Mexico Balance of Payments and External Financing

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Mexico's Balance of Pay rnents and Exter nal Financing

Author(s): Al f redo Nava r r ete R.Sauree' Weltwirtschaftliches Archiv, Bd. 101 (1966), pp . 70-66

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Mexico's Balance

oC Payments and External Financing

By

Alfredo Navarrete R.

Conten ts: 1. Introduction. - 1I. The General Pattern 01 Development. -IU. External Capital.

I. IntroductioD

The external sector is quantitatively important in the Mexicaneconomy, and foreign trade and other international transactions

are also effective vehicIes of economic development. The scarcityof foreign exchange relative to the demands of a growing economy, andthe maintenance of free convertibility as a basic element of foreigneconomic policy, make the external sector sensitive to developments inother sectors, so that balance of payments considerations have constitutedessential points of referenee in the shaping of industrial development

policy and in the formulation of financial and monetary policy.Industrial expansion has taken place largely on the basis of import

substitution with the view of saving foreign exehange, and production

for the growing home market, aided by government protective measures.Emphasis is now being made as well on the production of manufacturesfor the export market to provide new sources of foreign exehange required

to finance the imports of increasingly eomplex goods. At the same timeit is considered that the production of goods directed at the internationalmarkets, offers lower prices and more competitive quality to domesticeonsumers. Agricultura! production has also been influenced by the desire

to save foreign exchange and this objeetive has been substantially achieved.Along with the promotion of exports, recent years have witnessed

the important growth of the tourist industry as a permanent souree 01

foreign .exchange. Earnings from tourism have provided close to 40%

of income on current account since 1960, and last year (H¡67) amountedto 959 million US-$l.

1These figures and the folIowing are based on: Banco de ~ l é x i c o , S. 1\., alld ~ a c j o l l a lFinanciera, S. A., Annual Reports, México.



:\Iexico's Balance of Payments and Externa! Financing 71

The dynamic quality oi the Mexican economy is revealed in the

tremendous expansion and growing diversification of its international

transactions, which now represent a two-way flow of c10se to 5,000 million $

yearIy. In 1950 exports of goods and services amounted to 827 million $

and current account expenditures totaled 787 million $. Last year exports

of goods and services registered 2,200 million ¡: and current accountexpenditures, 2,663 million $. (Exceptionally, a favorable balance was

registered on current account in 1950 and again in 1955.)

Exports of goods and services have been growing at the relatively

high rate 01 7% per year since 1960, even though Iess than the rate ofgrowth of national product in monetary terms. Imports of goods and

services have maintained an average ratio of 12% to national product

in these years, whiIe growing considerably in absolute volume from

1,683 million to 2,663 million S. The relation of exports of goods andservices to imports averages 86% so that most 01 the foreign exchangeexpenditures are financed by foreign exchange income on current account.

In addition, 85% of merchandise imports are made up of industrial

materials and capital goods which increase the productive capacity oí

the economy. Capital goods average 46% of Mexico's merchandise imports.

Import controIs are designed to permit maximum use of foreign exchange

for development purposes, by limiting unessential imports as well as

protecting domestic producers. Import duties are generally low, averaging

II.7% of the value of imports (compared with ratios of 30 to 150% in

other Latin American countries), reflecting the fact that the major partof imported produets consists of industrial materials and equipment.

Merchandise exports are more rnversified than in most developing

countries; the leading export product, eotton, accounts for 18% of export

income, whereas in most developing countries the leading product accounts

íor 33 to 50%. The other learnng exports - coffee, livestock and meat,

tomatoes, sugar and fish - account for 5 to 7% eaeh of total merehanrnseexports. Exports of manufactured goods have been growing in recent

years and amounted to 250 million $ in 1967 (22% of the total). Besides

cotton textiles and canned fruits and vegetables, thefollowing manufactures

among others are showing increases: chemical products, rubber products,copper and steel tubing, wood and metal furniture, chinaware, automobile

parts, typewriters and electric equipment.

The United States are Mexico's most important trading partner,

although trade has been growing with European countries in particular.

Trade with the United States aecounts for about 65% of total exports

and imports; and tourism and border trade are also mainly with that

country.



72 Alfredo Navarrete R.

The percentage of Mexico's exports to and imports from the member

countries of the Latin American Free Trade Association (LAFTA) were 5%

and 2%, of total exports and imports, respectively, in 1967. Tarifis andother trade barriers between the LAFTA countries have been reduced

or eliminated through multilateral negotiations on approximately 9,5°0products.

The maintenance of free convertibility in a vigorously growing economyresulted in devaluations in the rate of exchange in the early stages of

Mexico 's development when the financial sector was weak, savings volumeswere low, and the economy highly vulnerable to extemal disturbances.

The peso, Mexico's unit of currency, suffered devaluations in 1940, 1949

and 1954. Since then the foreign exchange position has been greatIystrengthened along with the intemal integration of the economy, and the

parity 01 the peso has remained unchanged.Mexico assurned Article VIII status under the Articles of Agreement

of the Intemational Monetary Fund in 1946 and imposed no restrictionson the movement of capital or other intemational payrnents. The adherenceto freedom of exchange is a long standing characteristic oí Mexicaneconomic policy (where exchange controls have never been used) and

together with other factors has encouraged the inflow of extemal capital

for development purposes.

As examples 01 the present intemational status of the peso, we may

cite the fact that in May 1967, the Bank of Mexico signed a reciprocal

currency exchange agreement with the United States Federal ReserveSystem for 130 million $. The Mexican central bank is one of the fifteeninstitutions entering into such an arrangement with the Federal Reserve.

Both this and the stabilization agreement for 100 million $ which Mexico

maintains with the United States Treasury, provide currency exchange

facilities for both countries. In addition, since 1965 the IntemationalMonetary Fund has used Mexican pesos in operations to support the

currencies of four other Latin American countries. These operations haveincreased Mexico's drawing rights on the Fund, which have remained

unused since 1962 .

At the time of the strong demand for gold that followed the devaluationof the pound sterling last November, the Bank of Mexico continued toperrnit the free intemal market in gold and stood ready to sell metalfrom its stock to meet the demando

Mexico's foreign exchange reserves arnounted to 621 million $ at the

close of 190. having risen by 36% since 1962. About one-half consistsof foreign exchange (over 90% in US-$) and the other half is in goldand silver.



Mexico's Balance af Payments and External Financing 73

11. The General Pattern oC Development

As a nation committed to the social reforms resulting from the

Revolution of 1910, and with an undeveloped economic structure, the

great majority of whose population had attained very low income levels,Mexico found itself in the 1920'S in the need to create adequate mechanisms

of financing its economic development and of distributing the burdens

of sacrifice as equitably as possible. The Mexican Constitution predicates

an economic philosophy based on private property and free enterprise

together with responsible government action to institute needed social

reforms, assure social welfare and protect the nation's natural resources.

Democracy is defined in the Mexican Constitution "not only as a juridical

structure and a political system, but aJso as a way of life founded on

the constant economic, social and cultural betterment of the people."

The prime instrurnent for furtherlng economic development has been

the persistent volume of public investment in the economic and social

infrastructure, carried out by government agencies and decentraJized

organizations in the public sector. Domestic natural resources have been

mobilized and an effort made to absorb modern technology and train

manpower, while providing necessary social services. All the constituents

of the private sector have responded favorably and participated actively

in these aims. The econornic impact of the policy of social justice has

been manifested in the steady expansion of the domestic market, the

growth of savings, and the channeling of savings into productive investments, at rising levels of national income. Thus a mutually reinforcing

process of social progress, political stability and economic development

has been set in motion.

On the other hand, as a nation with a long history of foreign econornic

relations, Mexico is zealous of protecting newly and hard-won gains and

of preventing their dissipation abroad. Measures are therefore sought

to assure that the external sector effectively contributes to capital

formation and econornic development. While Mexico is convinced that

development must be achieved essentiaJIyby

domestic effort, capitalfrom abroad on a supplementary basis helps to accelerate the rate of

growth, when it adds to internal savings, enhances the productive capacity

and provides needed technology and imports, and provides export markets

as well.

l t is recognized that the effectiveness of foreign capital in furthering

domestic capital formation, and economic development depends not only

on the behaviour of the external capital itself, but in a fundamental

sense on the growth capacity of the economy as a whole and on its




capability oi undergoing appropriate changes and becoming increasinglyintegrated.

The visible material progress achieved by Mexico seems to indicate

that a dynamic growth process of this sort is indeed taking place. Amongthe manifestations of this development there are to be observed theincrease in production in most branches oi the economy, vigorous

industrial integratíon, the diversifieation oi the sourees of ineome andthe growth of per capita income, urbanízatíon, the shifting and up-gradingoi the work force, the introduction of modem institutions and instrumentsin trade and finance, and the constant expansion of intemational transaetions.

In addition one could mention the absolute values registered by theeconomy in the key indicators of national product, population and

balance of payrnents. The gross national product at market prices, which

in 11)67 amounted to the equivalent of 24,050 million $, ranks amongthe highest in countries in the process of development. The value of the

national product in recent years is similar to that of Spain, Sweden, the

Netherlands, and Australia. The population of Mexico at 46 million constitutes a potential market worthy of taking into account and will reach

51 million by 1970. And foreign business transactions represent, as has beenindicated, a two-way flow c10se to 5,000 million $ yearly.

Not many countries have been able to maintain the free convertibilityof their currency as has Mexico during the whole development process.

In addition, the rate of inflation has been relatively controlled in recentyears, amounting to an annual average of 2.5% since 11)60, as compared

with 3.4% for the industrial countries and 8.0% for the less developedcountries as a whole.

Furthermore, growth has proceeded at a relatively stable and vigorousrate during most of the postwar years. During the last two decades the

national product has tripled in volume and, in spite of one of the highest

rates oi population growth, real per capita income has íncreased by threefourths. Average annual increases of 6.2% in gross national product at

constant prices during the period 1956 through 1967 have exceeded annual

population increases averaging 3.3% during the same periodoIndustry has been the leading growth sector in the rise of nationaloutput and the economy has experienced progressive industrialization.Except for mining, the industrial sectors are those which register the

highest rates of growth - petroleum, electric power, construction and

manufacturing. Manufacturing has grown over 8% per year during the

past three decades and now contributes 26% of the gross domestic product

(as well as 22% of merchandise exports) and provides occupation to

16% of the work force. The country is largely self-sufficient in the produc-



:\lexico's Balance of Payments and External Financing 75

tion of foodstuffs, basic petroleum products, electric power, steel and

consumer goods.

Manufacturing development has been characterized by more rapid

growth in producers' than in consumers' goods. During the period 1950to 1966, for example, the production oí steel and meta! products has

grown lI.5% yearly; fabrication oí machinery has expanded 10% yearly;

construction of vehicles and transport equipment, 10.7%; and output oí

chemicals, 12.5%; while production of foodstuffs has grown only 6.7%

yearly.

Manufacturing is outgrowing the stage of assembly of capital goods

and is now producing equipment such as automobile motors, rear axles,

hydraulic brakes, tractors, industria! motors, pressure va!ves, mechanical

shovels, color television, electric transformers and air conditioning units.

Agricultura! production has grown at arate double the rate of increasein the population during the past three decades. 1 has also become an

important source of foreign exchange, producing about ha!f 01 total

merchandise export receipts, and larm products such as cotton, coffee,

livestock, vegetables, and fruits are among the leading exports. While

lann productivity has grown during the process of economic development,

as it has in a!1 sectors of the economy, agricultura! output per worker

is only about a third of the average for the economy, and only about

a fifth 01 that in industry. Fifty per cent oí the economically active

population are engaged in agriculture, livestock, forestry and fishing,

while this combined sector contributes 16.5% of the national productoThe poverty which exists in the rura! areas constitutes the gravest

weakness of the economy. Lack oí water and mountainous topography

are the principallimiting lactors to agricultural development. Only 15%

01 the total area is susceptible of cuItivation and oí this less than 60%

is actually under cultivation. In order to raise agricultural productivity,

high priority is placed on raising investments in irrigation, among other

measures.

The money and capital markets have developed along with the fiscal

system, and the infiationary financing first used to get under way the

necessary infrastructure public investments, has been replaced by sounderand more diversified financing. Personal and family savings are increasingly

channeled through credit institutions, for which the monetary authorities

have encouraged the use of more varied forms of financia! investment.

Businessmen are willing to reinvest in modemizing their installations

and investing in new industries and in new geographical areas.

Savings of the public sector are effected through the fiscal system

and the operating surpluses of tlle decentralized agencies and state

enterprises, whose receipts and expenditures are consolidated with the




annual budget of the Federal Government. The principal agencies included

in the budget are the railroads, the electric companies, Petroleos Mexicanos,

the Federal to11 road agency, the National Housing Institute, social

security institutions, the Government trading agency in consumers' food

stufIs, and the airport servicing agency. Whereas Federal Government

expenditure for 1968 is budgeted at 24,221 million pesos, the outlays

of internally generated funds of the agencies are budgeted at 37,193 millionpesos.

Fiscal revenue, incJuding social security quotas, averaged II .6% of

gross domestic product in 1960-1967, and ti surpluses of the decentralized

agencies are added the total amounts to about 14%.

Since the money and capital markets are cJosely intertwined, monetary

policy has been directed to maintaining the confidence of the public in

the financial instruments, both public and private, in order to encouragethe mobilization of savings. By providing a ready market for fixed

income securities, the monetary authorities and the public and private

banking institutions have been able to attract rising volumes of funds

from the growing middle cJass and to keep capital flight to a minimum.

In the period 1949-1953, the annual rate of infiation averaged 7.2%;

in the period 1949-1966, the rate diminished to 5.7% ; and since 1960,

has averaged 2.5%.The savings coefficient has increased from approximately 8% of the

national product 30 years ago, to more than 17%. At the same time

the gross domestic investment rate has moved from 10% to 19% ofthe national producto The difference between domestic investment and

internal savings has been covered by foreign savings which, notwith

standing notable changes in composition, have financed on the whole

:ro% of gross fixed domestic investment .

Thus in Mexico the rate of internal saving grows about 3% of the

national product every ten years, while according to United Nations

surveys, the world average for developing countries barely exceeds 1%

per decade. The capacity to increase the savings ratio could permit

domestic self-sufficiency in another generation, for financing an invest

ment ratio of 24% of national product, adequate for a sustained growthrate of 7% to 8% per year, provided the productive structure is rendered

able to satisfy its foreign exchange requirements.

lli. Extemal Capital

The capacity manifested by the Mexican economy to mobilize it s

internal resources - to successively raise the savings and investment

ratios - also has made it possible to make productive use of external



Mexico's Balance of Payments and Externa! Financing 77

capital and to provide adequately for its servicing. The productive impact

of external funds has also been enhanced as a result oi changes in the

investments to which they are destined. While marginal in volume with

relation to domestic savings, the rising infiowoi ioreign capital strategically

influences the growth rate by adding to the capacity to import highly

productive equipment and technology as well as by filling the savings gap.

Mexico will continue to require a net inflow of foreign capital unti! the

economy is able to produce the goods and services demanded by inter-

national markets in suificient volume to pay ior the imports essential

to its growth. The maximum development impact must therefore be

derived from the use oi available foreign exchange in order to assure

that this equilibrium will be achieved in the future.

Mexico's experience with foreign capital goes back to it s Independence,

in 1821, when foreign private funds first began to arrive. The earlyfiows

of portfolio investment were very burdensome in the terrns imposed.

They were used to finance budget imbalances and frequently required

moratoria or extensions. The specific guarantees given pro ved to be

onerous and a source of affronts to the national sovereignty. In the

1870's capital began to arrive, in both portíolio and direct private invest-

ments, in railroad construction, mining, and later petroleum.

By 1910, direct private investment accounted ior 85% oi foreign

capital and was invested in the railroads (40%) which were used to export

minerals; mining and petroleum (30%), and banking, trade, and electric

power (18%). Foreign capital undertook 45%oi

new annual investmentin the first nine years of the century (immediately preceding the Re-

volution) and financed an even greater share, by providing funds ior

public works through portfolio investments.

In 1935 when foreign capitalists controlled 9B% oi the mines, 99% oi

the petroleum, 79% of the railroads and trolleys, and 100% oi the e1ectricpower industry, the Federal Government launched a vast program of

public works, financed exclusively by internal funds. The worldwide

depression of the 1930's also slowed down the infiow oi direct private

investment irom abroad. In addition, the nationalization oí oi! and the

railroads originated the conversion of direct investment into public debt.Thus by 1939 foreign capital financed only 15% of total fixed domestic

investment. Since 1942, it has provided on average 10%.

In 1941 the Mexican Government renewed the servicing oi the old

external public debt, suspended in 1924 because of inability to pay,

and subscribed a consolidated debt agreement with the United States

and other bondholders which paved the way for the negotiation of the

first loans from the Export Import Bank oi Washington (now the Export

Import Bank oi the United States). Starting in 1942, at fue same time



78 Alfr edo Navarrete R.

that this new source of international capita! in the form of development

loans became available to Mexico, private direct investment from abroad

resumed its upward trend.The war scarcities stimnlated the accelerated industrialization promoted

by the Mexican Governrnent , in which an active part was taken by theindustria! prornotions of Nacional Financiera, S.A., the industrial developrnent bank. Foreign capital, both public and private, participated inseveral of the key industrial prornotions of Nacional Financiera in thisperiod, notably in the establishment of enterprises to produce steel,copper, lertilizers, paper, synthetic fibers ann electric equipment -industries oriented primarily to the substitution 01 imports. The in

dustrialization effort bore fruit because of the rnany institutiona! reformsintroduced into the social and political fabric after the Revolution, and

as a result ofthe

important programs of infrastructure investmentsundertaken since the previous decade. Thus foreign capital was able to

assist in the active process of transformation of the productive structure

necessary to economic development and growth.In 1946 agencies of the public sector began obtaining credits frorn

United States suppliers, with the guarantee 01 Nacional Financiera.In 1949 the first loans were negotiated through Nacional Financierawith the International Bank for Reconstruction and Developrnent andcredit relations were also established with private banks in the UnitedStates. In subsequent years a large volume of rnediurn-term credit trans

actions was operated with suppliers and banks in severa! countries ofEurope, Japan and Canada as well as in the United States. Loan transactions with the Inter American Development Bank were initiated in

1961 and in the following year with the Agency for International Develop

ment (of the U.S. Government). In 1963 the Mexican Government enteredthe private international capital market with the first of a series 01

twelve externa! bond issues.

The availa ble statistics on fcrcign capital movements in Mexico from1942 on, revea! the increasing quantitative importance of the use ofdevelopment loans {rom abroad, as compared to the inflow of new direct

private investments, including increases in balances with parent cornpanies.Since 1956, drawings on medium- and long-term loans have considerablyexceeded new direct investment and intercompany transactions, year by

year. In recent years, for instance, new direct investments as definedaveraged about 100 million $ annually, and loan drawings arnounted to

over 400 million $.

Development loans from theU .S. Export-Import Bank, theWorld Bank,

the Inter American Deve\opment Bank and other public sources are part

of the new patterns of intemational economic cooperation which emerged



Mexico's Balance of Payments and Externa! Financing 79

after the Second World War. Public international development loans

represent in a way a partial return flow of benefits to the underdeveloped

countries, after more than a century of international trade and investment

in which the distribution of gains favored the industrial countries.

International development loans have been directed mainly to public

infrastructure investments required in order for private initiative to

expand in the underdeveloped countries, sorne types of which in the

nineteenth century were commonly financed by foreign private capital.

At that time the foreign investor himself built public services because

the immediate raw material exports facilitated by these services were

sufficiently remunerative by virtue of the vigorous demand for them in

the industrial countries (such as the export-oriented railroads built by

private capital which flowed into Mexico in the 1870's).

The infrastructure investments undertaken by the public sectornowadays often yield their benefits more slowly and indirectly since

their purpose is to bring about permanent structural changes in the

economy rather than immediate profits. Their productivity is dependent

upon complementary and interacting investments and the social and

economic benefits derived from them are spread over the entire economy

or region, rather than being concentrated in the export sector enclaved

in the economy.

Nevertbeless, to tbe extent that infrastructure investments help to

achieve balanced and integrated development, they a1so contribute to

the growth of the economy's capacity to generate foreign exchange, andthe evidence seems to indicate that this is what bas been happening in

Mexico. The essential conditions are that the bulk of the yields remain

inside the domestic economy so that they add to internal capitalization,

and the foreign exchange is devoted principally to imports of goods,

skills and technology which add to the nation's productive capacity.

The nature of the effort made by tbe public sector in Mexico to provide

the necessary infrastructure for economic development is illustrated by

performance in the following areas during the period 1950-1<)66: irrigated

land has increased 4.9% per year in area; electric power installed capacity

has grown 10% per year; production of petroleum and gas has risen6.6% per year ; the nation's highways have multiplied by 6.8% per year;

rail freight transported has grown 5% and air passengers 10.5% annually ;

the death rate dropped by 3.5% per year; student enrollment at aH

levels has increased 5.7% per year.

Development loans in Mexico leave a net inflow of foreign exchange,

after deducting payrnents for amortization of capital and interest, whereas

in the case of direct private investment, transfers of profits, interest

and royalties have since 1958 consistently exceeded new investment,




and did SO in more than half 01 the previous years, in spite 01 growingvolumes oi new investment. This trend can be expected to continue as

the value oi existing ioreign investment rises, so long as control oi the

enterprises is held predominantly by ioreign capital, wlúch is interestedin remitting a substantial part oi earnings. For tbis reason, the Mexicanpolicy iavoring joint ventures aims at aclúeving greater domestic capital

accumulation as local owners retain at home part oi the dividenddistribution.

Intemational development financing has made a net contribution oi

II.7% oi the cost oi gross fixed public investment in the period 1942-190,

and new direct private investment irom abroad has financed 7.8% oi

private gross fixed investment.This development financing ineludes 257.5 million $ obtained in

external bond issues placed since 1963 in the United States and Europeancapital markets by the Federal Govemment (177.5 million $ in sevenissues), Nacional Financiera (40.0 million $ in two issues), and the FederalElectricity Commission (40.0 million $ in two issues). (In March oi 1968

the Federal Govemment placed an additional issue in the amount oi

35.0 million $.)

On the other hand, the contribution oi intemational developmentfinancing is measured net of export credits granted by Mexico since 1964in the sale oi manuiactured goods, originating mainly from public sector

resources.l f we

take into account as well net portfolio investmentsof

Mexicansin loreign long-term securities (an average of 8 million $ per year since

1950), the contribution Di foreign capital in financing gross fixed investment

amounts to 9.1% for the perlod 1942-190 and 9.8% ior the period

1960--1g67·Because of the lower absolute values Di direct ioreign investment

capital movements in Mexico, servicing of private investment in recent

years (1900-1966) represents 8.8% oi total foreign exchange incomeon current account, while servicing (amortization plus interest payments)

oi the extemal public debt amounts to 19 .7%. For the overall period

1942 to 1966, servicing Di private direct investment registers a ratio of8.1% to income on current account, and servicing Di development loans

ior the public sector, 7.9%.In 1960, 80% oi the value Di direct ioreign prlvate investment in

Mexico was oi United States origin, but in recent years tbis proportionhas probably decreased, as major investments have come from Europeancountries.

With the shift oi the role oi ioreign capital to a complementary

position in the financing and carrying out oi Mexico's domestic investment,



Mexico's Balance of Payrnents and External Financing 81

carne a change in the composition oí íoreign direct investment by field

01 activity. In 1938 foreign direct investment in petroleum was reduced

to zero, but 26% oí the value of direct private investment was allocated

to mining, 32% to electric power and gas, and 31% to transportation

and communication. Only 6% was devoted to manuíacturing. By the

end 01 1960, the composition had changed radically. Over hall (56%) 01

the value of direct foreign investment was devoted to manufacturing,

mining had diminished its share to 16%, electric power and gas to 1%'

and transportation and communication to 3%.

During this time direct loreign investment has been increasingly

directed to supplying the domestic market, in substituting imports and

in producing new goods. The rate of return to direct private investment

(as measured by profits over total value) has been highest on average

in manufacturing. Now foreign capital is beginning to produce for the export market again, but in manufactured goods rather than exhaustible raw

materials. This trend is expected to continue as Government policy is

encouraging the production 01 manulactured goods lor exporto

New investments entering Mexico in recent years represent for the

most part joint ventures with Mexican capital. The Government would

like to see foreign capital associate on a minority basis with domestic

investors in newly established firros, and encourages foreign-owned

companies in Mexico to offer part of their shares on the local market

when undertaking important expansions. This is aimed at relieving the

drain on the balance of payments from future dividend remittances and

intensifying at the sarne time domestic capital forroation. Arrangements

are frequently made for the gradual sale on the domestic market of shares

in expanding enterprises, and sometimes part of the shares destined for

future placement in the local market is allocated provisionally to trust

funds established for the purpose.

The railroads, electric power, radio and telegraph communications,

petroleum and basic petrochemicals are in the exclusive domain 01 Govern

ment enterprises. In mining and the manufacture of sorne petrochernical

derivatives, Mexican ownership of percentages ranging from 51% to 66%is required. In the radio broadcasting, international marine transport,

cinema production and exhibition, domestic transportation, fishing, solt

drinks, publishing, advertising and rubber industries, Mexicans must hold

51% of the capital. Foreign entities may not acquire shares in Mexican

banking and insurance firms, and loreigners are prohibited from owning

real property in zones along the country's land borders and seacoasts.

With these exceptions, foreign capital can move Ireely and is doing

so in a .very broad rauge 01 activities. Investments and earnings may

WdtwirtscbaftUche$ Archiv Bd. el. 6



Alfredo Na varrete R.

be freely repatriated, since there are no restrictions on intemational

payrnents.Direct foreign investment is bound to continue as an effective vehicle

for bringing to Mexico needed knowledge, technology, and productiveengineering and should aIso be instrumental in training Mexican personnel,thus contributing to raising productivity and lowering prices to theconsumer. It i5 particularly weU suited to establishing industries whichcan substitute imports and seU manufactures abroad. Foreign companiesare finding in Mexico a base of operations with other countries of the

Latin American Free Trade Association and European investors are ina position to produce in Mexico on an intemational scale for the United

States market as weU.

The largest item in the capital account of Mexico's balance of payrnents

islabeled "credits to Nacional Financiera and other institutions." Theseare the international development loans, which constitute the most

important source of external financing for the public sector. Eighty percentof this financing is obtained by Nacional Financiera or with its guaranteeand under its Charter Law tbis institution negotiates aIl medium- and

long-term loans for the Federal Government. External financing obtainedby other public agencies must aIso have the approval of the SpecialCommission on External Financing established in Nacional Financiera,consisting of the Secretary of Finance and Public Credit (who is chairmanof the Board of Directors of Nacional Financiera), the General Director

of Nacional Financiera and the General Director of the Bank of Mexico(the central bank).

From 1942, when Nacional Financiera obtained it s first loan from

the Export-Import Bank of Washington, to December oí 1967, the capital

obtained abroad by this institution or with its guarantee, totals4,218 million $, most of which has been channeled to infrastructureprojects and basic industries.

In the period 1942 to 1954, 79% of the amounts drawn by NacionalFinanciera (or with its guarantee) carne from the United States; 19%from international institutions and onIy 2.3% from European and

Canadian sources. Last year 46% originated in the United States; 22%in international institutions; 14% in England; 7% in Franee; 4% inCanada; 2% in Italy; and the rest in Germany, Belgium, Finland, the

Netherlands, Japan, Luxembourg, Sweden and Switzerland.This diversification of sources has resulted in greater fiexibility in

use of fue funds, which are employed not only to cover foreign exchange

eosts, but a1so for local expenditures arising from the investment projects.

The use of foreign funds for local expenditure eosts contributes to effeetivedemand for the many components and products which Mexican industry



Mexico's Balance of Payments and External Financing

is able to supply when financing is available, but for which it is unable

to grant long-tenn credits.

There is reluctance to authorize loans for the installation of plants

in "package" arrangements and i m p o ~ permits are not granted forpackage-plants without examining the components, in order to provide

domestic producers the opportunity to compete for orders.

A the same time, the loreign exchange received for local expenditures

becomes available for financing the import demand derived from the

additional income generated by the new investments, so that the loans

from abroad result almost immediately in import expenditures.

Diversification of sources also has helped in obtaining longer terms

and grace periods and more competitive interest rates.

On the other hand, the improvement in terms is also related to the

capacity of the economy to mobilize domestic resources, as manifested

in the growth of the savings ratio, and to the ability demonstrated to

formulate and carry out productive investment programs. More flexible

uses of development loans inelude, for example, !oans by the World Bank

for the overall program 01 investments of the electríc power sector and

for agricultural investments. The lnter American Development Bank has

granted loans for programs in education, exports of manufactures, and

financing of housing, in which additional internal resources are a!so

mobilized through the domestic banking system.

Funds obtained abroad in recent years from institutions such asinsurance companies and investment banks, as well as through the bond

issues on the prívate capital markets, provide the particular advantage

of not being tied to specific goods, markets or projects, thus reducing

financia! costs hidden in the prices of equipment and technica1 services.

European suppliers are in a good position to benefit from untied !ong

term fmancing granted to Mexico, because of their favorably competitive

prices on capital goods.

The projects to which foreign development funds are directed

- principally electric power, railroad transportation, highways, agri

cultural investments and irrigation, petroleum and petrochemicals, steel,construction of vehieles - fonn part of public investment programs

which stríve for balance between investments which produce long-tenn

benefits and those more immediately productive. Sorne investments

result in direct foreign exchange savings through import substitution or

generation of exports (petroleum and petrochemica1s); others such as

electric power and highways augment the capacity to export goods and

services indirectly through their effect on economic activity and pro

ductivity.

••



Alfredo Navarrete R.

While sorne projects involve goods and services which are sold com

merciaily (railroad cars, for instance) in others the Government recovers

the cost through rates related to the projects (water for irrigation, toll

highways and bridges) or via increased fiscal revenue resulting from the

additional income generated by the investments.

From the point of vicw of internal capital accumulation, the excess

yields after the transfer abn¡ad of contractual amortization and interest

payrnents, remain in the first instance in the domestic economy. They

wiil continue to move in the savings-investment stream and form an active

part of the growth process as long as there are productive investment

opportunities and adequate financial mechanisms fOl channeling the

savings. The vigorous growth of the economy and in particular tbe

dynamic expansion of private investment which now makes up three

fifths of gross fixed investment, indicate that this is actually taking place.From the point of view of Mexico's foreign trade and investment

partners, the growth and integration of the economy to which tbese

investments contribute, generate the savings and the foreign exchange

required to service the financing as weIl as new import capacity, resulting

in constantIy increasing volumes of international transactions, so that

there are mutual benefits at rising levels of income for aIl the countries

involved.

• ••

Zusammenfassung: Mexikos Zahlungsbilanz un d aullenwirtschaftliche Finan-

zierung. - Der Aullenwirtschaftssektor der mexikanischen Volkswirtschaft is t

quantitativ bedeutend, un d der Aullenhandel sowie andere internationale Trans-

aktionen stellen auBerdem wirksame Hilfsmittel der ókonomischen Entwick.lung

dar. Die angesichts der Anforderungen einer wachsenden Wirtschaft relativ knappen

Devisen und die Aufrechterhaltung der freien Konvertierbarkeit der Wiihrung als

Grundelement der Aullenwirtschaftspolitik machen den AuBenwirtschaftssektor

Mexikos empfindlich gegenüber der Entwicklung in den anderen Wirtschaftssektoren,

so dall Zahlungsbilanzüberlegungen eine wichtige Rolle bei der Gestaltung der

industriellen Entwicklungspolitik sowie der Fiskal· und Geldpolitik spielten.

Nach einleitenden Ausfnhrungen über Umfang, Zusammensetzung und Richtung

des mexikanischen Aullenhandels beschaftigt sich der Autor eingehend ntit den

Zusammenhilngen zwischen de r Aulleowirtschaft un d der wirtschaftlichen Ent-

wicklung des Landes. WlIhrend de r gesamten Entwicklungsperiode konnte Mexiko

die freie Konvertierbarkeit seiner Wabrung bei einer relativ niedrigen Inflationsrate

(seit X9ÓO : 2,5 v. H. jilhrlich) und einer ziemlich hoheo Wachstumsrate (rund 6 v. H.)

awrechterhalten. Abschlielleod geht der Verfasser ausführlich au f Umfang und Be-

deutung der auslandischen Kapitalanlagen fn r die wirtschaftliche Entwicklung

Mexikos seit de r ErIangung der Unabhilngigkeit (1821) ein

•



~ e : t i c o ' s Balance of Payments and External Financins 85

Résumé: La balance des paiements du Mel<ique et le financement de son

é<:onomie internationale. - Le secteur international de l'économie mexicaine est

quantitativement important; aussi, son commerce extérieur. ainsi que d'autres

transactions internationales, constituent-ils des ressources pré<:ieuses pour le

développement économique du pays. Vu que, vis -a.-vis des besoins toujours croissantsd'une éeonomie en cours d'expansion, i l y a un certain manque de devi5es, et vu

que c'est un des principes de politique économique internationale du Mexique de

maintenir la libre convertibilité de sa monnaie, l'économie internationale du pays

est tres sensible au x développements dans les autres secteuTS de l'économie, de sorte

qu e les considérations de balance des paiements ont joué un róle important dans

la politique de développement industriel aussi bien qu e dans la politiqueotiscale

et monétaire .

Apres quelques explications introductoires, concemanl l'étendue, la composition

et la direction du commerce extérieur mexicain, ¡'auteur traite a fond des relations

entre l'économie internationale du pays et son développement économique. Pendant

toute sa période de dévcloppement économique, le Mexique a pu maintenir la libre

convcrtibilité de sa monnaie, avec, en meme temps, un taux d'infiation relativementbas (2,5 pour-cent pa r an, depuis 196o) et un taux d'accroissement économiquc

reJativement haut (6 pour-ce-nt, enviran). Finatement, I'aute-ur donne une appré p

ciation détailléc des placements de capitaux étrangers au Mexique, de leur envergure,

et de leur importance pour le développement économique du pays. depuis la réalisation

de son indépendance en 1821.

•

Hesu men: Balanza de pagos y financiamiento económico exterior de Méjico. -

El sector económico exterior de ]a economía nacional de Méjico es cuantitativamente

importante, y el comercio exterior, así como otras transacciones internacionales,

representan además recursos eficaces de] desarrolIo económico. El fondo de divisas

relativamente precario ante las exigencias de una economía en crecimiento, as í como

el manten imiento de la libre convertibilidad de ]a moneda como elemento básico

de la poJítica económica exterior, hacen qu e el sector econ6mico exterior de Méjico

sea sensible frente al desarrollo de IOf= otros sectores económicos, de modo qUE' las

reflexiones acerca tIe la balanza de pagos han jugado un papel importante en la

dirección de la política de desarrollo industrial, así como de la política fiscal ymonetaria .

D{"spués de hacer exposiciones preliminares sobre el yolumen . composición y

direcci6n de] comercio exterior de Méjico, el autor se ocupa minuciosamente de las

relaciones entre la economía exterior y el desarrollo económico del país. Durante

todo el período de desarrollo ha podido Méjico mantener la libre convertibilidad

de su moneda, dentro de una proporci6n inflacionista nlativamente baja (desde

1960, de un 2,5% anual), así como un a tasa de crecimiento bastante elevarla (de

un 6% aproximadamente). Fina]mente, el autor pasa a tratar por extenso el volumen

e importancia de inversiones de capital extranjero para el desarrollo económico

de M6jico desde el añ o ¡ 8·21 , en que consiguió su independencia

•

Riassunto: Bilancia dei pagamenti del Messico e finanziamento economico

es tero. - n settore economico de]J'economia messicana riguardante l'estero equantitativarnente significativo, e i l cornmercio es tero cosl come altre transazioni




Mexico's Balance af Payments and External Financing

internazionali rappresentano per di piú mezzi efficaci dello sviluppo economico.

Le divise relativamente scarse in considerazione deUe richieste di una economía

in sviluppo e il mantenimento della libera convertibilitiL della valuta come fonda-

mento della política economica estera rendono suscettíbile i1 settore deU'economia

estera del Messicoin

confronto a110 sviluppo negli altri settori economici. cosi cheriflessioni riguardanti la bilancia dei pagamenti banno giocato una parte importante

neU 'attuazione delta politica di sviluppo industriale e anche di quella fiscale e

monetaria.

Dopo consideraziooi introduttive suU'ampiezza, consistenza e direzione deU'

economia estera messicana, ]'autore si occupa in modo esauriente delle connessioni

tra economía estera e lo sviluppo economico del Paese. Durante 1'iotero periodo

di sviluPPOr il Messico pote mantenere la libera convertibilita delta sua valuta in

una rata relativamente bassa d'inflazione (dal 1960 il 2,50/0 annuo) e in una rata

abbastanza alta di sviluppo (circa iI 6%). Alla fine l'autore s'interessa in modo

esteso della mole e significato degli investimenti di capitali stranieri per 10 sviluppo

economico del Messico fin da l momento del conseguimento dell'indipendenza (1821).

Documents

Mexico Balance of Payments and External Financing