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Global financial and economic crisis How does Mexico face it?
Ambassador Sandra Fuentes-BerainMexican Studies Center, Antwerp University
March 12th, 2012
The most serious international financial crisis since 1929
Three-Pillar Plan: 1. Counter-cyclical policies to avoid
a drop in global demand2. Agenda of reforms on financial
supervision and regulation3. Commitment to avoid economic
protectionism
Lessons:• Effective mechanisms to
articulate a global response to the crisis; restore confidence in markets and avoid a deeper recession.
• Decision making reflected the changes in the power structure and in the relative weight of emerging markets.
• In fact, the G8 became obsolete.2
3
USA
USA
GDP
GDP per capita
Inflation
Interest Rate
Exports
Imports
Trade balance
Public deficit
1987
200
1,900
159
120
28
19
7.2
16.1
2010
$ 1,035
$ 9,123
4.4
4.5
$ 299
$ 302
-3.0
2.8
billions of US dollars
% of GDP
US dollars
Annual %
Annual %
billions of US dollars
billions of US dollars
billions of US dollars
4
5
6
• Structural Economic Reforms since 80’s
• Transformed from a protectionist to an open economy
• All this together positioned Mexico in the global scenario
• A key player in the WTO, G20 and APEC
• OECD member since 1994 (first Latin American country)
• Interest rates have registered historically low levels (4.3%)
• Inflation remains low and stable (3.8%)
• The external accounts are in order
• International reserves stand at high levels (USD$148Bn)
• Access to international capital markets
• Fiscal discipline has been preserved
• A sound financial system, rated 150 in terms of stability (WEF 2010)
• Mexico retains Investment-Grade Rating
7
• 14th largest economy in the world (IMF)
• 11th Purchasing Power Parity, bigger than Spain, Canada or Korea
• Mexico´s economy = Argentina + Colombia + Venezuela + Chile
• Total trade: $600 billion USD, 10th largest in the world
• Export: $299 billion (10th largest, manufacturing 62% of the exports of LA countries. Mexico exports more than all of Latin America together)
• Import: $302 billion USD (10th largest, 38% of LA countries)
• 12 Free Trade Agreements with 44 countries (Americas, Europe and Japan), with market access for 1 billion consumers, 66% of world’s imports, 75% of world GDP and 28 Bilateral Investment Treaties
• The export activities contribute with 25% of the GDP8
• Mexico is among the top five emerging economies in terms of Foreign Direct Investment (FDI) inflows
• 66% of the GDP is generated in the service sector and 19% in the manufacturing
• Mexico is one of the world’s ten largest producers of vehicles and a key player in the aerospace industry
• Middle-income country with a population of 113 millions
• Income per capita among the top five in Latin America ($9,123 dollars in 2010), even larger than some EU Member States such as Bulgaria and Romania
• Average age of the population 26 (2010); 39% aged 19 years or under
• Young and increasingly better educated labor force able to produce higher value added goods
• 15th largest country in terms of territory (equals to France, Spain, Germany, Italy and UK together)
9
“In the stock market, Mexico maintains its place as first option in Latin America”JP Morgan Oct/09
“You can do business here [Mexico] in a stable macroeconomic environment”World Bank country director Axel van Trotsenburg Apr/09
“Mexico offers a unique set of advantages that constitute a privileged “sweet spot” in the globalization landscape”Boston Consulting Group
“Despite improved fundamentals Mexico is being hit by the financial turmoil and world economic downturn”OECD Economic Survey of Mexico 2009
“Mexican economy will grow 4.3 percent in 2010”Goldman Sachs Jun/09
“At global level, the rating reflects in an appropriate way the economic strength and the financial solidityof Mexico in connection with other countries that possess similar rating”Moody’s Sep/09
“Of the other countries we look at, only Mexico and perhaps Korea have the potential to rival the BRICs economies that we excluded initially because we view them as already more developed”Goldman Sachs
10
“Mexico is affected severely by the global recession, like many other OECD countries, withnegative economic, budgetary and social consequences. Although the banking sector hasso far weathered the financial crisis rather well, manufacturing industries are beingseverely affected by the downturn of global demand, particularly in high-value addedindustries.”OECD Economic Survey of Mexico 2009
“A major asset for Mexico in Latin America is its strategic geographic position at the boundary with the US. Mexico is a significant political, economic and cultural player in Latin America and its role in global issues is expected to grow with time. Its economy is fully integrated in the NAFTA and the voices of its rich culture are heard throughout Latin America.”COMMISSION OF THE EUROPEAN COMMUNITIESTowards an EU-Mexico Strategic Partnership
“Mexico has pursued sound policies, maintained macroeconomic stabilityand substantially reduced vulnerabilities. It has achieved a high level of credibility in theinstitutional framework supporting macro policy formulation, and has a sustained trackrecord of implementing very strong policies”IMF Consultation—Staff Report Feb/09
11
“Directors endorsed the planned 2009 fiscal stimulus, which should, along with increased development bank intermediation, provide timely support to economic activity. They observed that the counter-cyclical spending increases would protect employment and support low-income families, increase competitiveness of small-and medium-sized businesses, and augment infrastructure. Such measures were partly financed in effect by the authorities’ prudent price hedging of oil sold by PEMEX.”IMF Executive Board Assessment Feb/09
“Mexico has made substantial progress over the past decade in strengthening its economic framework and enhancing resilience.”IMF Consultation—Staff Report Feb/09
“Mexico entered the recent downturn with much stronger macroeconomic and financial fundamentals than they had in previous financial crises. This included lower liability dollarization, lower fiscal and private debt, and a better aggregate balance sheet for the financial services sector.”WEF Financial Development Report 2009
12
• By 2013, 63% of Mexico’s industrial tariff lines will
have no duties, with the average industrial tariff rate
lowered from 10.4% to 4.3%
• Just as the EU, Mexico’s economy depends on
open markets for its exports
• Mexico rejects any form of protectionist being used
as excuses by some countries to cushion negative
impacts caused by the worldwide economic
downturn
13
14
• Mexico’s network of FTAs is one of the largest in the world
• Preferential access to 1,060 million potential consumers, 2/3 of world’s imports, 3/4 of world GDP
FTA G2
FTA
Peru
2012
14
Free Trade Free Trade AgreementsAgreements
1212
North North AmericaAmerica
Central AmericaCentral America
South AmericaSouth America
Economic Economic Complementarity Complementarity AgreementsAgreements
EuropeEurope
66
Bilateral Investment AgreementsBilateral Investment Agreements 2424
Korea and JapanKorea and Japan
AustraliaAustralia
Mexican Mission to the EU15
16
GreeceItaly
France
Spain
Portugal
UK
Iceland
Holland
Denmark
Norway Sweden
Finland
Austria
6 ACE’s6 ACE’s24 BIT’s
Canada
US
Cuba
Honduras
Nicaragua
Costa RicaGuatemala
El Salvador
Colombia
PeruPeru
Chile
ArgentinaArgentina
Uruguay
BrazilBrazil
MercosurMercosur
(Automobile Agreement)(Automobile Agreement)
Israel
Republic of Korea
Luxemburg
Belgium
Ireland
LiechtensteinSwitzerland
AustraliaJapan
Panama
Estonia
Letonia
Lithuania
Poland
Slovac Rep.
Hungary
Slovenia
Czech Rep.
MaltaCypress
Germany
Rumania
Bulgary
16
India
12 FTAs with 44 countries
EcuadorEcuador
Market access for 1 billion consumers, 2/3 of world’s imports and ¾ of world GDP
TijuanaPopulation: 750,000Key Industries: beverages, processed foods, metalworking, radio and television manufacture, electrical machinery
HermosilloPopulation: 600,000Key Industries: automotive, meat, cement and derivatives, electrical machinery
CuliacánPopulation: 600,000Key Industries: food processing, cereal milling, sugar, beverages, edible oils and fats
AguascalientesPopulation: 500,000Key Industries: electronics, automotive, dairy, textiles, carpets
LeónPopulation: 1 millionKey Industries: refining, footwear, leather and tanning, bakery goods, beverages
Mexico CityPopulation: 20 millionKey Industries: retail, financial services, food, automotive, plastic products, paper and cellulose, chemical derivatives, basic chemicals
PueblaPopulation: 1.5 millionKey Industries: automotive, textiles, iron and steel, bottled water, chemicals, meat processing
VeracruzPopulation: 450,000Key Industries: petrochemicals, refining, basic chemicals, iron and steel, sugar, beef, processed foods, tourism, transportation services (maritime)
Ciudad JuárezPopulation: 800,000Key Industries: electrical machinery, transport equipment, meat, electronics, dairy products
MéridaPopulation: 600,000Key Industries: beverages, edible oils and fats, processed foods, cement and derivatives, plastic products
ChihuahuaPopulation: 650,000Key Industries: electrical machinery, automotive, meat, electronics, dairy products, timber
TorreónPopulation: 880,000Key Industries: automotive, bricks, clay, refractory, general machinery, cement and derivatives
TolucaPopulation:
850,000Key Industries:
automotive, plastics, paper and cellulose, chemical derivatives, basic chemicals
MonterreyPopulation: 3 millionKey Industries: oil refining, iron and steel, electrical machinery, glass and derivatives, breweries, meat products, cement, banking
San Luis PotosíPopulation: 670,000Key Industries: iron and steel, non-ferrous metallurgy, tobacco products, electrical machinery, automotive, livestock
QuerétaroPopulation: 460,000Key Industries: automotive, paper and cellulose, synthetic fibers, general machinery, electrical machinery, processed foods, dairy products
Tampico-Madero-AltamiraPopulation: 340,000Key Industries: chemical, industrial machinery, electronic & electrical equipment, oil and refinery, agriculture, cattle, fishing
Source: SE-NAFTA.
17
GuadalajaraPopulation: 4 millionKey Industries: high-technology, edible oils and fats, plastic products, chemicals, dairy products, processed foods, textiles, footwear
190 companies, 27,000+ Workforce
18
CANCÚN
Vitelcom
EDO. MÉXICO
Ericsson Alcatel Pantech⌘ AMP⌘ Sony⌘ Scientific Atlanta Olimpia
QUERÉTARO
Clarion⌘Siemens
Audio & video Home Appliance• Computer Telecommmunications Automotive CEM Foto & impresion⌘ Others
AGUASCALIENTES
White Westinghouse⌘ Texas Inst. Xerox Siemens Flextronics Volex
GUADALAJARA
• IBM• HP Nec Lucent Technologies Kodak Siemens MTI Electronics Solectron Méx. Flextronics Jabil Circuit SCI Sanmina ECMM Benchmark
⌘ Technicolor⌘ Universal Scientific⌘ Motorola⌘ Cumex
TIJUANA
SanyoSonyHitachiMatsushitaJVCSamsungPionnerMitsubishiSharpDeltaIchiaMerry TechWistronDisplay Orion⌘Amphenol⌘ADI Systems⌘Philips⌘Kyocera⌘Rectificadores Intern.⌘Vigobyte⌘Bourns⌘Bose⌘Skyworks⌘PanasonicKodak Delphi
MEXICALI
Sony MitsubishiLGThomson King Cord Mex BenQ
SONORA
AlcatelMotorolaVolex⌘ Molex⌘ AMP⌘ Amphenol
JUÁREZ
ToshibaPhilipsThomsonKenwoodAsusKeytronicsTatungLite on Enlight⌘Elamex⌘PlexusECMMElcoteq Delphi
CHIHUAHUA
FoxconnHoneywell⌘ Altec Jabil SMTC
TORREÓN
⌘ Thomson
REYNOSA
PhilipsSonyJabilCelestica Nokia Lucent Technologies Fujitsu Condura Delnosa Delco Matsushita Delphi Keytronics Tyco
CUERNAVACA
Nec
MONTERREY
Pionner Kodak SCI – Sanmina Celestica
• Elcoteq AFL Nippon Denso Axa Yazaki
19
FORD(Cars)
(MOTORES & UV)
NISSAN(Cars & Motors)
GM (UV)
DAIMLERCHRYSLER (CAMIONES) V.W.(AUTOS & MOTORES)
HONDA
FORD (MOTORS)
NISSAN(AUTOS & UV)
NAYARIT
G.M.(AUTOS & UV)
G.M. (MOTORES)
DAIMLERCHRYSLER (AUTOS & UV)
BMW (AUTOS)
FORD(CARS & UV)
DINA(TRUCKS)
VOLVOTrucks)
KENWORTH (Trucks)
SCANIA(TRUCKS)
INTERNATIONAL (Trucks)
G.M.(CARS)
GM (PRUEBAS)
DAIMLERCHRYSLER (BUSES)
Final assemblyplants in Mexico
20
Competitiveness
Trade Policy & Market Access
Macroeconomic Stability
Job Training, Education, Science & Technology Development
Fiscal Policy Support Research & Development Programs
Development of Suppliers
Regulatory Environment
Infrastructure Development (Including Technology Parks) 21
MEXICAN PRESIDENCY
OF THE G20
22
• New modus operandi of international cooperation: multilateral, informal coordination among developed and emerging countries
• Deficit in international governance: Economic borders are dissolved, while, in politics, nation-states are maintained
• G7 loses space in favor of emerging powers with more weight, demographics and regional leadership
• Innovative mechanisms of cooperation for a globalized and more interdependent world
Brazil, China, India, Mexico and South Africa: essential partners
Formalization of the G20: more variation in global economic power.
23
G5
G8 1975 1976 1998 + 1977
24
85 % Global GDP
(FMI)
Context: Asian crisis 1998-1999. Importance of emerging economies and systemically relevant countries becomes evident.
1999: Dialogue between Central Banks and Finance Ministers to maintain macroeconomic cooperation and address global imbalances.
Agenda: including policies for financial and economic stability, prevention of abuse in the financial system, growth policies, crisis management
G8 +
25
WASHINGTON, D.C.
NOVEMBER 14-15 2008LONDON APRIL 2
2009
PITTSBURGH SEPTEMBER 24-
25 2009 TORONTOJUNE 26-27 2010
SEOULNOVEMBER 11-12
2010
26CANNES
NOVEMBER 3-4 2011
LOS CABOSJUNE 18-19 2012
TO ECONOMIC AND FINANCIAL GOVERNANCE • Economic stimulus packages adopted in 2008
• Improvements in international macroeconomic coordination and financial regulation
• Financial institutional reform (such as the IMF and World Bank)
• Bank sector reforms (FSB)
• Financial security networks
• Strengthening the structure and governance of the international monetary system
TO GLOBAL GOVERNANCE
• More faithful reflection of current international economy
• Fosters globalization
• Contributes to a recovery of trust in multilateralism
• Complements United Nations’ and Breton Woods Institutions’ capacity for action 27
Actions promoted by G20 are directly related to the improvement of living conditions of all citizens in areas such as:
• Employment and social security
• Mitigating the effects of food price volatility
• Reducing risks in the financial system and promoting conditions that allow banks to provide credit
• Fight against corruption
• Protection of savings
• Support to regional development banks for social programs, etc.
28
29
• Economic stabilization and structural reform for growth and employment
• Strengthening financial systems and financial inclusion for economic growth
• Improving the international financial architecture in a globally interconnected economy
• Promotion of food security and addressing the issue of commodity price volatility
• Fostering sustainable development, including an agenda on infrastructure, energy efficiency, green growth and financing to fight climate change
30
• Facilitating the construction of agreements around global economic and financial problems that have consequences for our economy and levels of welfare
• Reaffirm our presence in the design and construction of a new, more just and representative structure of international financial governance
• Interest in promoting more equitable and sustainable development both nationally and globally
• Strengthening the bilateral relationship with global and regional powers, a key part of Mexico’s foreign policy strategy
• Strengthening communication and coordination amongst international groups on issues of common interest
31
THANK YOU
32