The document discusses Mexico's economic performance compared to the United States. It summarizes that Mexico recovered rapidly from the global financial crisis, with GDP and industrial production surpassing pre-recession levels faster than the US. Mexico also has lower budget deficits and national debt than the US. The document argues Mexico has achieved macroeconomic stability through fiscal and monetary reforms, including an independent central bank focused on low inflation. In contrast, US policymakers appear unable to implement necessary fiscal reforms to restore confidence and growth.

1. 19/06/12 Time to ditch the Mexican stereotypes - FT.com
May 24, 2012 7:59 pm
Time to ditch the Mexican
stereotypes
By Richard Fisher
For many Americans, Mexico is seen through the lens of immigration or drug trafficking.
This is a mistake: it is outperforming the US in many economic areas and provides several
important lessons for Washington policy makers that seem unable to make a start on ever
more urgent reforms. Mexico has a sound macroeconomic footing and is addressing the
microeconomic problems still holding it back. The same cannot be said for the US.
Mexico recovered rapidly from the global financial crisis. Real gross domestic product grew
5.5 per cent in 2010 and 3.9 per cent in 2011 after plummeting 6.2 per cent in 2009.
Economic output was back to its peak pre-recession level after 12 quarters, bettering the
US by nearly a year. Moreover, Mexico’s industrial production surpassed its pre-recession
high in early 2011. US industrial production remains 3.3 per cent below its December 2007
peak.
On the fiscal front, Mexico ran a budget deficit of 2.5 per
cent of gross domestic product in 2011, compared with 8.6
per cent for the US. National debt in Mexico is stable at 27 per cent of GDP, while in the
US it is 98 per cent and rising. There is a lesson for America here: Mexico passed a
balanced budget rule in 2006, which forced its government to hew to fiscal discipline.
Trade has boomed, too, affirming once again the importance of international agreements
on tariffs. Since joining the General Agreement on Tariffs and Trade in 1986, and ratifying
the North American Free Trade Agreement in 1994, average tariffs in Mexico fell from 27
per cent in 1982 to 1.3 per cent in 2001, and the volume and composition of trade changed
significantly. In 1980, trade as a percentage of GDP was only 17.5 per cent. Today exports
and imports represent 61 per cent of economic output. And about 80 per cent of Mexico’s
exports are now manufactured goods.
Certainly, Mexico still has many problems. Deregulation has met with mixed results.
Declining crude oil production threatens the government’s ability to fund itself. Low high-
school graduation rates contribute to low labour productivity and potentially greater social
instability. Continuing violence directly harms businesses and tests investor resolve,
resulting in a capital and brain drain.
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2. 19/06/12 Time to ditch the Mexican stereotypes - FT.com
Still, we should discard old stereotypes of Mexico and give credit to the country’s fiscal and
monetary authorities. The economic performance during and after the global financial
crisis should allay the fears of those who doubted Mexico’s capability to reform. The
government has implemented greater fiscal discipline than the US, without hindering
economic recovery. By comparison, US policy makers appear incapable of fiscal reform.
They have not created a budget that restores confidence, and encourages investment, job
creation and risk-taking, while also controlling long-term deficits and unfunded liabilities.
The US can also learn from Mexico on monetary matters. By constitutional amendment,
Banco de Mexico became an independent central bank in 1993. In 2001, it formally
adopted inflation targeting, whereas the Federal Reserve did not announce an explicit
long-term inflation target until this year.
Monetary policy reforms have had a salutary effect on the Mexican economy. Before
central bank independence, Mexico’s annual inflation rate averaged 43 per cent. The rate
has now dropped to 4.4 per cent.
The peso is now a store of value and no longer shunned. The central bank’s commitment to
low inflation has led to a peso-denominated bond market and falling interest rates. Before
1995 the Mexican yield curve ran out to 27 days. In 1995 the Mexican government began
building a yield curve by issuing notes of up to one year in maturity. In 2000, five-year
notes were issued; in 2004, 20-year bonds; and in 2006, 30-year bonds. Interest rates
have fallen on each successive issue. Credit default swaps market spreads assess a greater
default possibility for French sovereign debt than for Mexico’s obligations.
Mexico’s macroeconomic recovery shows that gains from reform are worth the pain. For
both the US and Europe there are lessons to be learnt. Mexico’s achievements have come
through both fiscal and monetary reforms. For this, Mexicans can be proud. And other
nations should be inspired.
The writer is president and chief executive officer of the Federal Reserve Bank of Dallas
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