Latin American countries like Peru, Brazil, Colombia and Chile (Murillo,
2013).
Fiscal system: The OECD reported that Mexico is the state member that
collects the lowest amount of taxes in relation to its GDP (20.6%). The
average of the other member states is 35.9% of their GDP (Ibarra, 2011:95).
Consequently, the Secretary of Finance has to rely on the income derived of
the oil exports, which contributes to one third of the total federal budget.
From these facts, one can infer that the Mexico is underperforming politically,
socially and economically despite the fact that it is not only a member of the
OECD but one of the most important nations in the world. This Latin American
nation is the 13th greatest importer in the world, the tenth biggest producer of oil
(Office of the Mexican Presidency, 2012), it has an limitless array of natural
environments and resources, its history as well as its heritage is recognized all
around the world and it is one of the nations that contributes greatly to the Latin
American block. With these and other unnamed attributes, Mexico has a great
potential to excel in various departments, but there is a lot of things that must
occur in order to complete a transformation of this country. Ever since he took
over the presidency, Enrique Peña Nieto started his administration with one
specific goal in mind: to change the legal framework of the constitution to
improve the political, social and economic environment in Mexico. Therefore,
eleven reforms19 were designed by the Executive power to induce considerable
19 The eleven reforms were: Energy, Telecommunications, Economic
Competitiveness, Fiscal, Financial, Political, Electoral, Judiciary, Labor, Education
and Transparency. The most significant change in this wave of reform includes the
17. 17
modifications could be accomplished as the first step of the massive campaign to
reshape Mexico.
One thing is clear: Mexico won´t improve if the core issues that fragment the
people and the government are not settled. Even if Mexico´s energy sector
reaches its full potential, this alone won´t influence positively the current state of
the country, the living standards and the development of Mexico in the 21st
century. Throughout this paper, I have recurred to a lot of statistics that permeate
the economic and social repercussions of Mexico´s relationship with the U.S., but
these figures do not reflect the dimensional scale of what is missing and what
needs to be done in Mexico. Since the introduction of several neoliberal reforms
in the 1990´s and the culmination of NAFTA, Mexico has had to shape its
economic model with the predominant American capitalist system and this has
not only defined the production trends in Mexico but it also has determined some
core aspects of the political system and society as a whole. The transformation of
Mexico will only occur if the public sector, the private sector and the civil society
forge a synergic accord in which all of these spheres contribute to the national
project. The public sector must increase spending on the development of human
capital, education, health and other social security schemes. Likewise, the tax
system must be remade as well because it does not impose a taxation culture on
its citizens; instead it relies on the oil income from PEMEX, credit lines from
international organizations and foreign debt. This goal is paramount for this
deregulation of the energy public sector, which now allows the private sector to
participate in oil, electric and natural gas ventures. Also, the telecommunications
market will be regulated in order to ensure effective price and service
competitiveness; an agency will oversee the competitiveness of the markets; several
government institutions will turn into decentralized entities; the accessibility of
Mexicans to credit lines and bank services will increase; labor conditions will
improve and the number of jobs in the formal sector will rise; the members of
congress are now eligible to be reelected to consecutive terms; the fiscal systems
will be modified; new unemployment programs will be introduced; the federal
entity in charge of elections will be restructured as well as the state institutions of
the same order, and finally, the federal security and justice system will be
reorganized (Office of the Mexican Presidency, 2015).
18. 18
project because it will create citizen´s responsibility and the State will have more
resources that can be devoted to social progress. On the other hand, the
Mexican private sphere must encourage the growth of the national owned
companies, better labor conditions, spread a culture of saving and investing
instead of spending money on unnecessary items and the payment of corporate
taxes. In the midst of this, the social society must demand and fight for better
social and democratic conditions, more accountability, more protection from the
authorities, access to improved education, economic and social equality and fair
treatment by the other spheres. The progress of this project in time will establish
Mexico as a solid autonomous State that can rely on itself and not so heavily on
the U.S.
Neither the Mexican industry nor the government can take on the task of national
transformation by itself; there must be a bridge of constant communication,
strategic planning, innovative thinking, and, above all, cooperation that serves
the interest of Mexico and its citizens. The long road ahead may seem bleak,
boisterous and unpredictable at times, but after these challenges are conquered,
the sight of a renewed light will be visible.
19. 19
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