Mexico - International University of Japan · 2007-07-24 · Catholic Mexico, known as the Cristero War (1926-29). The conflict was brought to an end not by victory by either side

Country Profile 2003

MexicoThis Country Profile is a reference work, analysing thecountry’s history, politics, infrastructure and economy. It isrevised and updated annually. The Economist IntelligenceUnit’s Country Reports analyse current trends and provide atwo-year forecast.

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Mexico 1

© The Economist Intelligence Unit Limited 2003 www.eiu.com Country Profile 2003

Contents

3 Basic data

4 Politics4 Political background6 Recent political developments8 Constitution, institutions and administration9 Political forces12 International relations and defence

14 Resources and infrastructure14 Population15 Education16 Health17 Natural resources and the environment19 Transport, communications and the Internet22 Energy provision

24 The economy24 Economic structure25 Economic policy27 Economic performance28 Regional trends

29 Economic sectors29 Agriculture31 Manufacturing33 Mining and semi-processing34 Construction34 Financial services38 Other services

39 The external sector39 Trade in goods42 Invisibles and the current account43 Capital flows and foreign debt45 Foreign reserves and the exchange rate

46 Appendices46 Membership of regional organisations46 Sources of information49 Reference tables49 Population49 Labour force50 Unemployment rates in urban areas50 Crude oil and gas production50 Non-financial public-sector finances51 Federal government budget revenue and expenditure51 Money supply and credit52 Interest rates52 Gross domestic product52 Gross domestic product by sector

2 Mexico


53 Gross domestic product by expenditure53 Prices and earnings53 Production of principal crops54 Livestock production54 Manufacturing production55 Minerals production55 Stockmarket indicators55 Merchandise sales55 Tourism56 Main exports and imports56 Main trading partners57 Balance of payments, national series57 Balance of payments, IMF series58 Total foreign investment58 External debt, World Bank estimates58 Gross external debt, national estimates59 Amortisation schedule of global external debt59 Foreign reserves59 Exchange rates

Mexico 3


Mexico

Basic data

1,964,375 sq km

103.6m (according to estimates from the Consejo Nacional de Población(Conapo, the National Population Council)

Population (m), 2000

Mexico City (capital) 17.8Guadalajara 3.7Monterrey 3.2

Tropical in the south, temperate in the highlands, dry in the north

Hottest month, May, 12-26°C (average daily minimum and maximum); coldestmonth, January, 6-19°C; driest month, February, 5 mm average rainfall; wettestmonth, July, 170 mm average rainfall

Spanish is the official language. Over 60 indigenous languages are also spoken,mainly Náhuatl (1.2m speakers), Maya (714,000), Mixtec (387,000) and Zapotec(403,000)

Metric system

Peso (Ps). Average exchange rate in 2002: Ps9.68:US$1; exchange rate onFebruary 14th 2002: Ps10.9:US$1

Six hours behind GMT in Mexico City

January 1st, February 5th, March 21st, Maundy Thursday, Good Friday, May 1stand 5th, September 16th, October 12th, All Souls’ Day (partial), November 20th,December 12th (partial) and 25th

Main towns

Climate

Weather in Mexico City(altitude 2,309 metres)

Languages

Measures

Currency

Time

Public holidays

Land area

Population

4 Mexico


Politics

The election of Vicente Fox Quesada of the Partido Acción Nacional (PAN) aspresident in July 2000 signified the start of a new era in Mexican politics, endingseven decades of political domination by the Partido RevolucionarioInstitucional (PRI). Mr Fox pursues similar market-based policies to those ofprevious administrations. Governability has been weakened, as for the first timein the country’s modern history the ruling party does not have a majority ineither the Chamber of Deputies (for the 2000-03 legislature) or the Senate (forthe 2000-06 legislature). This is unlikely to change after the July 2003 legislativeelections. Under Mr Fox, consensus-building between the executive andCongress has been poor, and this has severely delayed the passage of legislation.

Political background

Independence from Spain was achieved in 1821 but Mexico suffered civil warsand predatory incursions. Texas seceded from Mexico in 1835-36. In 1845 a warbroke out with the US, which cost Mexico the additional territorial losses of thestates of California, Arizona and New Mexico. In 1864 France imposed aHapsburg archduke, Maximilian, as emperor. However, after the withdrawal ofFrench troops in 1867, the archduke was quickly overthrown and executed.Under the dictatorship of General Porfirio Díaz (1876-1911), order was imposedand the economy developed. When he engineered his own re-election for theseventh time in 1910, however, opposition forces led by Francisco Maderorebelled. They were joined by peasants who were led by Emiliano Zapata.General Díaz was forced into exile in 1911 and Mr Madero became president, buthe was ousted and killed in 1913. New rebellions followed and although therebels were crushed, their ideals, including land reform, were incorporated into anew constitution in 1917.

General Plutarco Elías Calles (president from 1924 to 1928) had a major impacton political developments, particularly through the creation of the PartidoNacional Revolucionario (PNR). He also sought to suspend the practice ofCatholicism as the Church was deemed to challenge the power of the modernstate that the authorities were trying to establish. This sparked a rebellion byCatholic Mexico, known as the Cristero War (1926-29). The conflict was broughtto an end not by victory by either side but through negotiation. An agreementwas reached by church and state to co-exist and to keep their respective realmsseparate. Another important presidency was that of Lázaro Cárdenas (1934-40),who redistributed land and expropriated foreign oil companies. In 1938Mr Cárdenas re-christened the party as the Partido de la Revolución Mexicana(PRM) and instituted a corporatist structure made up of labour, peasant and‘middle class’ movements. In 1945 the PRM was renamed the PartidoRevolucionario Institucional. For many years sustained economic growthensured that it enjoyed a high degree of popular support, and additionally theregime frequently co-opted potential opponents. Furthermore, when it wasconsidered necessary the PRI resorted to electoral fraud in order to ensure anabsolute monopoly of power. Political stability came under strain in the late

Instability and dictatorshipfollow independence

The PRI is created

Mexico 5


1960s when intellectuals and students sought more political openness, but wererepressed by the state. A deterioration in economic policy in the 1970sprecipitated an external debt crisis in 1982 and the then president, Miguel de laMadrid (1982-88), was forced to embark on politically costly structural reform.

Until the 1990s, PRI presidential candidates were chosen by the outgoingpresident. In a bid to change this and influence candidate selection, a section ofthe party led by a former minister and PRI president, Porfirio Muñoz Ledo, and aformer governor of Michoacán, Cuauhtémoc Cárdenas, son of Lázaro Cárdenas,formed the Corriente Democrática (CD). When Mr de la Madrid selected CarlosSalinas de Gortari as the PRI’s candidate in 1987, the CD split from the PRI.Mr Cárdenas stood in the election and managed to attract the support of mostof the left for his Frente Democrático Nacional (FDN) alliance. The official resultsin July 1988, alleged to be fraudulent, gave Mr Salinas a victory with only 50.4%of the vote. PRI governments had rarely announced victories of less than 85%before 1982.

During his presidency (1988-94) Mr Salinas began economic and politicalliberalisation, allowing opposition parties to win gubernatorial races. An up-rising in Chiapas in January 1994 by the Ejército Zapatista de LiberaciónNacional (EZLN) highlighted the fact that despite economic progress, socialtensions were mounting. Consequently, as well as negotiating with the EZLN,the government enacted electoral reform, granting autonomy to the InstitutoFederal Electoral (Instituto Federal Electoral, the electoral authority) and intro-ducing measures to reduce electoral fraud. Elections held in August 1994 wererecognised as transparent. Ernesto Zedillo of the PRI won the presidency with50.2% of the vote. Diego Fernández de Cevallos of the right-wing PAN polled26.7%. Mr Cárdenas, who stood for the left-wing Partido de la RevoluciónDemocrática (PRD), took 17.1% of the vote. In Congress the PRI held on to itsmajority, but lost seats to both the PAN and the PRD.

Mr Zedillo (1994-2000) continued the process of political reform, introducingchanges to the constitution to modernise the electoral rules, that were enacted in1996. The PRI lost credibility over its ability to manage the economy when thepeso crisis erupted at the beginning of Mr Zedillo’s term, and the PRI paid aheavy electoral toll throughout the Zedillo administration for the government’sunpopularity. For the first time in almost 70 years, the PRI lost its majority in theChamber of Deputies in the 1997 mid-term election. It also lost a number ofgovernorships that were contested that year, notably that of Nuevo León andQuerétaro to the PAN, and the mayorship of the Federal District to the PRD. Thefour opposition parties that won seats in the Chamber of Deputies in July 1997united to control it, but the PAN at times joined with the PRI to approveimportant economic legislation, while the PRD remained steadfastly opposed togovernment policy. By the beginning of 2000 the opposition held thegovernorships of ten states. Confidence in clean elections had increasedsubstantially and candidates and regional issues had become more important.

The 1988 election is marred byallegations of fraud

Reforms accelerate in responseto unrest in 1994

A multiparty democracyemerges

6 Mexico


Recent political developments

The presidential election of July 2000 brought sweeping political change whenMr Fox, the candidate of the coalition formed by the PAN and the Partido VerdeEcologista de México (PVEM, the green party), defeated the PRI’s candidate,Francisco Labastida, ending the party’s 71-year reign. Although Mr Fox’s share ofthe vote was the lowest ever obtained by a winning presidential candidate, thisdid not affect his legitimacy as the PRI was defeated by a substantial margin.

Presidential election results, 2000a

Candidate Party or coalitionNo. of

votes (m)% oftotal

Vicente Fox Quesada Alianza por Cambiob 16.0 42.4

Francisco Labastida Ochoa Partido Revolucionario Institucional 13.6 36.1Cuauhtémoc Cárdenas Solórzano Alianza por Méxicoc 6.3 16.7

Gilberto Rincón Gallardo Partido Democracia Social 0.6 1.6Manuel Camacho Solís Partido del Centro Democrático 0.2 0.5

Porfirio Muñoz Ledod Partido Auténtico de la Revolución Mexicana 0.2 0.5Annulled votes 0.8 2.1Total 37.7 100.0

a A minimum 2% of the vote is required to retain legal registration as a political party. b Coalitionformed by the Partido Acción Nacional and the Partido Verde Ecologista de México (PVEM).c Coalition formed by the Partido de la Revolución Democrática, Partido del Trabajo, Partido de laSociedad Nacionalista, Partido Alianza Social and Convergencia por la Democracia. d Declinedshortly before the election to support Vicente Fox. e Coalition was dissolved by PVEM inSeptember 2000.

Sources: Instituto Federal Electoral; Economist Intelligence Unit.

Mr Fox presides over a radically different form of government from those of hisPRI predecessors. His cabinet and advisers are mostly drawn from the privatesector and academia. Few PAN heavyweights were invited to join the cabinetinitially, but in January 2003 the governor of Nuevo León and a party stalwart,Fernando Canales, was appointed as the minister of economy. Only one PRImember, Francisco Gil Díaz, was appointed to a cabinet post, as minister offinance and public credit, in recognition of his experience and reputation.Mr Fox’s presidential style is informal. As a devout Roman Catholic, he has alsobroken with the convention followed since the resolution of the Cristero War in1929 that established a clear distance between the government and the church,seeking to improve state-church relations.

Mr Fox is a latecomer to politics, but not a novice (having held the posts ofcongressman and governor). However, he has demonstrated a lack of politicalknow-how on several occasions since assuming the presidency. His improvisedremarks, frequently rebutted by government officials or legislators, his constantforeign travels and occasional perceived lack of gravitas have reduced hiscredibility and dented his popularity. Frequent and open clashes betweencabinet ministers have added to the impression that the Fox administration lackscoherence. During the second half of 2002 some problems (notably publicclashes between government officials) were resolved, but the governmentcontinues to be perceived as ineffectual. Mr Fox’s personal approval ratingsremain high and he is widely regarded as honest and well-intentioned.

The PRI loses the 2000presidential election

Mr Fox establishes a new styleof government

Mexico 7


For most of the PRI era, Congress was a rubber stamp for executive decisions.Under Mr Fox, the legislature has begun to fulfil its constitutional role as acounterweight to executive power. Although this is positive for democratisation,it negatively affects governability, particularly since the PAN does not have amajority in either house of Congress. Mr Fox had believed that his popularsupport would be enough to gain the backing of Congress, but this has provednot to be the case. Legislators (even those from his own party) have wieldedtheir new-found power with gusto, thwarting several of Mr Fox’s policyinitiatives, indigenous rights (including changes to the constitution) and a fiscalreform among them. Both were substantially watered down by legislators, andultimately failed to achieve their aims. The Zapatista movement refused tonegotiate with the government and the tax reform did not come close togenerating the revenue hoped. Passage through the legislature of anotherimportant policy measure—liberalisation of the electricity sector—has beendelayed since August 2002. It is supposed to be approved by April, but this isdoubtful given that electioneering for the July mid-terms will have started bythen. The government is unlikely to win a majority in the Chamber of Deputiesand the Senate will remain in its present form (dominated by the PRI) untilSeptember 2006. Hence the passage of legislation is unlikely to speed up underthe Fox administration.

Distribution of seats in CongressChamber of Deputies Senatea

1997-2000 Sep 2000b 1997-2000 Sep 2000b

Partido RevolucionarioInstitucional (PRI) 246 210 76 60

Partido Acción Nacional (PAN) 117 206 33 46Partido de la Revolución

Democrática (PRD) 118 50 13 15

Partido del Trabajo (PT) 7 8 1 1Partido Verde Ecologista de

México (PVEM) 5 17 0 5Independents & others 7 9 5 1

Total 500 500 128 128

a Some senators were elected for three-year terms in 1997 owing to constitutional changes.b Initialcomposition as deputies may change their party allegiance.

Sources: Instituto Federal Electoral; Economist Intelligence Unit.

Although Congress now asserts more power, its members remain largelyunaccountable to the electorate. As they cannot be re-elected to successive terms,legislators depend upon their parties to help to find them jobs when their termsin Congress come to an end. Hence members tend to follow the party whiprather than pursue their constituents’ interests.

Important recent events

1998-99

The opposition continues to advance after significant progress in 1997, but the PRIproves resilient. Of the 17 governorships contested in 1998-99, only five go to theopposition. Francisco Labastida wins the first-ever PRI presidential primary, held atthe end of 1999.

Congress finds new power

8 Mexico


July-December 2000

National elections are held. Vicente Fox Quesada, the PAN’s presidential candidate,wins the presidency and takes office on December 1st, appointing a mostly non-partisan pro-business cabinet.

2001-02

A sharp economic slowdown, inexperience in government and clashes withCongress contribute to a failure by the Fox administration to achieve its maininitiatives and a fall in its popularity.

Constitution, institutions and administration

The constitution was enacted in 1917. It subordinated the rights of privateproperty to public interest and made specific provision for land reform, as wellas stressing the rights of labour and curtailing the power and influence of theclergy. The constitution also established the framework for a federal systemcovering 31 states and the Distrito Federal (the Federal District, which includesMexico City) and provided for the separation of executive, legislative andjudicial powers. In practice, government has been centralised and, until the mid-1990s, the executive dominated the other branches of government. Reformsimplemented in 1994-95 gave the Suprema Corte de Justicia de la Nación (SCJN,the Supreme Court) greater autonomy and Congress has also gained strength.Mr Fox has called several times for a thorough revision of the constitution, butfar-reaching reform is unlikely in the near term.

Congress comprises the Senate (the upper house) and the Chamber of Deputies(the lower house). Senators serve for six years and deputies for three. Individualscannot be re-elected for either position. In the Chamber of Deputies, 300 seatsare allocated using the first-past-the-post system and 200 by proportionalrepresentation. In 1993, the number of senators was doubled from 64 to 128 sothat each state and the Federal District has three senators directly elected byrelative majority and one senator elected by the first minority principle (thecandidate that comes second in each state race). Of the directly elected seats inthe Senate, 64 are elected via the first-past-the-post system and 32 are electedusing proportional representation. Reforms approved by Congress in 1996 madeit easier for a single party to gain a working majority in Congress, but impossiblefor any one party to achieve the two-thirds majority necessary to change theconstitution. Despite these reforms, the 2000 election result was unprecedentedin that no single party enjoys a working majority in either house.

The most important political post in the cabinet is that of minister of the interior,head of the ministry charged with preserving the country’s political stability. TheMinistry of Finance and Public Credit is responsible for economic policymakingat the highest level, although the Ministry of the Economy (formerly theMinistry for Trade and Industry) also plays a major role. The Ministry of ForeignRelations has acquired greater importance under the Fox administration, becauseof the priority that the government has placed on strengthening bilateralrelations with the US and on achieving a much more active role for Mexicointernationally.

A resilient constitution

Composition of Congress

Ranking of ministries

Mexico 9


Political forces

Three parties dominate Mexican politics: the PAN, the PRI and the PRD. Aftermore than 60 years in opposition, the PAN won the presidency in the July 2000election. The PAN was founded in 1939 and has built up a support base mainlyin northern and central states and among the urban middle classes, although ithas widened slightly beyond these groups since the early 1990s. Althoughinclined to free-market policies, the party has also shown some populisttendencies. The leadership of Luis Felipe Bravo Mena, who was electedpresident of the party in March 1999, and re-elected for another three-year termon March 9th 2002, has been undermined by the authority of the party chiefs inCongress and by the powerful personality of Mr Fox. PAN members are dividedin their support for Mr Fox as a significant number consider that he hijacked theparty to further his personal ambition. Mr Fox largely shares the party’s policyorientation, notably in his strong support for free-market policies, but he is notseen as a loyal party servant and occasionally breaks from PAN positions. As aresult of his uncertain loyalty to the party line, the PAN cannot count on Mr Foxto put its interests first. Conversely, the president cannot count on the fullsupport of his own party for his legislative initiatives.

For the first time since it was established in 1929, the PRI is in opposition at thefederal level, a reality that has proved difficult for most of its members to accept.Detached from presidential power, the PRI is struggling to reinvent itself. Havinglacked any coherent ideology for decades, the party became a means of win-ning and exercising power, and largely followed the direction set by the presi-dent. In addition, since the early 1980s a clear separation developed between theparty’s traditionalists, mostly positioned in the legislature and local government,and its technocrats, a minority who dominate the federal executive.

Following the loss of the presidency, a battle for control of the party ensued,with the traditionalists emerging as the dominant force. In an election open toall citizens on February 24th 2002, Roberto Madrazo, a former presidential pre-candidate and governor of Tabasco, and Elba Esther Gordillo, the de facto leaderof the powerful Sindicato Nacional de Trabajadores de la Educación (SNTE, theNational Union of Teachers), were elected as party president and secretary-general, respectively. They narrowly defeated Beatriz Paredes (party leader in theChamber of Deputies) and Javier Guerrero (former deputy for Chihuahua).Popular among its grassroots, and with a long career as a PRI member,Mr Madrazo has a populist touch, but he is also considered to be a pragmatist.Several governors and legislators, however, have already evolved as importantfigures with authority, and Mr Madrazo frequently finds it difficult to present theparty as having a united front.

Ideologically, the PRI is evolving into a centre-left party with a social-democraticagenda. It is likely to hold together, aiming to gain a majority in the Chamber ofDeputies in 2003 and regain the presidency in 2006. Currently it has 17 of the 31state governorships and the biggest parliamentary groups both in the Chamberof Deputies and the Senate.

The PAN adapts to governmentunder Mr Fox

The PRI struggles to adapt toits loss of power

10 Mexico


The PRD was formed in 1989 by supporters of Mr Cárdenas’s 1988 presidentialbid. After his defeat in the 1994 election, the party suffered a temporary decline.Between 1996 and 1999, under the leadership of Andrés Manuel López Obrador,the party’s electoral fortunes improved, partly owing to the significant protestvote against the government during the economic crisis. When Mr Cárdenaswon the mayorship of Mexico City in 1997, the PRD became the second mostimportant force in Congress. The party diversified its base by embracingdisaffected PRI members, winning over states that had been consideredimpregnable. The PRD made important gains by opposing almost any measureproposed by the government. However, in the 2000 presidential election,Mr Cárdenas managed only a distant third place as many of his supportersdefected to vote for Mr Fox. The party also suffered losses in Congress.

Mr Cárdenas still enjoys a significant following. This is set to continue during thetenure of Rosario Robles, who was elected PRD president on March 17th 2002 inan election heavily marred by irregularities. With its 50 deputies and 16 senators,the PRD can (as it did when approving the budget and tax code for fiscal years2002 and 2003) help the PAN to achieve a majority in Congress. However,Ms Robles is generally opposed to supporting the government because of itsfree-market orientation.

A three-party system has evolved since 1997, with five other small parties beingrepresented in Congress. The most important among them is the PVEM, whichbenefited greatly from having supported Mr Fox as a presidential candidate (interms of seats in Congress gained from the coalition it formed with PAN).However, it openly broke ranks with the government in September 2001, mainlybecause it did not get any cabinet positions, not even the Ministry of theEnvironment. Three more political parties obtained legal registration from theInstituto Federal Electoral (IFE, Federal Electoral Institute) in June 2002, bringingto 11 the number of parties that will compete in the July congressional election.

Mexico has an important rebel group, the Ejército Zapatista de LiberaciónNacional (EZLN), which is based in the state of Chiapas. Other relatively smallguerrilla movements have at times emerged, but have either fizzled out or beendeactivated by government forces. No formal peace negotiations have takenplace since 1996 as both the government and the EZLN have been unwilling togive ground on certain questions. The EZLN, cornered militarily, has a smallpolitical base but a formidable propaganda machine. In September 1997 apolitical front, the Frente Zapatista de Liberación Nacional (FZLN), wasestablished to mobilise national support for the Zapatistas, but it will notparticipate in elections. As soon as he entered office, Mr Fox tried to re-startpeace negotiations. He removed the army from several areas, freed EZLNprisoners and sent a constitutional initiative to Congress to increase theautonomy of indigenous groups. Congress ultimately passed a much watered-down version of the initiative that proved unacceptable to the EZLN, which thenrefused to enter into peace talks.

Neither the church nor the military are major participants in politics. Sincegaining constitutional recognition (and the right to vote) in 1992, Roman CatholicChurch leaders have attempted to influence policy, particularly on education,

Forces outside parliament

The PRD loses its popularity

Mexico 11


but have been rebuffed by politicians, even by those from PAN (which hastraditionally strong church ties). The military has also become more prominent.The institutional loyalty of the armed forces was tested in the 2000 politicaltransition, but proved to be strong when Mr Fox appointed a minister of defenceof his choosing over several more senior generals.

Main political figures

Vicente Fox Quesada (61)

President. A relative newcomer to politics after a successful career in business.Mr Fox joined the Partido Acción Nacional (PAN) in the late 1980s and becamecongressman for Guanajuato in 1988. Having failed to win the election in 1991, hebecame governor of his state in 1995. From 1995 he campaigned vigorously for thepresidency, becoming a national figure. Although not popular among the leaders ofhis own party, he was able to circumvent their hostility by building a strong politicalsupport group. Despite a flawed campaign, his offer of change was a powerfulmessage, luring many voters away from the Partido Revolucionario Institucional(PRI) and the Partido de la Revolución Democrática (PRD). His pragmatic and pro-business approach to government was reflected in the appointment of severalcabinet ministers with strong business backgrounds. However, Congress has radicallyslowed down and altered his ambitious legislative agenda. After two years ingovernment, his administration is considered ineffectual, but his personal approvalratings remain high. He is perceived as well-intentioned and, most importantly, notcorrupt.

Santiago Creel Miranda (49)

Minister of the interior. Mr Creel, a lawyer, received the PAN’s nomination tobecome a member of the Instituto Federal Electoral (IFE, Federal Electoral Institute) in1994, just as that organisation had been granted full autonomy. He became a deputyfor the PAN in 1997, although he was not officially a party member until 1999,building his political reputation as one of the main leaders of the opposition blocthat held a majority in the Chamber of Deputies. In 2000 he was the PAN’scandidate for the governorship of Mexico City and came a close second to the PRD.In his role as interior minister, Mr Creel has dealt skilfully with opposition parties,carefully following the presidential line of seeking a consensus whenever possible.

Roberto Madrazo Pintado (52)

PRI national leader. Mr Madrazo, a lawyer, became a nationally known figure in1999, when he stood for the PRI presidential nomination against the eventualwinner, Francisco Labastida. He is popular among the PRI’s grassroots as he has hada long career in the party, having risen from being a leader of its youth movement tothe post of secretary of organisation. Mr Madrazo was governor of Tabasco in1995-2000 and has twice been elected to the Chamber of Deputies—in 1976-79 and in1991-94—and to the Senate in 1988-91. He was elected as PRI leader in February 2002.He faces the challenge of unifying the party and drawing up a cohesive strategy.

Andrés Manuel López Obrador (50)

Mayor of Mexico City. A long-time ally of PRD founder Cuauhtémoc Cárdenas,Mr López Obrador defected from the PRI in 1988. An energetic social activist, he wasfederal deputy (1988-91) and twice (in 1988 and 1994) failed to win the governorship

12 Mexico


of his native Tabasco. Supported by Mr Cárdenas, he became president of the PRDfrom 1996 to 1999. Under his vigorous leadership, the party experienced stronggrowth. In 2000 he won the governorship of Mexico City. His straightforwardmanner and populist policies (diverting expenditure from investment to financehandouts to certain groups) have made him very popular and he is tipped as astrong candidate for the 2006 presidential elections. A strong believer in forms ofdirect democracy, in December 2002 he won overwhelmingly an informalconsultation on whether he should remain in office.

Diego Fernández de Cevallos (62)

Senator. A long-standing member of PAN and a powerful lawyer, he gained nationalprominence as federal deputy in the 1991-94 legislature, when as leader of the PANfaction in the Chamber of Deputies he worked closely with the PRI government. Apresidential candidate in the 1994 election, he came a strong second, and positionedhis party as a credible electoral alternative. A long-time rival of Vicente Fox Quesada,he has frequently and publicly clashed with the president. Senator for the 2000-06period, his influence on many PAN members, and abilities to work with the PRI, aresorely needed by the government to push forward its legislative agenda.

Francisco Barrio Terrazas (52)

Comptroller and administrative development (Secodam) minister. One of the fewtraditional PAN members in the cabinet. With a BA in Accounting and an MBA, aswith many PAN members he moved in the early 1980s from business activities topolitics. He joined the party in 1983, and in the same year became mayor of hisnative Chihuahua City. In an election heavily tarnished by fraud in 1986, he wasdefeated as candidate for governor, a position he won six years later (1992-98) Hisinterest in fighting corruption motivated his appointment to Secodam and has madehim a national figure, particularly because of his investigations into the PRI.

International relations and defence

Mexico’s foreign policy is defined by its historical relationship with the US. Anti-US sentiment has lessened over the past decade since Mexico signed the NorthAmerican Free-Trade Agreement (NAFTA), which came into force in January1994. US support for Mexico during the financial crisis of the mid-1990s alsobolstered bilateral relations. However illegal migration, drug-trafficking, money-laundering, specific trade disputes, and disagreements over US military actionsand Cuba continue to pose problems.

Bilateral relations have strengthened further under the presidencies of Mr Foxand George W Bush. The Fox administration espouses an activist foreign policy,a reversal of the non-interventionist stance adopted by PRI governments sincethe 1930s, and one that largely supports US initiatives. Mr Bush visited Mexico inFebruary 2001 in what was his first trip outside the US as president, and in turnMr Fox was the first foreign leader to be invited to Washington on a state visit.Since the terrorist attacks on the US in 2001, Mexico has slipped down the USforeign policy agenda. Negotiations for a guest programme for Mexican workersand legalisation of currently illegal Mexican workers in the US have beenderailed. In addition, disagreement over Mexicans executed in the US and theUS policy towards Iraq have also introduced a slight negative note in otherwisepositive relations.

Strong relations with the US

Mexico 13


Mexico has strengthened ties with other countries and economic blocs. It wasadmitted as a full member of the Asia-Pacific Economic Co-operation (APEC)forum in 1993 and to the OECD in 1994, having joined what is now known asthe World Trade Organisation (WTO) in 1986. Mexico has also pursued greaterregional integration by entering into free-trade agreements (FTAs) with CostaRica, Bolivia, Venezuela and Colombia (1995), Nicaragua (1998), Chile (1992 and1998), Israel and the EU (2000), and the European Free-Trade Association (EFTA;2001). Mexico is also a member of the Triángulo del Norte (Northern Triangle)trade bloc along with Guatemala, Honduras and El Salvador.

Trade negotiations and agreements have continued with other countries. At thebeginning of July 2002, Mr Fox and the then Brazilian president, FernandoHenrique Cardoso, signed a bilateral Economic Complimentary Agreement,under which agricultural and industrial products will enjoy preferential tariffsand free trade in a number of sectors is envisaged by 2006. Additionally, anautomotive accord was signed which substantially increases quotas for Brazilianassemblers. Also in July, Mr Fox and the Uruguayan president, Jorge Battle,agreed to negotiate an FTA between both countries (building on the EconomicComplimentary Agreement in force since 2000). Talks with the same purposehave also continued with Panama. However, the date for concluding thenegotiations has been repeatedly postponed, and it is unclear when or whetheran agreement will be reached. Negotiations to reach an FTA with Japan startedformally in November 2002, and should be concluded during the second halfof 2003.

Armed forces, 2002

Active force

Active forces total 192,770.

Reserve force

The reserved force totals 300,000.

Army

There are 144,000 soldiers, of which 60,000 are conscripts, and 12 military regionswith garrisons in 44 zones. Each garrison comprises 81 infantry brigades, 19motorised cavalry brigades, three artillery regiments and one air-mobile unit. Thestrategic reserve includes four armoured brigades and one presidential guard brigade.

Navy

The navy comprises 37,000 seamen, including 8,700 marines and 1,100 naval airpersonnel. There are 17 naval regions, of which six are in the Gulf of Mexico and 11in the Pacific Ocean. The navy possesses three destroyers and eight frigates.

Air force

The air force comprises 11,770 airmen, including one squadron with ten fighter planesand 47 armed helicopters.

Although the armed forces are ill-equipped to defend Mexico from externalaggression, their role in domestic affairs has increased in the past few years. Inaddition to waging a perennial war against drug-traffickers, they have beencalled on to contain guerrilla groups, notably the EZLN, and even to take on

Priorities of the armed forces

14 Mexico


policing duties. However, scandals related to corruption and human rightsabuses have tarnished the army’s image. Defence spending is low, andamounted to just 0.5% of GDP in 2002.

Security risk in Mexico

Armed conflict/terrorism

The Ejército Zapatista de Liberación Nacional (EZLN) in Chiapas is located far frommajor urban areas and its activities are thus unlikely to affect business. The EZLN iswell contained by the Mexican military, and has shown no intention of carrying outurban terrorist acts. The movement has a strident but small political base, but isunlikely to threaten political stability.

Unrest/demonstrations

Demonstrations are frequent in major urban areas, especially Mexico City, althoughthey are rarely violent. The US embassy is often a focal point of anger during labourdemonstrations, but US businesses are not generally targeted.

Violent crime

Since the mid-1990s all forms of crime have risen sharply, particularly in Mexico City.Theft of merchandise and assaults on staff are among the top security concerns ofbusinesses operating in Mexico. The judiciary and municipal police are oftencorrupt, making arrest and prosecution of criminals more difficult. Businesses,especially those dealing with the public, should expect to spend heavily on security.Large firms allocate about 10% of their total expenses to security.

Organised crime

Drugs cartels are entrenched in Mexican states near the US border. The assassinationof public officials in these states is often drug-related. Southern states such asGuerrero and Michoacán are used for growing illegal crops like marijuana.

Kidnapping

Although conventional kidnapping gangs do not generally target foreigners, the risingincidence of “express kidnappings” means that executives are at growing risk ofbecoming the targets of violent crime.

Resources and infrastructure

Population

According to estimates by the Consejo Nacional de Población (Conapo, theNational Population Council), Mexico’s population at the beginning of 2003stood at 103.6m. The rate of population growth has slowed from more than 3%per year in the early 1970s to just 1.3% per year in the early 2000s. Thisdeceleration reflects declining fertility rates as well as improved healthcare,which has lowered infant mortality rates. Annual population growth was 1.2% in2002. In early 2003 an estimated 32.9m people, 31.7% of the population, wasaged 14 years or under. Inevitably this distribution results in pressures on theeducation system and the labour market. (For historical data on population, seeReference table 1.)

Mexico 15


Rural areas show a high level of population dispersion: 96% of towns andvillages have fewer than 1,000 inhabitants and seven out of ten of these sufferfrom high to very high levels of poverty, a factor partly attributable togeographical marginalisation. Within Mexico, the search for better livingstandards has encouraged rural to urban migration, especially to Mexico Cityand the cities of Monterrey and Guadalajara, but also in more recent times tonorthern maquiladora (in-bond assembly for re-export) towns such as Tijuanaand Ciudad Juárez, as well as to tourist centres such as Cancún. In 1990 around71% of the population lived in urban areas. According to estimates from the2000 census, 47.3% of the total population live in urban areas with at least100,000 inhabitants. (For historical data on the labour force and unemploymentin urban areas, see Reference tables 2 and 3.)

Around 6% of the population are pure Indian. There are over 60 recognisedethnic and language groups, and around 1% of the total population does notspeak any Spanish. The most numerous indigenous groups are the Náhuatl,with 1.2m speakers, the Maya (714,000), the Zapotec (403,00) and the Mixtec(387,000). The customs and languages of the indigenous peoples differ greatlyfrom one group to another, but they have suffered generally from exploitation,marginalisation and poverty.

According to government estimates, about 300,000 people migrated every yearto other countries (legally or illegally) during 1998-2002, with the US being by farthe main destination. In 2001 103,234 Mexicans became US citizens throughnaturalisation. According to US statistics, in 2001 the total number of Mexican-born people officially admitted into the US stood at 206,426, while a total of1.32m were apprehended as deportable aliens (although this figure may beconsiderably inflated, as many people return to the US soon after beingexpelled). In 2001 the number of Mexican-born people living in the US wasestimated to be near 8m, 28% of all immigrants living in the US.

Education

In 2000, 9.6% of the population aged 15 years and above was illiterate. Theaverage number of years of schooling per child stood at 7.6 years, comparedwith 6.5 years in 1990. Although primary education for children aged betweenfive and 11 years is both free and compulsory, in 2000 only 70.3% of thepopulation age 15 years or over had completed the primary level. Only 25% ofthe adult population has reached an upper-secondary level of education (theOECD average being 64%), and of those aged 15-19 years, approximately half arenot in education (the OECD average is 20%).

Given the rapid growth of the population reaching working age (about 1m peryear), a major effort is needed to facilitate the transition from school to work. InAugust 1997 the Programa de Educación, Salud y Alimentación (Progresa, aprogramme promoting better education, health and nutrition) was introduced toprovide additional subsidies to some of the country’s poorest families.Secondary schooling for children aged 11-14 years has been made compulsoryand technical training facilities have been expanded. For the 2002/03 academicyear, there were more than 5,533 centres training students for jobs in industry.

The workforce is poorlyeducated

16 Mexico


In February 2001, the president, Vincente Fox Quesada, announced two neweducation programmes, the Programa Nacional de Becas para Estudios de TipoSuperior (Pronabes, which provides scholarships to poor students in highereducation) and the Programa de Escuelas de Calidad, which will provideadditional financing for public schools to improve their quality. In March 2002the government announced the replacement of Progresa with a programmecalled Oportunidades. In addition to the three areas covered by Progresa,Oportunidades will include temporary employment programmes, financing forsmall-scale projects and the regularisation of housing in urban and rural areas.Oportunidades benefited an estimated 4.24m families during 2002.

According to government estimates, spending on education in 2002 amountedto 6.8% of GDP (with 1.3% of GDP coming from private sources), a level thatcompares favourably with the 5.5% OECD average (1999 figure). However,spending is heavily skewed towards higher education, with university studentsreceiving a subsidy that is 4.4 times higher than their counterparts at primaryschool, and double the OECD average. In the 2002/03 academic year there wereonly 2,250 students in higher education per 100,000 of the population (aboutone-third the US figure). It is not yet clear what the government plans to do torebalance this situation. Total education spending is due to increase sharply. Atthe end of 2002 Congress changed the General Education Law, establishing thatby 2006 the government should spend an equivalent of 8% of GDP oneducation. Mr Fox welcomed the change (although it is unclear how that hugeincrease will be financed).

Student numbers('000)

2000/01 2001/02 2002/03Pre-school 3,423.6 3,432.3 3,495.7

Primary school 14,792.5 14,843.4 14,858.9Secondary school 5,349.7 5,480.2 5,672.7High school 2,555.7 3,120.5 3,275.6

University 2,047.9 2,147.1 2,259.8Other (technical training) 1,051.7 1,121.9 1,230.0

Total 29,221.1 30,145.3 30,792.7

Source: Presidencia de la República, Segundo Informe de Gobierno.

Health

Between 1970 and 2002 life expectancy at birth increased from 61 years to anestimated 76 years (73.7 years for men, 78.2 for women), while infant mortalityfell from 69 per 1,000 live births to 23 per 1,000 live births. Universalvaccination programmes have helped to reduce cases of whooping cough andtuberculosis, and poliomyelitis has been almost eradicated. Efforts continue tobe made to curb outbreaks of cholera and the spread of AIDS. The governmenthas tried to combat malnutrition by instituting several programmes of foodsupport, including the provision of subsidised milk to 2.9m families, free schoolbreakfasts for about 3.51m children and 1 kg/day of free tortillas to 0.66mfamilies, according to 2002 estimates. Nevertheless malnutrition remains aserious problem, particularly in remote rural areas.

Educational spending is biasedtowards the tertiary level

Mexico 17


The Instituto Mexicano del Seguro Social (IMSS, the social security institute) andthe Instituto de Seguridad y Servicios Sociales de los Trabajadores del Estado(ISSSTE, the social security institute for public-sector workers) are the two mainproviders of healthcare. According to official figures, in 2002 an estimated 46.5mpeople were covered by the IMSS, with 15.3m affiliates paying contributions. TheISSSTE, with 2.4m affiliated state workers, offered services to a further 10.4mpeople. The two organisations are funded by employer and employeecontributions, returns on investments and, in the case of the ISSSTE, transfersfrom the federal government (otherwise it would become insolvent).

In addition to the IMSS and the ISSSTE, some healthcare services are providedby the Ministry of National Defence, the Ministry for the Navy, PetróleosMexicanos (Pemex, the state oil company) and by state organisations such as theInstituto Nacional Indigenista (INI, the Institute for Indigenous People) andDesarrollo Integral de la Familia (DIF, an agency promoting familydevelopment), as well as by private institutions. Those people who are notcontributors to the national social security system nor members of privateschemes can obtain free healthcare from either the Ministry of Health or theIMSS-Solidaridad antipoverty programme.

Many Mexicans use private healthcare services (particularly for minor ailments),as service quality in public facilities varies considerably. In 2002 the governmentestimated that there were 3,029 private medical establishments in the country(of which 64 had at least 50 beds).

Hospital units, 2002

Type No.Open to allMinistry of Health 449Instituto Mexicano del Seguro Social-Solidaridad (IMSS-Solidaridad)a 69Open to beneficiaries onlyInstituto Mexicano del Seguro Social (IMSS) 265Instituto de Seguridad y Servicios Sociales de los Trabajadores del Estado (ISSSTE) 102Petróleos Mexicanos (Pemex) 23Ministry of National Defence 42Ministry for the Navy 32

a Hospitals funded under the IMSS-Solidaridad antipoverty programme.


Natural resources and the environment

Covering an area of 1.96m sq km, Mexico is the 14th largest country in theworld. It is bounded by the US to the north along a 3,118-km frontier and to thesouth by Guatemala (943 km) and Belize (249 km). The country’s western limit isthe Pacific coast (7,360 km) and its eastern limit the Gulf of Mexico and theCaribbean coast (2,780 km).

The country’s topography is complex, ranging from coastal plains to volcanoesstanding over 5,000 metres above sea level. More than one-half of the land areais over 1,000 metres above sea level.

Social security is the mainhealthcare provider

Topography

18 Mexico


Climatic conditions vary considerably owing to the topography, but much of thecountry is dry and there are few large rivers. Water resources are unevenlydistributed. Both the Gulf coast to the east and the Baja California peninsula tothe west are vulnerable to tropical storms and hurricanes. The high season forstorms is July-September on the west coast and August-October in the Gulf. Thewest coast of southern Mexico, where the Cocos Plate dips beneath the NorthAmerican Plate, is an active seismic zone, and earthquakes are not uncommonin the central states and Mexico City. The area has seen 35 earthquakes ofmagnitude greater than 7.0 on the Richter scale since the beginning of the20th century.

Climate(% of total area)

Hot & humid 4.8

Hot & dry 23.0Temperate 23.1

Dry 28.3Very dry 20.8

Source: Instituto Nacional de Estadística, Geografía e Informática.

Owing to the topography and climate, only about 21% of the country is suitablefor arable farming and a further 57% for pasture. Forests and woodland coveraround 17% of the land. There is great potential for fishing to be developed.

As a signatory to the North American Free-Trade Agreement (NAFTA), Mexico isunder pressure to raise its environmental standards. Air pollution is a seriousproblem in Mexico City (in 1992 its air was considered the most polluted in theworld by the UN), Guadalajara and Monterrey, and northern border areas,where industries have operated without adequate environmental controls, alsosuffer a high degree of pollution and other environmental problems. In the1980s the authorities saw the need to tackle environmental degradation, but theGeneral Law of Ecological Balance and Environmental Protection was notenacted until 1988. In 1992, the Procuraduría Federal para la Protección delAmbiente (Profepa, the Federal Bureau for the Protection of the Environment)was established.

During the administration of Ernesto Zedillo (1994-2000), the Ministry forFisheries became the Ministry of Environment, Natural Resources and Fisheries.Amendments to the law in 1996 delegated important enforcement functions toboth state and local governments and introduced the “polluter pays” principle.Mr Fox has transferred the fisheries brief to the Ministry of Agriculture. Carowners in Mexico City are required to leave them at home on one day eachweek and on two days a week during environmental emergencies. Moves arebeing made to substitute natural gas for diesel in power stations and industry,and environmental policing is being stepped up generally, although enforcementremains lax.

Climate

Environmental standards

Land use

Mexico 19


Transport, communications and the Internet

Private companies were offered concessions to build and to operate toll roadsunder the administration of Carlos Salinas de Gortari (1988-94). A lower thanexpected volume of traffic and economic crisis from December 1994 caused thegovernment to revoke 23 of the concessions, while also offering financialassistance to the companies involved. New concessions are to be offered underthe Fox administration from late 2003.

Integral port administrators were created in 1993. The administration of eachseaport was awarded by concession to an administrator, who operates portterminals and facilities, providing related port services. The privatisation of portadministration began in 1995 and continued under the Zedillo administration.Foreign investors may hold up to 49% equity in a port administrator and up to100% equity in ventures providing some port services. Concessions last for upto 50 years.

The Salinas government managed to cut the losses of the FerrocarrilesNacionales (Ferronales, the state-owned railway company); and the Zedilloadministration split the company into regional companies and in 1997-98transferred the management of most of these companies to the private sectorunder 50-year concessions. Small loss-making segments were excluded from thesale, along with the railway running through the Tehuantepec isthmus, owing toits political sensitivity. Three regional railway companies, Noreste, Pacífico-Norteand Sureste, as well as four short lines, are now privately managed.

The process of privatising the country’s 35 airports, which deal with 97% of totalpassengers, started in 1998. The airports were divided into three groups forauction according to their geographical location, with the addition of a specialgroup for Mexico City. A minority but controlling share, usually of 15%, wasoffered to strategic investors, who must include a foreign investor withexperience in airport management, while the rest of the shares are supposed tobe offered to the public on the stock exchange. The 1995 Airports Act permits upto 49% of investment in enterprises to be from external sources, althoughauthorisation for a higher percentage may be obtained from the ComisiónNacional de Inversiones Extranjeras (CNIE, National Commission for ForeignInvestment).

In October 2001 the government decided to site a new airport for Mexico City inTexcoco, about 14 miles east of the city centre, to ease bottlenecks at the BenitoJuárez airport. Environmental groups and landowners affected by the project,particularly the latter, sought judicial injunctions and staged strong protests toreverse the decision. This led the government to cancel the project in August2002. The cancellation of the project has not helped Mr Fox’s image. The newairport had been one of the most important public works projects of hispresidency.

As an alternative, and without publicising the strategy very much, thegovernment aims to expand the airports in nearby urban areas in order to easethe pressure on Benito Juárez airport (it cannot be expanded because of the huge

Roads

Port facilities

Airports and air transportation

Railways

20 Mexico


costs involved). Airports in nearby Toluca, Morelos, Querétaro and Puebla areamong the alternatives being studied. The expansion of Puebla airport started inearly November 2002, and the new airport near Querétaro should be finishedduring 2003. Apparently, the task of building a new airport to serve Mexico City(which is becoming urgent) will have to wait for the next administration.

Transport and communications, 2002Roads (km)a 340,973

Paved roads (km) 111,086Registered vehicles (m)b 18.50

Railway track (km) 26,690Rail passengers ('000)a 228

Rail freight ('000 tonnes)a 74,742International airports (no.) 57Domestic airports (no.) 28

Air passengers (m) 34.13Air freight ('000 tonnes)a 352

Ports (no.) 108Port facilities (sq km) 185Maritime passengers (m)c 6.32

Shipping ('000 tonnes) 248,695Telephone lines ('000)d 14,727

Cellular telephones ('000)d 25,146Internet users ('000)e 3,636

a Estimate from the Primer Informe de Gobierno. b Figure from September 2002. c Jan-Sep figure.d October 2002 figure. e End-2001 figure.

Sources: Instituto Nacional de Estadística, Geografía e Informática; Secretaría de Comunicaciones y Transportes; Aeropuertos y

Servicios Auxiliares; Caminos y Puentes Federales de Ingreso; Comisión Federal de Telecomunicaciones; Presidencia de la

República, Segundo Informe de Gobierno.

In 1998-2000 three airport groups were privatised. Aeropuertos del Sureste,manager of nine airports in six states, of which Cancún is the jewel in thecrown, was the first group to be auctioned. Control was won by a consortiumwith Mexican, Danish, French and Spanish capital in December 1998. Aconsortium of Mexican and Spanish investors won the bidding to manageAeropuertos del Pacífico, a group of 12 airports, including Guadalajara andTijuana, in August 1999. Control of Aeropuertos del Centro-Norte, a group of 13airports, including those serving Acapulco and Monterrey, was won by aconsortium of Mexican and French investors in May 2000. The privatisation ofMexico City airport was delayed indefinitely because of the construction of thenew terminal. The placement of 85% of shares in privatised airport groups onthe stock exchange has been delayed several times. Shares in the Sureste groupwere placed on the Mexico City and New York stock exchanges in September2000. Share placements for the other airport groups may not happen at leastuntil late in 2003 (the government has repeatedly postponed the placementgiven the prevailing difficult market conditions).

Adverse market conditions are also the reason why the government hasrepeatedly postponed the privatisation of the airlines that compose the Cintraconsortium (with the two national airlines Aeroméxico and Mexicana at itscore). Cintra is under the management of the Instituto Bancario de Protección al

Mexico 21


Ahorro (IPAB, the Institute for the Protection of Bank Savings), and, inaccordance with the legislation that created IPAB, all the assets under itsadministration have to be sold off by January 2004. It is unclear what willhappen if IPAB has not sold the airlines that form Cintra by then. Aeroméxicoand Mexicana have to be sold separately to have some competition on domesticroutes (which currently does not exist), according to a ruling from the ComisiónFederal de Competencia (CFC).

The national telephone company, Teléfonos de México (Telmex), was privatisedin 1990. Since then the number of telephone lines has increased substantially.Between 1990 and 2002 density rose from 6.4 lines per 100 people to 14.1 linesper 100 people (June 2002 figure). With privatisation came concessions forcellular telephone operations, and in August 1996 the long-distance market wasopened to competition.

A total of 24 concessions were granted and 19 companies had won concessionsto compete against Telmex in the local telephone service market by the end of2000. However, Telmex continues to wield considerable market power and hasbeen accused frequently of abusing its position. The Comisión Federal deTelecomunicaciones (Cofetel, the telecoms industry regulator) has tried manytimes to rein in the company, without success as Telmex has won judicialinjunctions against its rulings. The Office of the United States TradeRepresentative (USTR) has pressed more successfully, through requests to theWorld Trade Organisation (WTO) to set up arbitration panels and rule on theopenness of the Mexican telecoms market. These requests (the most recenthaving taken place in February 2002) have pushed Telmex to settle with itscompetitors disputed issues such as interconnection fees. Since March 2001 allpolitical parties have been working on a new telecoms law. However, aconsensus has not been reached, and it is not clear when a proposal will beofficially presented to Congress, or whether it will have enough support to beenacted.

Telmex’s monopoly power and the subsequent high cost of fixed-line servicesare a major reason for the explosion in mobile phone services. The mostpowerful company, and by far the most dominant in the market, is Telcel (part ofAmérica Móvil, a Telmex spin-off). However, in that field (contrary to what hasbeen happening with fixed lines), Telmex faces increasingly powerfulcompetition. Telefónica Móviles México (an affiliate of Spain’s Telefónica group)has emerged as the second-largest operator in the country after a buying spreethat included Motorola (in 2000) and Pegaso (2002). As of the fourth quarter of2002, Móviles México had about 2.7m subscribers (against Telcel’s 19.4m). Othermobile operators, such as Iusacell and Unefón, are facing financial or legalproblems. By the end of October 2002, there were 25.15m mobile phone users inthe country.

The number of households owing a computer has risen markedly, althoughregional differences are large. By the end of 2001, there were 3.64m Internetusers in Mexico, of which around half were in private firms and over one-thirdin households. At the end of January 2003 the government formally started the

Communications

22 Mexico


first phase of the e-Mexico project, that aims to provide high-speed connectionto the Internet through satellite to 3,200 communities.

Mexico has a large number of daily newspapers with national, state and localmunicipal circulation. All national daily newspapers are privately owned.Several newspapers survived for decades despite meagre circulation numbersthanks to advertising, government subsidies, and cash hand-outs, but since theFox administration ceased to prop up the newspapers, some have gone out ofbusiness. The daily Novedades (founded in 1936) and Mexico’s only English-language newspaper, The News (established in 1949), ceased publication at theend of 2002. Two other dailies, Excelsior (founded in 1917 and until the 1970s themost important newspaper in the country) and Unomásuno (established in1977), are close to bankruptcy. Reforma (founded in 1993) is the best-sellingnewspaper but is closely followed in its importance by El Universal (founded in1916). There are also a great many weekly and monthly magazines. Among othermedia there are a total of 40 AM and FM radio stations and nine televisionstations that offer a wide range of programming in the capital. Many of thesemedia are also available nationwide.

Energy provision

Mexico was the world’s fourth-largest producer and eighth-largest exporter of oilin 2002, producing an average of 3.59m barrels/day of crude oil and liquid gasequivalent. The country produces three types of oil: heavy Maya, at 22.3°American Petroleum Institute (API); Isthmus (34.6° API); and Olmeca (39.1° API).Official hydrocarbons reserves at the start of 2002 stood at 52.9bn barrels(enough to keep production at current levels for 35 years), of which 43.21bn werecrude oil and condensates, and 9.74bn gas equivalent. Reserves have declinedsteadily in the past 19 years, reflecting a contraction in exploration. (For furtherdata on crude oil and gas production, see Reference table 4.)

Outside companies have been brought in to undertake drilling operations forPetróleos Mexicanos (Pemex, the state-owned oil monopoly), although to datethey have been doing so under limited service and performance contracts. Theconstitution allows Pemex to enter into contracts involving works and deliveryof services. However, it also states that any remuneration should be made incash, and under no circumstances will a percentage of the goods or participationin the results of the exploitation be granted.

There has been a steady reduction in Pemex’s monopoly over petrochemicalsproduction. Modifications to the constitution in November 1996 restricted thestate’s exclusive production rights to only eight basic petrochemicals. Other thanin those products, the private sector may now participate in the production ofpetrochemicals and may own 100% of the equity of a producing company, butonly 49% of the equity in plants owned by Pemex. This restriction has deterredinvestors and an attempt to part-privatise some complexes foundered in 1999.Apparently the Fox administration has opted to leave the status quo unchanged,and concentrate its political efforts on liberalising the electricity sector.

Media

Oil production

Pemex and the petrochemicalindustry

Mexico 23


Oil and gas production2002 % change on 2001

Crude oil incl liquid gas ('000 b/d) 3,590 0.8Gas (m cu ft/day) 4,422 -2.0

a January-November.

Source: Petróleos Mexicanos; International Energy Agency.

Since the end of 2001, the government has been lobbying Congress to accept aPemex plan to offer private companies integrated service contracts, to exploreand produce non-associated natural gas (gas which exists without the presenceof oil). Pemex aims to reduce the share of its revenue that goes to thegovernment so that it can invest more in its own infrastructure and in oilexploration. This is unlikely to occur in the medium term as the fiscal reformapproved at the end of 2001 did not raise sufficient revenue from other sourcesto reduce significantly the state’s reliance on Pemex.

The Fox administration is also keen to open the electricity sector to privateinvestment in order to expand supply but this plan has also encounteredconsiderable opposition. In April 2002 the Senate rejected a far-reachingliberalisation proposal that had initially been made by the Zedilloadministration in early 1999. Also in April the Suprema Corte de Justicia de laNación (SCJN, the Supreme Court) overruled changes that Mr Fox had made bydecree, in May 2001, to legislation governing the sector on the grounds that herequired the assent of Congress. Mr Fox’s changes had increased the amount ofpower that the Comisión Federal de Electricidad (CFE, the electricitycommission) could buy from private companies that generate excess electricity.The SCJN ruling has a quite significant coda: it calls into question theconstitutionality of the Ley del Servicio Público de Energía Eléctrica (the publicelectricity law) enacted in 1992, under which private investment in generation isallowed, through schemes such as co-generation and production for self-consumption. As of mid-2002, nearly US$9.5bn had been invested through thoseschemes. Investments have continued, but the legal uncertainty remains.

Partly to dispel that uncertainty and to increase private investment in the sector,Mr Fox submitted a constitutional reform proposal to the Senate in August 2002that would allow private electricity to be sold to big consumers. Crucially, itwould establish that the government has to guarantee non-discriminatory accessto the electricity transmission and distribution infrastructure. This would meanthat the private sector could supply electricity unhindered, and would establishthe concept of the autoconsumidor (self-consumer). Autoconsumidores are thosethat use at least 2,500 mw of energy a year, making up about 60% of the market,and would be able to purchase energy from the Comisión Federal deElectricidad (CFE, Federal Electricity Commission) and the state-owned Luz yFuerza del Centro (LyFC, that provides electricity to Mexico City andsurrounding areas) or private companies. It remains to be seen whetherCongress will approve the necessary constitutional reform.

While it awaits legislative approval of its reform plans, the government hassought to make the sector more efficient by cutting subsidies and increasinginvestment through Proyectos de Inversión Diferida en el Registro del Gasto

Energy sector liberalisation

24 Mexico


(Pidiregas, investment projects financed initially by the private sector butultimately paid for with the revenues generated by the projects themselves).

Energy balance, 2002(m tonnes oil equivalent)

Oil Gas Coal Electricity Other TotalPrimary supplyPrimary production 180.0 32.0 5.6 8.8a 7.9 234.3Imports 15.0 5.4 4.4 0.1a 0.0 24.9Exports -105.0 -0.1 0.0 -0.1a 0.0 -105.2Total 90.0 37.3 10.0 8.9a 7.9 154.1Processing & transformationInput to refining 69.5 0.0 0.0 0.0 0.0 69.5Input to transformation 22.0 12.4 8.5 8.8a 0.7 52.4Refining & transformation output 69.5 0.4 0.0 16.6b 0.0 86.5Energy industry fuel & losses 9.5 13.5 0.0 3.5b 0.0 26.5Final consumptionTransport fuels 36.5 0.0 0.0 0.1b 0.0 36.6Industrial fuels 6.5 10.0 1.5 8.0b 1.1 27.1Residential & other uses 10.0 0.8 0.0 5.0b 6.1 21.9Non-energy uses 5.5 1.0 0.0 0.0 0.0 6.5Total 58.5 11.8 1.5 13.1b 7.2 92.1

a Input basis. b Output basis.

Source: Energy Data Associates.

The economy

Economic structure

The Mexican economy has undergone a profound transformation since the1980s as a result of economic liberalisation and joining the North AmericanFree-Trade Agreement (NAFTA, a free-trade bloc with the US and Canada).Having relied heavily on oil for foreign-exchange earnings in the late 1970s,manufacturing quickly became the main source of export earnings. In 2002manufacturing accounted for 20% of GDP and 88.4% of exports. The majority(55%) of total exports was produced in maquiladoras (in-bond assembly for re-export plants). Services, however, are the most important contributor tonational output. During the first three quarters of 2002 the sector accountedfor 67.9% of GDP.

Main economic indicators, 2002

Real GDP growth (%; based on constant 1993 prices) 0.9Consumer price inflation (year-end; %) 5.7

Current-account balance (US$ bn) -15.7a

External debt (US$ bn) 140.8b

Exchange rate (av; Ps:US$) 9.68

Population (m) 103.6c

aOctober 2001 to September 2002. b June 2002. c Consejo Nacional de Población estimate.

Sources: Instituto Nacional de Estadística, Geografía e Informática; Banco de México; Secretaría de Hacienda y Crédito Público;

Consejo Nacional de Población.

Services sector dominates GDP

Mexico 25


Agriculture has declined in importance economically but remains an importantsource of employment (around one-fifth of the workforce is involved inagricultural activities). Mining accounted for just 1.2% of GDP in 2002 but thisheavily understates the importance of oil production to the economy and,particularly, to the Treasury. Oil exports represented 9% of total exports in 2002.

The results of the first systematic attempt to measure informal economicactivities were published by the Instituto Nacional de Estadística, Geografía eInformática (INEGI, National Institute of Statistics, Geography and Informatics)in August 2000. According to the results, the informal sector—excluding illegalactivities—had a value of Ps445.5bn (US$47bn), equivalent to 12.7% of GDP, andprovided 17% of the profits generated by the economy. Of non-agricultural jobs,28.5% are in the informal sector. Commerce and restaurants employ the greatestnumber of workers informally, estimated at around 30.8% of the total, followedby personal services (11.5%), manufacturing (6.1%), transportation (4.6%) andconstruction (3.3%).

The 1994-95 economic crisis hit domestic consumption and investment hard, butthanks to a weak exchange rate and privileged market access in the US andCanada (both of which were growing strongly) exports became the engine ofgrowth. Producers aggressively re-directed their production abroad. Until thesecond quarter of 2001 the growth in external trade was impressive, and largelyattributable to the dynamism of the maquiladora industry. Combined exportsand imports soared, from US$117bn in 1993 to US$341bn in 2000. From April2001 until June 2002, however, a sharp US economic slowdown reversed thetrend. Exports began to recover in July 2002, and preliminary estimates from theINEGI indicate that non-oil exports increased by 0.4%.

Comparative economic indicators, 2001(US$ bn unless otherwise stated)

Mexico US Brazil Argentina VenezuelaGDP 621 10,208 503 267 130GDP per head (US$) 6,254 35,897 2,880 7,116 4,866Consumer price inflation (av; %) 6.4 2.8 6.8 -0.9 12.5

Current-account balance -17.7 -423 23.2 -4.5 4.9% of GDP -2.8 -4.1 -4.6 -1.7 3.7

Exports of goods fob 158.5 723.3 58.2 26.6 26.2Imports of goods fob 168.3 1,147.50 55.6 19.2 16.5External debt 144.5 n/a 235.7 144.8 39.1

Debt-service ratio, paid (%) n/a n/a 47 22.4 5.1

Source: Economist Intelligence Unit, CountryData.

Economic policy

Expansionary policies coupled with external shocks caused inflation andbalance-of-payments crises during the 1970s and early 1980s. Cut off frominternational capital markets in the wake of its debt default and the ensuingLatin American debt crisis, a turnaround was imperative. The administrations ofMiguel de la Madrid (1982-88) and Carlos Salinas de Gortari (1988-94) adopted anorthodox approach to economic policy, following the accepted guidelines of theIMF and World Bank. They implemented privatisation, deregulation and a

Deepening integration

Economic orthodoxy becomesentrenched

26 Mexico


liberalisation of the trade and capital accounts. Mexico entered the GeneralAgreement on Tariffs and Trade (GATT) in 1986, and NAFTA in 1994. A strongfiscal adjustment (fiscal surpluses were recorded during the early 1990s)accompanied those policies. But policy errors and strong political shockssparked a deep economic crisis in 1994-95. Policy did not deviate from itsorthodox course under the presidency of Ernesto Zedillo (1994-2000).

One of the main policy goals of the Zedillo administration was to increaseinternal savings in a bid to reduce the country’s reliance on external savings, therapid outflow of which had been a major contributor to the economic crisessince the mid-1970s. In mid-1997 the authorities began a radical transformationof the pensions system, moving from a pay-as-you-go system—with all fundsmanaged collectively by the Instituto Mexicano del Seguro Social (IMSS, thesocial security institute)—to one where workers would have individual pensioncontributions handled by private pension managers.

The increasing amount of resources managed by the Administradoras de Fondospara el Retiro (Afores, the administrators of individual pension accounts) hashad a significant impact on domestic savings. By the end of 2002, Afores weremanaging pensions for 29.4m people, with a total amount of Ps324.3bn(US$33.4bn), and of that figure Ps269.5bn (83.1%) was invested in governmentdebt. Significantly, since fiscal year 2001 (the fiscal coincides with the calendaryear) the government has announced that net external indebtedness would bezero, with the financing of the fiscal deficit obtained entirely through internaldebt. Afores have also allowed the issuing of long-term peso-denominatedbonds (with a maturity of up to 10 years), carrying a fixed nominal interest rate.Although Afores have mostly invested in public instruments, debt issued byblue-chip Mexican companies has also been bought by the pension funds.

The adoption of a free-floating peso and abandonment of the crawling pegpreviously used as an anchor to control domestic inflation expectations, was aradical policy shift in the mid-1990s. Initially forced on Mr Zedillo in December1994 by a balance-of-payments crisis, the currency was allowed to float as therewere practically no reserves to defend a parity. It had been considered atransitory measure, as for decades the exchange rate had always been managedusing a peg or band, but the floating peso helped to keep the external accountsunder control, and economic agents got used to its vagaries.

Banco de México (Banxico, the central bank, fully autonomous since April 1994)intervened in the markets at first to contain abrupt peso depreciations, so thefloat was ‘dirty’ or ‘managed’. In February 1997 it announced that it wouldauction up to US$200m during a trading day if the currency depreciated by over2%. That was broken only once when in September 1998 during the panicsparked by the Russian devaluation when Banxico sold US$278m directly in themarkets. In 2001 a clean float was adopted. Banxico ceased its monthly auctionsof dollar options (in place since August 1996) through which it accumulatedinternational reserves, and in July the 2% intervention rule was scrapped. Thefree-float has been maintained under the Fox administration.

Pensions reform to boostsavings

Free-floating currency

Mexico 27


Tight monetary and fiscal policies have been implemented since 1995, with theaim of controlling the fiscal deficit and reducing inflation. The disinflationprocess was slow but was helped by the stability of the peso in nominal termsuntil mid-2002. With inflation descending from 19% in early 1999 to 9% by theend of 2000, Banxico slowly adopted an inflation-targeting strategy, that becamefully operational during 2002. The government also attained credibility on itsfiscal policy, notably through the implementation of budget cuts to keep thedeficit under control (particularly during 1999). (For historical data on govern-ment finances, money supply and interest rates, see Reference tables 5, 6, 7 and 8.)

The president, Vicente Fox Quesada, signalled his commitment to sound publicfinances with the appointment of a respected technocrat, Francisco Gil Díaz, asminister for finance and public credit. A divided Congress, however, has been aproblem for policymaking, as nationalism and a fondness for statist policiesremain strong among legislators, particularly those from the PartidoRevolucionario Institucional (PRI) and the Partido de la Revolución Democrática(PRD). A large-scale fiscal reform proposal that sought to increase public revenuessubstantially was radically modified before being approved at the end of 2001. InJune 2002 the government presented an ambitious medium-term plan, thePrograma Nacional de Financiamiento del Desarrollo (Pronafide, NationalProgramme for the Financing of Development). This aims to implement a numberof structural reforms, such as the liberalisation of electricity andtelecommunications, in a bid to boost growth and job creation. Agreement onstructural reform is proving elusive, and the July 2003 election will most probablyhinder any negotiations between the government and political parties even more.

Following its membership of NAFTA, the Zedillo administration continued tonegotiate free-trade agreements (FTAs) to increase the market for Mexican goodsand services, and to attract foreign investment. By 2002 Mexico had a quiteextensive array of FTAs, and enjoys preferential trade access to the US and theEU. The Fox administration has continued with this strategy, and startednegotiations with Uruguay and Japan during 2002. However, the emphasis onfree trade has lessened in favour of an active industrial policy that seeks to fosterbackward linkages between companies that serve export markets and domesticfirms. This should boost the growth of small and medium-sized enterprises andspread the benefits of increased market access. The Secretaría de Economía(Ministry of Economy) was formed in December 2000, replacing the Secretaríade Comercio y Fomento Industrial (Secofi, Ministry of Trade and Industry). Ituses micro-credits and incentives for the establishment of production chains andcertain preferences on procurement to develop the industrial sector butbudgetary constrains have limited its efforts.

Economic performance

The economy rebounded strongly following the peso crisis of 1995 thankslargely to export growth. Private consumption, on the other hand, remaineddepressed owing to the massive decline in real wages, high unemployment anda huge debt overhang. However, the contraction in demand helped to bringinflation down from the 52% experienced in 1995 to 15.7% in December 1997.

Disinflation proceeds slowly

Balancing the budget

Pursuit of new markets

Economic recovery

28 Mexico


Inflation2002 1998-2002

% change, year on year annual averageConsumer prices 5.7 10.0

Source: Banco de México; Instituto Nacional de Estadística Geografía e Informática.

Growth slowed in 1998 and 1999 but remained strong despite tight fiscal policy.In 2000, the year of the presidential election when traditionally the economywould enter into a crisis, growth surged to 6.6% on the back of strong exportgrowth and inflation continued to fall, reaching 9% by the end of the year. (For ahistorical breakdown of GDP, see Reference tables 9, 10 and 11; for prices andearnings data, see Reference table 12.)

While the country’s close integration with the US was a benefit when the USwas growing, Mexico suffered from the US slowdown in 2001, and businesssentiment deteriorated markedly. However, plunging nominal interest rates andthe strong peso sustained private consumption. Although GDP contracted by0.3%, the worst performance since 1995, the fall in aggregate demand helped tohalve inflation, that in December 2002 reached a 30-year low of 4.4%. During2002 the economy started to recover, despite a contraction in private and publicconsumption and investment. Exports again, albeit modestly, began to pushGDP, which by the third quarter was growing at a rate of 1.8% year on year.Growth for the full year is estimated at 1%. Important increases in certain publicprices coupled with a weaker peso explain the rebound in inflation.

Regional trends

Regional development is uneven owing in part to the heavy concentration ofpolitical and economic power in the Distrito Federal (DF, Mexico City) but alsoto geographical differences and varying natural resource endowments. The sixnorthern border states, for example, account for much of the country’smanufacturing, and particularly maquiladoras (in-bond assembly for re-exportplants) producing goods that are then sold to the US. On the Gulf coast, Veracruzhas benefited from agriculture and oil production.

In 2000 the DF accounted for 22.7% of GDP, and its neighbouring state, the heavilyindustrialised Estado de México, for an additional 10.8%. But over the past twodecades the emergence of economic opportunities in other regions, combinedwith the pollution and other urban problems of the capital have reduced the DF’sattractiveness as a place to live and work. The Gulf states, particularly QuintanaRoo, have experienced strong growth since the 1970s thanks to the developmentof tourism. Quintana Roo’s contribution to GDP has risen from 0.18% in 1970 to1.33% in 2000. Neighbouring Campeche has seen its contribution rise from 0.44to 1.08% over the same period thanks to oil exploration.

The south-east of the country, which is largely agricultural, remains extremelypoor. The states of Chiapas and Oaxaca, along with some areas of Guerrero, allon the Pacific side of the country, have high poverty rates. In 2000 the threestates combined accounted for just 4.8% of GDP.

Strong expansion sharplyreversed

Uneven development

Mexico 29


Since the 1980s government policy has been geared towards reducing theinequalities between regions but resources have tended to be misallocated aspolitics has influenced spending decisions. Efforts have been made to devolvemore power down to the states by increasing transfers and the number of policyareas under state control in a bid to boost local democracy and improve servicedelivery. The 1998 budget included the creation of Ramo 33 (Branch 33), throughwhich resources for basic education, healthcare services and municipal infra-structure are transferred to states and local governments. This has greatly increasedthe amount of transfer payments from central to state and local government.Transfers are spread evenly throughout the year, compared with previousprogrammes when large sums were allocated in the fourth quarter of the year.Revenue-raising responsibilities have not increased in parallel, as state governorshave steadfastly refused to assume the political cost of levying local taxes.Governors have successfully lobbied Congress to increase spending allocations,not only through Ramo 33 (that for 2003 has an allocation of Ps234.6bn) but alsothrough Ramo 39 (established at the end of 2002). The Programa de Apoyos parael Fortalecimiento de las Entidades Federativas (PAFEF, the state strengtheningprogramme) also provides money for the states. It was established in 2000 as aprovisional programme, but pressure from state governments made it permanent(with a budget allocation of Ps17bn for 2003). The influence of governors on thefederal government, and with that the states’ ability to extract more concessions, islikely to increase since the establishment in July 2002 of the Conferencia Nacionalde Gobernadores (Conago, National Governors’ Conference). Conago is made upof 23 state governors or their representatives (17 from the PRI and six from the PRD,as yet there are no Partido Acción Nacional members). Conago aims to providethe governors with a forum to reach a common negotiating position in theirdiscussions with the federal government.

The Fox government also has an ambitious plan, the Plan Puebla-Panamá (PPP),to develop the south of the country and integrate it more with the markets ofCentral America. But financing constraints have made for limited progress todate. The PPP was transferred from the Presidencia de la República (Office of thePresident) in January 2003 to the Secretaría de Relaciones Exteriores (SRE,Ministry of Foreign Relations), under the Vice-Ministry for Economic Relationsand International Co-operation.

Economic sectors

Agriculture

The agricultural sector has lagged behind the rest of the economy for decades,largely because of the land tenure regime but also because of price fixing ofagricultural goods, which only ended in the 1980s. Much of the agricultural landis divided up into ejidos—small areas of land that were allocated by thegovernment to individuals or communes. However, ejidos could only beinherited not sold, rented or mortgaged, to avoid the concentration oflandownership. This lack of property rights and a functioning property marketled to the fragmentation of land and inefficient farming. To counteract this thegovernment established agricultural development banks but they failed to

Agriculture lags the rest of theeconomy

Regional policy

30 Mexico


function as efficient intermediaries; corruption and poor lending decisions led toheavy losses. They were closed down and at the end of 2002 a new institution,Financiera Rural, was established to lend to the sector.

Changes to the constitution in the 1990s allowed ejidatarios (owners of ejidos) tobe given full property rights over 9m plots covering one-half of the country’sarea. By December 2002 the Ministry for Agrarian Reform and agrarian tribunalshad provided titles to 7m ejidatarios (about 3.23m families), covering 61.5m ha,under the Programa de Certificación de Derechos Ejidales y Titulación deSolares (Procede, the land rights programme for ejidos). The Fox administrationhas continued to implement Procede, reaffirming that there will not be anyfurther land distributions other than those ordered by agrarian tribunals to settleclaims. In 1993 the Programa de Apoyos Directos al Campo (Procampo, aprogramme providing yearly cash payments to producers of cotton, rice,safflower, barley, beans, maize, sorghum, soybeans and wheat) was introducedto replace price support for basic grains. Mr Fox’s government has extendedProcampo, that covered an estimated 13.9m ha during 2002.

Inadequate investment and low productivity continue to affect agriculture,exacerbating extreme poverty in rural areas. Output grew by 3.3% in 2001 thanksto good weather which boosted yields, but this performance was not repeatedin 2002, when output contracted by 0.4%. In 2003 the sector faces the challengeof increased competition as trade in a number of products is liberalised asagreed under NAFTA. Among the products affected are chicken, turkey, pork,potatoes, barley, wheat, soybean meal and soyoil, cotton and tobacco, freshapples, peaches, frozen strawberries and several milk products. Facing strongprotests from agricultural groups, the government imposed (following NAFTArules) a special safeguard on certain chicken imports in January 2003. However,despite pressure from producers groups, the government is determined not toseek any revision of the NAFTA rules on agriculture.

Maize, beans, wheat and sorghum are important for the domestic market andcoffee, sugar, fruit and vegetables are the leading agricultural exports. Earningsfrom agricultural exports in January-November 2002 totalled US$3bn, virtuallyunchanged on those recorded in 2001. Coffee export earnings have continued toplummet owing to low international prices, with earnings falling to US$162m in2002, down from US$211m in 2001 and US$614m in 2000. Preliminary estimatesby the government indicate that during 2002 livestock production reachedrecord numbers. (For historical data on agricultural and livestock production, seeReference tables 13 and 14.)

Excessive exploitation and a lack of investment and planning have hinderedforestry output growth. Widespread fires in 1998 added further complications.Reform of the land tenure system has not reduced exploitation; forested areas insome 23 states are reportedly at risk. Aiming to confront the problem, the Foxadministration established the Comisión Nacional Forestal (Conafor, NationalForestry Commission), that became operational in April 2001. Conafor is incharge of conservation and sustainable development of the sector.

Crop production is important

Forestry

Land tenure reform

Mexico 31


The fisheries sector continues to underperform. In 2001 the catch was 1.5mtonnes, up on 1.4m tonnes in 2000. Among the main types of fish caught aretuna, shrimp, sardine and squid. An estimated 407,212 tonnes of fishing productswere processed in 2001, up from 373,757 tonnes in 2000. Total exports of theindustry stood at US$731m in 2001, with those of shrimp (at US$469m) being byfar the most important. At an estimated 11.1 kg per head in 2001, domesticconsumption is not high, and has been falling significantly since the early 1990s.

Manufacturing

From the mid-1980s governments have sought to promote exports, particularlymanufactured exports, in a bid to boost growth rates and foreign-exchangeearnings. Since NAFTA came into force in 1994, exports of manufactures haverisen markedly. Labour productivity has also risen, by an accumulated 55.5%between 1993 and 2002, compared with increases of 54% in the US, 14.3% inCanada, 26.1% in Japan, 71.5% in Germany and 146.9% in South Korea. However,given Mexico’s dependence on imported intermediate goods, export growth hasinflated the import bill. Trade liberalisation also caused the collapse of manybusinesses that could not compete.

With the appreciation of the peso in the early 1990s, wages converted into USdollars increased more than productivity. Interest rates in US dollar terms werealso much higher than those paid by external competitors. These higherproduction costs led to a sharp decline in output in some sectors. The problemwas particularly acute in 1999-2001. However, the peso depreciation observedsince April 2002 has caused wages (measured in dollars) to contract, fromUS$5.5/hour in November 2001 to US$5.2/hour a year later (for the non-maquiladora manufacturing sector). The nominal exchange rate is not expectedto appreciate in the near future, which should help to improve competitiveness.In January-September 2002, manufacturing was the main recipient of foreigndirect investment, with US$3.6bn (39.9% of the total). (For historical data onmanufacturing output, see Reference table 15.)

Manufacturing output(% unless otherwise indicated)

1998-2002 2002Annual average

real growthChange in

outputaSectoral

output bExports

(US$ m)bEmployment(% of total)b

Food, beverages & tobacco 3.6 1.9 26.1 4,135 26.8Clothing & footwear -1.0 -7.3 3.8 10,177 12.1Wood products 0.9 0.1 0.6 783 1.7

Paper, printing & publishing 1.3 -2.9 4.6 1,162 6.5Chemicals, petroleum products, rubber & plasticsa 1.3 -0.7 17.5 8,805 16.6

Non-metallic minerals excl oil 2.0 3.1 4.9 2,629 5.1Basic metal industries 0.0 -1.5 7.0 3,921 3.7Metal products, machinery & equipment 4.6 -2.7 35.2 97,795 26.8

Other industries 3.8 -2.1 0.2 2,127 0.7Total manufacturing output 2.7 -1.1 100.0 131,534 100.0

a January-September 2002. b January-November 2002. c Figure for exports includes petroleum derivatives.


Fishing

Focus on export promotionmaintained

32 Mexico


Metal products, machinery and equipment are important exports. The sectorgrew by an annual average of 12.8% between 1997 and 2000, but output was hithard by the weakness of external demand in 2001 and 2002. Automobileproduction held up thanks to the strength of the domestic market, which wasboosted by real wage increases, low interest rates and improved availability offinancing. Total car production was 1,774,370 units in 2002, 2.4% below therecord high of 1,817,807 registered during 2001.

The maquiladora (in-bond assembly for re-export) sector produces a variety ofgoods, including vehicles, electrical goods, textiles and furniture. The majority ofthe maquiladoras are based along the US-Mexico border. In recent years centresof specialisation have emerged: electronics production is based in Guadalajara,auto parts manufacture is based in the Saltillo-Monterrey industrial corridor,television production is based in the Tijuana-Mexicali area, and plants in thestates of Puebla and Tlaxcala concentrate on textiles.

The maquiladora industry, Nov 2002a

Plants EmployeesFood-related products 69 9,894

Clothing & textile products 819 232,178Shoe & leather products 40 6,482

Furniture, wood & metal products 335 55,338Chemical products 140 23,446

Construction & assembly of transport equipment 268 245,764Assembly & repair of tools & machinery 69 17,798Assembly of electrical articles 173 94,634

Electric & electronic parts & materials 516 228,465Assembly of toys & sports equipment 50 9,668

Services 250 39,091Other 515 136,073Total 3,244 1,098,831

a Preliminary estimates.

Source: Instituto Nacional de Estadística Geografía e Informática.

The sector has suffered heavily from the US economic slowdown, regulatoryuncertainties and from increased competition from other low-wage countries. Inaddition new security arrangements introduced in 2001 slowed cross-bordergoods transport. But since the second quarter of 2002 the sector has begun torecover. Over the long term, however, labour-intensive low-end maquiladoraslook set to lose out to China and Central America, where production costs arelower than in Mexico. Already, companies such as Phillips and Sanyo have goneto China, while apparel assemblers including Sara Lee and Fruit of the Loomhave moved to Central America. China's accession to the WTO has increasedthe chances that other maquiladoras will transfer their operations from Mexico.However, this does not mean that Mexican maquiladoras will cease to operatebut that they will evolve from being a low-cost supply source to a logisticallyinter-linked part of US industry, adding value as productivity increases. Inaddition, Mexico’s geographical proximity to the US means that for trans-portation costs and other logistical matters, it cannot be beaten.

The maquiladora industry

Metal products, machineryand equipment

Increasing competition fromlower cost countries

Mexico 33


In addition to strong international competition, the sector has also been affectedby regulatory changes. Under NAFTA, maquiladoras started to pay duties inMexico on non-NAFTA originating materials used in their operations, whenexporting their finished products to the US or Canada. To offset these duties, thegovernment has developed Programas de Promoción Sectorial (Prosecs, sectoralpromotion programmes). The Prosecs (a total of 22 were in operation during2002), reduce or eliminate duties on certain imports into Mexico, regardless oftheir origin, and are available to all manufacturers (in many cases the Prosec rateis zero). However, although Prosecs have benefited manufacturers, companiesneed to establish on a case-by-case basis whether the materials they require arecovered by a Prosec—a process which can be costly and lengthy. Moreover, theprogrammes were designed as a temporary measure and are subject to changes.An alternative for maquiladoras when importing materials is Rule 8 of theGeneral Import Duty Law. This rule allows importers to pay one rate of duty (inmost cases the rate is zero) on all items bought from abroad to manufacture agiven product. A permit must be obtained from the Ministry of Economy to securethis concession. However, there is an element of discretion in the granting ofthose permits, which creates uncertainty and has led to allegations of corruption.

Mining and semi-processing

Mexico has abundant mineral resources. The sector was liberalised in the early1990s, and the largest mines privatised. Limits on concessionable land wereeliminated and the duration of exploration concessions was increased fromthree years to six years, while exploitation concessions increased from 25 yearsto 50 years, with the possibility of an additional 50-year term. But low worldprices, a shortage of finance and outmoded technology constrained the sector’sdevelopment. It has underperformed the rest of the economy since 1997. Miningcontracted by 0.6% in 2001 and by 0.8% during the first three quarters of 2002.Mexico is the world’s largest producer of silver, with mines in the states ofChihuahua and Zacatecas. Mexico also leads the world in fluorite, celestite andsodium sulphate, and is one of the biggest producers of bismuth, graphite, anti-mony, arsenic, barite, sulphur and copper. (For historical production data for arange of minerals, see Reference table 16.)

Minerals production('000 tonnes unless otherwise indicated)

2002a

Gold (kg) 19,516.0

Silver ('000 kg) 2,396.0Copper 255.9

Zinc 329.7Manganese 57.0Lead 90.5

Molybdenum 3.0Arsenic 1.6

Antimony 0.2Cadmium 1.2Bismuth 1.0

a January-October.Source: Instituto Nacional de Estadística Geografía e Informática.

34 Mexico


Construction

Having been an important source of growth and employment for decades,construction was hit hard by the economic crisis of 1995, and it was not until1999 that the value of output had recovered its 1994 level. The mild recession of2001 caused the sector to contract by 4.5%. It recovered in 2002, out-performingthe rest of the economy. Recent steps taken by the government should help torevive the sector. In November 2001 the Ministry of Finance and Public Creditannounced that the Fondo de la Vivienda del Instituto de Seguridad y ServiciosSociales de los Trabajadores del Estado (Fovissste, the public body that financesthe construction of housing for public workers) would receive an extra Ps21bn(US$2.3bn), allowing it to provide 100,000 extra mortgages. Fovissste grants anaverage of 18,000 mortgages a year. In addition, the Instituto del Fondo Nacionalde Vivienda para los trabajadores (Infonavit, the public body that receivescontributions for housing from all private-sector workers) speeded up itsconcession of mortgages from November. A National Housing Plan, which wasalso unveiled in November 2001, aims to co-ordinate all public bodies involvedin the sector; encourage primary and secondary markets for mortgages;deregulate the sector; and promote a greater supply of land for housing. It isestimated that the country has 22m houses, and a shortage of about 3.8m, withdemand adding 800,000 units per year to that figure. During 2002 an estimated360,000 new houses were built.

After expanding markedly at the beginning of the 1990s following a period ofstagnation in the 1980s owing to the economic difficulties facing the country, roadconstruction has slowed in recent years. This is partly because private investors inroad building projects suffered considerable losses in the early 1990s. Revenuesfrom the toll roads they built and operated fell far short of expectations. Thefederal road network increased by just 5,000 km between 1997 and 2002 to reach48,300 km. Although the Fox government reportedly has plans to offerconcessions to the private sector for roadbuilding, so far none have been offered.

Financial services

Following privatisation of the banks in 1991-92 poor supervision failed to detectweak credit-risk management and fraudulent practices. The 1995 peso collapseand economic adjustment that followed bankrupted many banks as they wereswamped by non-performing loans. At a huge cost to the Treasury, several rescueprogrammes were implemented in 1995-98 as the government sought to staveoff a systemic crisis. Debtors were heavily subsidised, but many were unable orunwilling to service their loans. Banks were recapitalised, with present andfuture taxpayers footing the bill.

Capitalisation exercises were implemented through the Fondo Bancario deProtección al Ahorro (Fobaproa). Under Fobaproa, banks delivered income fromduly qualifying loans with adequate provisions for an amount equivalent totwice the fresh capital contributed by stockholders to a trust fund, of whichFobaproa is the primary beneficiary. Banks receive pagarés (IOUs) guaranteed bythe government in return for loans. A successor to Fobaproa was approved byCongress at the end of 1998, after considerable political haggling. After further

Bank rescue imposes a heavyburden on the public purse

Mexico 35


delays the Instituto para la Protección del Ahorro Bancario (IPAB, Institute forthe Protection of Bank Savings) was formally installed in May 1999, and monthslater had to implement the rescue of two banks that had been alreadyrecapitalised through Fobaproa, including Banca Serfín (the third largest in thecountry). According to the Ministry of Finance and Public Credit, at the end ofSeptember 2002 IPAB liabilities stood at Ps753.2bn, equivalent to 12.6% of GDP.IPAB also started to manage a deposit insurance scheme that substituted theblanket coverage of bank deposits that prevailed until 1999.

It is estimated that only between 10% and 20% of the face value of loansabsorbed by Fobaproa will be recovered, partly because bankruptcy legislationheavily favoured debtors. New bankruptcy and secured lending legislation wasapproved in April 2000. A new law on foreclosure and guarantees clarified thelegal procedures for the recovery of bad loans and provided lenders with tighterloan guarantees. New capital adequacy requirements are being phased in. Fullimplementation is scheduled for 2003, but by the end of 2001 the majority ofbanks already complied with the new requirements. New portfolio rating andprovisioning requirements have also been introduced.

In December 1998 Congress removed all limitations on the foreign ownership ofbanks. This led to a marked increase in foreign participation and improvedcapitalisation of several banks. By the end of 2002 all major banks, with theexception of Banco Mercantil del Norte (Banorte) were controlled by foreigncapital (Banorte’s shareholders are apparently interested in selling a majorityshare in the bank during 2003).

Efforts have continued to be made to improve banking supervision. In 2001Congress granted powers to the Comisión Nacional Bancaria y de Valores(CNBV, National Banking and Securities Commission) to determine earlycorrective measures (such as limiting dividend payouts) for banks with adeteriorating capital base, as well as to disclose all relevant information so thatdepositors are able to ascertain the financial strength of each bank. Tighter ruleson related lending were introduced, limiting the amount and providing a moreprecise definition of related parties.

By the end of 2002 the value of total credit granted by commercial banks toprivate-sector borrowers was equivalent to 11.7% of GDP, the lowest figure since1989. The decline in lending by commercial banks has been partly offset byincreased lending from other sources. By mid-2001, the total amount of creditgranted by alternative sources of finance was at a comparable level to that lentby domestic commercial banks. Foreign banks, suppliers’ credit, and non-bankfinancial intermediaries are the most important alternative sources and, amongthe latter, the Sociedades Financieras de Objeto Limitado (Sofoles, limitedpurpose financial companies) stand out. Sofoles, as either part of a financialconglomerate or fully independent, do not take deposits and concentrate eitheron a given type of lending (for example mortgage and consumer credit) or on aparticular sector (such as the automobile or construction sector). By the end of2002, Sofoles had 11.7% of all credits granted to the private sector.

Banks have also been partly substituted as recipients of savings, notably by theAdministradoras de Fondos para el Retiro (Afores, administrators of individual

Foreign control and tightersupervision

36 Mexico


pension accounts) and their investment vehicles, the Sociedades de InversiónEspecializadas en Fondos para el Retiro (Siefores, pension fund managers).Afores have expanded quickly since mid-1997 after radical reforms to the socialsecurity system were introduced. In October 2002 Congress approved changesto the legal framework of the Afores, allowing any worker to join one (untilthen, only private-sector employees, about 30.4m people, were eligible), adding apotential 24m contributors to the system (including federal and localgovernment workers). Additionally, Afores will be permitted to acceptcomplementary and voluntary contributions from new and existing members.The investment regime of Siefores was liberalised, allowing them to invest up to10% of their funds in foreign fixed-income securities (classified as extremely safeby ratings agencies). This could be increased to 20% in 2003 if Congress gives itsapproval. Siefores are allowed to invest in a wide range of fixed-incomesecurities and equities in Mexico.

The IPAB and an overhauled banking sector

The IPAB has been successful in ensuring the transformation and consolidation ofthe banking sector. It continued to shore up several banks that were technicallybankrupt, notably Banca Serfín, the third-largest bank in the country, and Bancrecer,which needed a capital injection of nearly US$11bn. In May 1999 it enacted newinsurance quotas for commercial banks to cover their deposits and announced aseven-step programme to reduce deposit insurance starting from 2005. Theprogramme is limited to savings worth 400,000 unidades de inversión (UDIs, units ofaccount used to adjust for inflation), equivalent to about US$105,000, and covers95% of all bank accounts. From the fourth quarter of 1999 the IPAB carried outseveral auctions of the rights to manage and to recover segments of past-due loansaccumulated by Fobaproa. In February 2000 it started to issue three-year bonds andin August five-year bonds, which will be swapped for Fobaproa promissory notes.This change will boost banks’ liquidity, as in contrast to Fobaproa’s obligations thesebonds will be traded on a secondary market. The bonds were rated by theinternational ratings agency Standard & Poor’s in December 2000 as equivalent tobonds issued by the government. The IPAB has also begun to sell-off banks, such asBanca Serfín to Spain’s Banco Santander in May 2000.

The overhaul of the banking sector continued during 2002. In June the governmentand the IPAB auctioned their shares (10.2% and 1.6%, respectively) in the BBVA-Bancomer financial group. The government obtained Ps7.14bn for its shares (to be usedto reduce the fiscal deficit) and the IPAB got Ps1.1bn (to be used to reduce its debt).During the last months of the year, the IPAB closed another chapter of the long sagathat followed the collapse of the system in 1995. In December it started the liquidation ofBanco del Sureste, the last of the banks originally intervened by Fopabroa.

Banco Azteca, the first bank to be established since the 1995 financial crash, openedin October 2002. It is the first institution to target lower socio-economic groups. Atthe end of November, HSBC completed its acquisition of Bital in an operation worthUS$1.131bn, and in mid-December, Bank of America bought from Spain’s SantanderCentral Hispano a 24.9% share in Banco Santander Serfín, for US$1.6bn. The USbank’s primary interest was apparently to gain an important foothold in the Spanish-speaking market.

Mexico 37


Public development banks have traditionally played a significant role in thefinancial system. Also badly hit by the 1995 crisis, the sector was recapitalisedthrough the Fideicomiso Liquidador de Instituciones y OrganizacionesAuxiliares de Crédito (Fideliq, a trust for the liquidation of financial institutions).It still requires a degree of consolidation as there is considerable overlapbetween the institutions. The most important development banks are NacionalFinanciera (Nafinsa, mainly for small and medium-sized businesses), the BancoNacional de Comercio Exterior (Bancomext, for foreign trade) and the BancoNacional de Obras y Servicios Públicos (Banobras, for public works andservices). A new bank, Financiera Rural, was set up in December 2002 to replacethe troubled Banco Nacional de Crédito Rural (Banrural, for agriculture). Anotheragricultural development institution, the Financiera Nacional Azucarera (Fina,for the sugar industry) is being liquidated. During 2001 the Fox administrationfounded two banks: the Sociedad Hipotecaria Federal (SHF, Federal MortgageBank), modelled loosely on the US Fannie-Mae, was established to increase theavailability of mortgages for low-income earners. The Banco del AhorroNacional y Servicios Financieros (BANSF, National Savings and FinancialServices Bank) was established to boost domestic savings.

The Bolsa Mexicana de Valores (BMV, the Mexican Stock Exchange) was hit hardby the peso crisis. In dollar terms, the Indice de Precios y Cotizaciones (IPC,general equities index) did not recover to the levels it witnessed prior to the pesocrisis until December 1999. Despite this recovery and the shrinkage of thebanking sector in the latter half of the 1990s, the bolsa is still not a veryattractive way for firms to raise capital as it is still relatively expensive. Fourstocks dominate the IPC, accounting for almost 50% of the index. These are thetelecommunications companies Telmex and AMX, the supermarket chainWalmex (owned by Walmart of the US) and the cement company Cemex.Foreign investment is an important source of capital, accounting for almost 50%of the equity market capitalisation.

In 2002 the IPC, like its international peers, was subdued, and foreigninvestment fell by 19%. In light of feeble domestic economic growth, it closed theyear with a loss in peso terms of 3.8%, and of 15.3% in dollar terms because ofthe significant depreciation of the peso. However, sectoral indices showed quitea divergent behaviour during the year. The extractive industries index increasedby 59.7% in peso terms, while that corresponding to transport andcommunications fell by 9.5%.

Limited activity on the equities market has been partially offset by an increase infixed income activity. The relative macroeconomic stability attained after 1997,the development of long-term public debt and the growing demand for long-term instruments by institutional investors have created the conditions for theprivate sector to issue long-term debt in the Mexican market. However, corporatedebt is just starting to emerge as significant, and the market remains dominatedby public debt instruments.

Since 2001 a new debt instrument has been available for private firms andpublic issuers: the Certificado Bursátil (stock market certificate). This certificatecombines an easy issuing process with flexible characteristics, but has special

State development banks

Municipal bonds boost theBolsa

38 Mexico


restrictions to guarantee the return of the bondholders’ initial investment. SinceDecember 2001 state and municipal governments have issued CertificadosBursátiles. During 2002 three states and four municipalities obtained financingthis way. The Estado de México issued five-year paper worth for Ps520m inDecember 2002. (For historical data on stockmarket performance, see Referencetable 17.)

A new Securities Market Law was approved by Congress in 2001. It seeks toprotect the rights of minority shareholders, establish clear rules on corporategovernance priorities and reduce the issuance of shares with limited votingrights. It has established a new framework to regulate and sanction incorrectmarket behaviour to make it easier for the Comisión Nacional Bancaria y deValores (CNBV, National Banking and Securities Commission) to combatpractices such as insider trading and market manipulation. The CNBV is for thefirst time allowed to share information with foreign financial authorities.

The Bolsa in 2002(year-end index figures)

2001 2002 % changeIPCa 6,372.28 6,127.09 -3.8Extractive industry 2,454.51 3,919.27 59.7Transformation industry 2,302.53 2,488.83 8.1

Construction industry 9,918.83 10,265.35 3.5Commerce 12,321.89 11,285.76 -8.4

Communications & Transport 27,237.28 24,651.56 -9.5Services 871.92 836.41 -4.1Others 2,081.18 2,185.75 5.0

Foreign Portfolio Investment (US$m) 52,982 44,563 -15.9

a Equities index.

Source: Bolsa Mexicana de Valores.

Other services

Since trade liberalisation in the 1980s and the signing of the North AmericanFree-Trade Agreement (NAFTA), the retail sector has become more diversifiedand the quality of goods has improved. The sector experienced major changesin the 1990s. Foreign companies entered the market, setting up price clubs,discount stores and hypermarket chains, sometimes merging with or evenbuying major Mexican retailers. Competition from foreign firms pushed leadingMexican companies to modernise, and as the main urban centres have come tobe increasingly well-served they have widened their areas of operation to thesmaller provincial cities.

Over the past five years, retail sales have grown at a real annual average rate of4.5%. Growth was particularly strong between 1998 and 2000 when it averaged7.2% in real terms. The sector also weathered relatively well the recession in2001, expanding by 2.7%, although it growth fallen to 0.2% during 2002. Thispositive performance reflects rising employment and real incomes, anexpansion of consumer credit and greater competition in the sector. The fullrecovery of retail sales will depend on job creation, particularly in themanufacturing sector, and that of wholesale sales on the recovery of industrial

Retail trade

Mexico 39


production. In addition, while consumer credit has risen rapidly, it is still notwidely available. (For historical data on merchandise sales, see Referencetable 18.)

Mexico captures 3-4% per year of tourism worldwide, with 80-85% of visitorscoming from the US. The country is the eighth most popular destination in theworld in terms of visitors and 11th in terms of revenue earned. Tourismgenerates about 8.5% of GDP and 9% of all jobs (1.9m at the beginning of 2002)are related to tourism, directly or indirectly. The sector was hit hard following theSeptember 11th terrorist attacks on the US, not only because of a fall in visitorarrivals but also because of tightened security at the US-Mexico border. Visitorscrossing the border to shop or just visit have been greatly deterred from doing sobecause of the increased time that the border crossing now demands. Bilateralagreements on security procedures should help in the future—negotiations onthe issue are taking place between the two countries—but it is unclear when“daytrip” tourism will recover. During the first three quarters of 2002, earningsfrom tourists stood at US$6.6bn. The number of tourists that visited the interiorof the country during January-November 2002 stood at 8.82m. (For historicaldata on the tourism industry, see Reference table 19.)

The external sector

Trade in goodsManufacturing exportsa

(% change)

1998 1999 2000 2001 2002Food, beverages & tobacco 6.5 7.0 9.3 2.0 7.3Clothing & footwear 11.7 14.0 11.6 -10.8 -1.9

Wood products 1.0 5.3 2.3 -21.1 -5.3Paper, printing & publishing 9.5 14.7 1.1 -5.0 -1.8

Chemicals, plastics & rubber products 1.1 12.5 21.5 -5.5 2.2Non-metallic, non-oil mineral products 13.0 12.9 11.6 3.6 -5.4Basic industries, iron & steel -7.8 -12.1 7.9 -11.7 1.5

Metallic products, machinery & equipment 14.8 18.7 22.3 -1.7 -0.4Other manufacturing industries 7.4 -8.8 -10.2 3.3 53.5

Total 11.5 15.2 19.3 -3.0 0.3

a Includes maquiladora (in-bond assembly for re-export) sector.

Source: Instituto Nacional de Estadística Geografía e Informática.

In 1990-2000 the value of exports quadrupled as a result of a sharp rise insales of manufactured goods, including those from the maquiladora (in-bondassembly for re-export) sector, which by 2000 accounted for 87% of totalearnings compared with 68% in 1990 and just 38% in 1985. By contrast, theshare of crude oil and minerals fell from 25% to 10% in 1990-2000. Growth ofnon-oil exports in recent years has been a major factor in the expansion ofintermediate goods imports, which accounted for 76% of total imports in 2000.Capital goods accounted for 14% and consumer goods for 10% of total importsin 2000. The expansion was brought to an abrupt halt with the sharp USeconomic slowdown in 2001; the value of exports contracted to US$158.4bn,

Tourism

Trade surges in the 1990s

40 Mexico


largely because of falling oil exports. Although total trade started to recoverfrom July 2002, export and import figures remain below the 2000 peak, withthe former totalling an estimated US$160.7bn, with 88.4% belonging to themanufacturing industry. (For historical data on main exports and imports, seeReference table 20.)

Foreign trade regulations

Export incentives

The Programa de Importación Temporal para Producir Artículos de Exportación(Pitex) allows duty-free entry on temporary imports of raw materials, parts,machinery and equipment used to manufacture exports. The Programa de EmpresasAltamente Exportadoras (Altex) reimburses value-added tax (VAT) and import tariffsfor customs clearance. The Banco Nacional de Comercio Exterior (Bancomext, thedevelopment bank for foreign trade) provides credit for exporters below commercialbank rates. Maquiladoras do not pay import duties as their products are destined forre-export. However, if those products come from countries that enjoy no preferentialtrade arrangements with Mexico the exporter has to seek the granting of low or zerotariffs through a Programa de Promoción Sectorial (Prosec, sectoral promotionprogramme) or through the granting of a special permission from the Ministry ofEconomy. Under a new scheme announced in October 1999, maquiladoras will havethe option to declare a minimum taxable profit equivalent to 6.9% of the total valueof their assets or to 6.5% of their total operating costs and expenditure, with tax beingbe paid on whichever sum is greater, or to request agreement with the internalrevenue service on transfer prices in order to determine taxable profits.

Exchange controls

There are no foreign-exchange controls.

Import tariffs

The maximum import tariff is 20% and the minimum 10%; exceptions pay 0-5%.

Import licences

Import licence requirements have been phased out gradually and few are still inforce.

Import quotas

Because of Mexico’s vast array of free-trade agreements, most import quotas havebeen transformed into tariff-rate quotas (TRQs, volume quotas). Imports up to aspecific volume limit enter the country at a favourable tariff. After that volume limitis reached, a higher tariff is imposed. However, some quotas persist for sensitiveproducts, such as maize, and for countries that do not enjoy preferential trade accessto Mexico.

At the end of the first three quarters of 2002 the US market accounted for 89% ofMexico’s exports and provided 63.5% of its imports. Despite efforts to diversify,Mexico’s reliance on the US has increased rather than diminished in recent years(although the origin of its imports has in fact diversified, as the US provided73-75% of them during the late 1990s). Mexico has moved to develop trade withLatin America and the Caribbean through free-trade agreements (FTAs) withChile (1992 and 1998), Colombia, Venezuela, Costa Rica and Bolivia (1995) and

Dependence on US market

Mexico 41


Nicaragua (1998). In May 2000 negotiation of an FTA with the Triángulo delNorte (the Northern Triangle trading bloc comprising Guatemala, Honduras andEl Salvador) was concluded and the agreement came into effect in 2001. FTAswith the EU and Israel were signed in March 2000, and in November, a fewdays before leaving office, Ernesto Zedillo signed an FTA with the members ofthe European Free-Trade Area (EFTA, comprising Iceland, Liechetenstein, Norwayand Switzerland) that came into effect in mid-2001. Mexico has now signed FTAswith 32 nations with a total of 860m consumers, and about 90% of its exportsenjoy some kind of preferential treatment.

Mexico, a member of the Asia-Pacific Economic Co-operation (APEC) forum, isalso seeking stronger trade relations with Pacific Rim countries, particularlythrough FTAs. Negotiations to establish an FTA with Japan started formally inNovember 2002. An agreement with Japan would be beneficial for Mexico asthat country is its second-biggest trading partner, but with a huge imbalancefavouring Japan. Japan also represents a potential source of foreign investment.According to the Ministry of Economy, Mexico imported US$3.9bn from Japanand exported products worth US$686m in the first three quarters of 2002. Overthe long term, FTAs with the EU and Japan should help to reduce Mexico’sdependence on the US market but the US will remain its dominant partner (Forhistorical data on Mexico’s main trading partners, see Reference tables 21.)

Direction and composition of trade, 2001(US$ m)

Exports fob US Canada Germany TotalMeat & fish & preparations 801 2 0 914Fruit, vegetables & preparations 3,211 38 5 3,494Coffee, cocoa, tea, spices & manufactures 211 1 7 344Beverages 1,383 36 31 1,663Mineral fuels 9,563 224 0 12,633Chemicalsa 4,433 77 242 7,634Paper & manufactures 776 7 4 954Textile fibres, yarn, cloth & manufactures 1,844 59 6 2,337Non-metallic mineral manufacturesb 2,391 43 21 2,727Other metals & manufacturesc 3,361 21 10 3,642 Iron & steel & manufacturesc 2,823 64 80 3,304Machinery, non-electric 20,789 537 256 23,674Electrical & electronic equipment 41,771 204 97 43,257Road vehicles & tractors 25,102 1,614 625 27,917Other transport equipment 886 18 0 923Furniture, lighting, prefab buildings 4,053 15 20 4,154Clothing & footwear 7,832 54 1 8,251Optical, medical instruments, etc 4,763 14 47 5,025Total incl others 140,373 3,071 1,505 158,547

Imports fob US Japan Germany TotalFood 5,922 3 61 7,889 Meat & fish & preparations 1,664 0 0 2,142 Cereals & preparations 1,924 0 24 2,286Mineral fuels & lubricants 3,977 13 19 5,308Chemicalsa 14,823 479 657 20,663Rubber & manufactures 1,759 105 88 2,422Paper etc & manufactures 2,835 34 32 3,347

42 Mexico


Textile fibres, yarn, cloth & manufactures 4,790 28 68 6,088Iron & steel & manufactures|c 4,928 520 326 7,420 Other metals & manufactures c 4,589 126 155 6,262Machinery, non-electric 16,120 1,574 1,954 27,333Electrical & electronic equipment 28,417 3,863 766 43,215Road vehicles & tractors 11,679 669 1,492 17,000Other transport equipment 412 1 7 554Clothing 2,656 2 8 3,376Optical, medical instruments, etc 3,182 285 228 4,615Total incl others 113,646 8,086 6,080 168,276

a Including crude fertilisers, manufactures of plastics, photographic equipment. b Including precious metals and jewellery. c Including scrap.

Source: Global Trade Information Services, World Trade Atlas.

Main trading partners, 2002a

Exports to: % of total Imports from: % of totalUS 89.0 US 63.5Canada 1.7 Japan 5.7

Spain 0.9 Germany 3.6Germany 0.8 China 3.5

UK 0.4 Canada 2.6Netherlands 0.4 Taiwan 2.5

Venezuela 0.4 South Korea 2.3

a January-October.

Source: Secretaría de Economía.

Invisibles and the current account

Tourism is important both as a credit and debit item. Tourists, including thoseengaged in border travel, mainly on crossborder shopping trips, and cruise-shipvisitors brought in earnings of US$8.4bn in 2001 and US$6.6bn in January-September 2002 (cross-border trips were negatively affected by the muchincreased border security that followed the September 11th terrorist attacks onthe US). Tourism outgoings, which vary considerably with the strength of thepeso, totalled US$5.7bn in 2001 and US$4.5bn during the first three quartersof 2002.

The largest element under factor services on the debit side is interest payments,which totalled US$12.7bn in 2001 and US$9.5bn during the first nine months of2002. On the credit side, interest income in 2001 reached US$4.1bn in 2001 andUS$2.2bn during the first three quarters of 2002. Interest income is earned partlyon deposits of foreign reserves abroad and partly on investments made overseasby Mexican companies. Other factor service receipts are made up of royalties,technical assistance payments and earnings from Mexicans living in thenorthern border region but who work in the US.

For decades the current account was the Achilles’ heel of the Mexican economy.Until the mid-1990s it seemed impossible that the economy would grow at thehigh rates needed to create enough jobs and reduce poverty without causing alarge imbalance in the current account. But higher rates of domestic savings anda floating peso have reduced the need for external resources, while providing a

Services

Current account

Mexico 43


correction mechanism, that has kept the current-account deficit at sustainablelevels (below 4% of GDP). Stimulated by strong economic growth, the deficitwidened to US$18.2bn in 2000, mainly owing to increases in the trade and non-factor services accounts. The economic stagnation observed during 2001stabilised the deficit, which stood at US$18bn (2.9% of GDP). Higher deficits onthe trade and services balances were compensated by much higher remittancesfrom Mexicans abroad. By September 2002 the 12-month accumulated deficithad fallen to US$15.7bn. As a percentage of GDP (2.5%) it is the lowest deficitsince the end of 1997.

Current account(US$ m)

2002a

Merchandise exports 119,465Merchandise imports -124,024Trade balance -4,559

Net non-factor services -2,811Net factor services -9,734

Net unrequited transfers 7,645Current-account balance -9,460

a January-September.

Sources: Banco de México; Instituto Nacional de Estadística, Geografía e Informática;.

Transfers are an important element in the invisibles account and contribute asizeable surplus to the balance of payments. Transfers, made up largely ofremittances from migrant workers, totalled US$9.4bn in 2001, significantly abovethe US$7bn recorded in 2000. During the first three quarters of 2002, nettransfers stood at US$7.6bn. However, the Banco de México (Banxico, the centralbank) has pointed out that the marked increase observed in recent years ismostly explained by better registration of the remittances, rather than byactually higher amounts (For historical data on the balance of payments, bothnational and IMF series, see Reference tables 22 and 23.)

Capital flows and foreign debt

The presidency of Carlos Salinas de Gortari (1988-94) was characterised by hugeinflows of volatile short-term capital, which was a major determinant of the1994-95 crisis. Under the administration of Ernesto Zedillo (1994-2000) inflows ofshort-term capital were overtaken by foreign direct investment and long-termdebt. During 1997-99 healthy capital-account surpluses allowed a steady (and insome years quite significant) accumulation of international reserves by thecentral bank.

A capital-account surplus of US$17.2bn during 2000 was slightly below thecurrent-account deficit. However, a sizeable inflow of US$3.8bn registered in theerrors and omissions item allowed an accumulation of reserves of US$2.8bn. In2001, because of a marked jump in foreign investments, the capital-accountsurplus increased to US$24.5bn, considerably outstripping the current-accountdeficit, with reserves rising by US$7.3bn.

Remittances continue to grow

44 Mexico


Since 1996 foreign direct investment (FDI) inflows have been strong and broadlystable, while foreign portfolio investment (FPI) has remained relatively modest.This balance helps to guard against volatile capital movements. Despite it beinga presidential election year (which usually generates uncertainty and capitaloutflows), FDI reached a new record in 2000. Portfolio inflows remainedmodest, with US$447m flowing into the stockmarket and US$46m flowing outof the money market, bringing the total to US$401m. In 2001 FDI swelled to arecord US$24.7bn, reflecting the acquisition of Banamex-Accival (Banacci) by US-based Citibank. (For historical data on total foreign investment, see Referencetable 24.)

The aim of the government of Vincente Fox Quesada of boosting FDI has beenhindered by a lack of structural reform, its inability to liberalise further foreigninvestment legislation (as it lacks a majority in Congress), and the legaluncertainty surrounding foreign investment in the energy sector. Nevertheless,despite the economic slowdown experienced worldwide, FDI inflows stood atUS$9bn at the end of the first three quarters of 2002 (the government target forthe year is US$13bn). FPI in the stockmarket increased by US$840m, and that inthe money markets fell by $29m.

Foreign investment regulations

The Foreign Investment Law that took effect in December 1993 allows for 100%foreign participation in the equity of Mexican companies except in specific areas.Exceptions include activities reserved exclusively for the state such as oil,hydrocarbons, basic petrochemicals, electricity distribution, nuclear power andradioactive minerals; telegraphs, radiotelegraphs and postal services; and the issue ofmonetary bills. Areas reserved for national investment include domestic cargo andpassenger land transport, including transport for tourism; the retailing of petrol andthe distribution of liquefied gas; radio and television broadcasting other than cabletelevision; and credit unions, development banks and the technical and professionalservices provided for in other legislation. Foreigners can participate in other areas,but only through neutral investments (non-voting equity). There are specific limits tointerests held by foreign investors, including limits of 10% in productionco-operatives; 25% in domestic air transport, air taxis and specialised air transport;and 49% in certain activities in finance, communications, transport and agriculture(foreign investment can exceed the 49% limit, but only in the form of non-votingequity).

Following the 1994-95 crisis, the Zedillo government made the development ofthe domestic debt market a priority. In addition to encouraging domestic debtpurchases by foreign investment banks, it introduced privately managedpension plans to foster the creation of a pool of domestic savings. As thispolicy proved to be successful, the government was able to reduce public-sectorexternal indebtedness. The authorities continue a policy of active debtmanagement to reduce servicing costs and roll over debt. The central aims ofthe government are to avoid any peak in the payments’ horizon, and todevelop a long-term yield curve for the Mexican external public debt.

The government engages in de facto bond swaps by financing buy-backoperations of Brady bonds (issued in 1990 after a debt reduction agreement with

Capital inflows

External public-sector debt

Mexico 45


commercial creditors) with the proceeds of new external bond issues. Buyingback Bradies is particularly attractive as their principal is collateralised with USzero-coupon bonds (that are recovered along with the bonds). At the end of 2001only US$7.3bn of Bradies remained outstanding, 19.9% of the original amountissued.

The debt management policy received a boost by the main ratings agencies atthe beginning of 2002: Standard & Poor’s upgraded the long-term Mexican debtto investment grade on February 7th. The move followed upgrades by Moody’sthe previous day—to one notch above minimum investment grade status—andby Fitch in mid-January, which also raised government debt to investment statusfor the first time. Contrary to what happened to other countries during 2002,government debt was not downgraded by any ratings agency. By November2002 (the latest available figure) the net external public debt stood at US$74.6bn.

In recent years private-sector foreign borrowing has increased because domesticcredit has been rationed, while larger companies have found it cheaper toborrow from foreign banks and to raise money through foreign bond issues andthe placement of commercial paper. Moreover, with the peso strengtheningsince early 1999, ex-post interest rates became very attractive. Private-sectorexternal debt stood at US$55.7bn at the end of 2001, slightly above theUS$52.8bn recorded at the end of 2000. (For historical data on external debt,World Bank series, and gross national debt, see Reference tables 25 and 26.)

Foreign reserves and the exchange rate

Thanks to capital inflows registered in the item of errors and omissions, reserveaccumulation reached US$7.3bn in 2001. But with a free floating peso reserveaccumulation is no longer a priority and Banxico ceased to auction peso calloptions that year. The Foreign Exchange Commission also suspended thecontingent sales of foreign exchange from July 2001 onwards, arguing that themove would maintain the symmetry of the floating exchange regime. Reserveaccumulation has continued mostly through purchases of foreign currency byBanxico from Pemex. By the end of 2002, reserves stood at US$48bn accordingto national figures. Banxico has established a reputation for being committed toa floating peso. It has resisted pressures to intervene (most recently to stem thedepreciation of the currency at the end of 2002).

External private-sector debt

46 Mexico


Appendices

Membership of regional organisations

The North American Free-Trade Agreement (NAFTA), which came into force onJanuary 1st 1994, will liberalise trade over a 15-year period, although someacceleration of the process was negotiated subsequently. Acknowledgingimbalances in development, the timetable for Mexico to dismantle its tradebarriers is more gradual than that for the US and Canada, and special rulesapply to trade in textiles, vehicles and parts, and agricultural products. Inaddition, the state has retained exclusive rights to ownership, production andinvestment in oil, gas, refining, petro-chemicals, nuclear energy and electricity.The treaty also covers trade in services, including overland transport, ports,telecommunications, financial services and government procurement.

A free-trade agreement between Mexico and the EU was signed on March 23rd2000, and came into force on July 1st. Complete elimination of tariffs will taketen years, with the tariff reduction timetable also addressing the imbalancebetween both parties. Agricultural products deemed sensitive by both partiesare excluded, including several crops, meat, sugar and milk products. Rules oforigin are in the 40-60% range, with those for cars starting at 45%, beforeincreasing to a permanent level of 60% by 2005.

Sources of information

Banco de México (the central bank), Indicadores del Sector Externo (monthly)

Banco de México, Indicadores Económicos (monthly)

Banco de México, Informe Anual (annual)

Banco de México, Informe sobre la Inflación (quarterly)

Banco de México, Programa Monetario (annual)

Banco Nacional de Comercio Exterior, Comercio Exterior (monthly)

Instituto Nacional de Estadística, Geografía e Informática (INEGI, the NationalInstitute of Statistics, Geography and Informatics), Bulletin of StatisticalInformation (quarterly)

Instituto Nacional de Estadística, Geografía e Informática, Sistema de CuentasNacionales (annual)

INEGI also produces annual and quarterly surveys of urban employment,national income and expenditure, industrial performance, as well asinformation on the activity of maquiladoras (in-bond assembly plants)

Nacional Financiera, El Mercado de Valores (monthly)

Presidencia de la República, Informe de Gobierno (annual)

Secretaría de Hacienda y Crédito Público (SHCP, Ministry for Credit and PublicFinance), Cuenta de la Hacienda Pública Federal (annual)

National statistical sources

NAFTA

The Mexico-EU free-tradeagreement

Mexico 47


Secretaría de Hacienda y Crédito Público, Informe sobre la SituaciónEconómica, las Finanzas Públicas y la Deuda Pública (quarterly)

Secretaría de Hacienda y Crédito Público, Mexico: Economic and FinancialStatistics Data Book (half-yearly)

Energy Data Associates, Bishops Walk House, 19-23 High Street, Pinner,Middlesex HA5 5PJ

IMF, International Financial Statistics (monthly)

Inter-American Development Bank, Economic and Social Progress in LatinAmerica (annual)

OECD, Economic Survey of Mexico, 2002

UN, Monthly Bulletin of Statistics

UN Economic Commission for Latin America and the Caribbean, EconomicSurvey of Latin America and the Caribbean (annual)

UN Food and Agriculture Organisation, Production Yearbook

World Bank, Global Development Finance (annual)

World Bank, World Development Report (annual)

Héctor Aguilar Camín and Lorenzo Meyer, In the Shadow of the MexicanRevolution: Contemporary Mexican History, 1910-1989, University of Texas Press,1993

Enrique Cárdenas, La Política Económica en México 1950-1994, FCE, 1996

Jorge G Castañeda, La Herencia, Alfaguara, 1999

Enrique Krauze, La Presidencia Imperial, Tusquets Editores, 1997

Alan Riding, Mexico: Inside the Volcano, I B Tauris, London, 1987

Carlos Salinas de Gortari, México: Un Paso Difícil a la Modernidad, Plaza andJanés, 2000

Luis Spota, Casi el Paraíso, FCE, 1963

Luis Spota, Paraíso 25, FCE, 1983

Main government portal, http://www.gob.mx

Presidencia de la República (Office of the President), http://www.presidencia.gob.mx

Secretaría de Agricultura, Ganadería, Desarrollo Rural, Pesca y Alimentación(SAGARPA, Ministry of Agriculture, Livestock, Rural Development, Food andFisheries), http://www.sagarpa.gob.mx

Secretaría de la Reforma Agraria (SRA, Ministry of Agrarian Reform),http://www.sra.gob.mx

Secretaría de Comunicaciones y Transportes (SCT, Ministry of Communicationsand Transport), http://www.sct.gob.mx

International statistical sources

Select Bibliography andwebsites

48 Mexico


Secretaría de la Defensa Nacional (Sedena, Ministry of National Defence),http://www.sedena.gob.mx

Secretaría de Marina (Ministry of the Navy), http://www..semar.gob.mx

Secretaría de Economía (Ministry of the Economy), http://www.economia.gob.mx

Secretaría de Energía (SE, Ministry of Energy), http://www.energia.gob.mx

Secretaría de Gobernación (SG, Ministry of Interior), http://www.gobernacion.gob.mx

Secretaría de la Contraloría y Desarrollo Administrativo (Secodam,Ministry of the Comptroller and for Administrative Development),http://www.secodam.gob.mx

Procuraduría General de la República (PGR, Ministry of the Attorney General),http://www.pgr.gob.mx

Secretaría de Hacienda y Crédito Público (SCHP, Ministry of Finance and PublicCredit), http://www.shcp.gob.mx

Secretaría de Medio Ambiente y Recursos Naturales (Semarnat, Ministry of theEnvironment and Natural Resources), http://www.semarnat.gob.mx

Secretaría de Relaciones Exteriores (SRE, Ministry of Foreign Relations),http://www.sre.gob.mx

Secretaría de Salud (SSA, Ministry of Health), http://www.ssa.gob.mx

Secretaría del Trabajo y Previsión Social (STPS, Ministry of Labour and SocialWelfare), http://www.stps.gob.mx

Secretaría de Turismo (Sectur, Ministry of Tourism), http://www.mexico-travel.com or http://www.sectur.gob.mx

Banco de México (the central bank): http://www.banxico.org.mx

Sistema de Informacion Empresarial Mexicano (SIEM, Mexican BusinessInformation System), http://www.siem.gob.mx

Cámara de Diputados (Chamber of Deputies), http://www.camaradediputados.gob.mx

Senado de la República (Senate), http://www.senado.gob.mx

Congress (Cámara de Diputados del Honorable Congreso de la Unión),http://www.cddhcu.gob.mx

Instituto Federal Electoral (IFE, Federal Electoral Institute), http://www.ife.org.mx

Comisión Reguladora de Energia (CRE, Regulatory Commission for Energy),http://www.cre.gob.mx

Comisión Federal de Electricidad (CFE, Federal Electricity Commission),http://www.cfe.gob.mx

Comisión Federal de Competencia (CFC, Federal Competition Comisión),http://www.cfc.gob.mx

Comisión Federal de Telecomunicaciones (Cofetel, Federal TelecommunicationsCommission), http://www.cofetel.gob.mx

Mexico 49


Instituto Nacional de Estadística, Geografía e Informática (INEGI, NationalInstitute of Statistics, Geography and Informatics), http://www.inegi.gob.mx

Legislation: http://www.juridicas.unam.mx/infjur/leg/

Banco Nacional de Comercio Exterior (Bancomext, National Bank for ForeignTrade): http://www.bancomext.gob.mx

Petróleos Mexicanos (Pemex), http://www.pemex.com

Bolsa Mexicana de Valores (BMV, Mexican Stock Exchange), http://www.bmv.com.mx

Suprema Corte de Justicia de la Nación (SCJN, Supreme Court),http://www.scjn.gob.mx

Reference tables

These reference tables provide the most up-to-date statistics available at the time ofpublication.

Reference table 1

Populationa

('000)

1998 1999 2000 2001 2002Total population 97.3 98.6 99.9 101.2 102.4

a Estimates from the 1995 population count and the 2000 census.

Sources: Consejo Nacional de Población; Instituto Nacional de Estadística, Geografía e Informática.

Reference table 2

Labour forcea

(m unless otherwise indicated)

1997 1998 1999 2000 2001Menb 25.0 25.7 26.9 27.9 28.7Womenb 13.4 13.8 14.5 15.1 15.6

Total 38.3 39.5 41.4 43.0 44.3 Insured 12.7 13.6 14.6 15.2 15.1Participation rate (urban areas; %) 56.3 56.6 55.8 56.3 55.6

a Working population at least 12 years old. b Data for 1995-99 estimated by the EconomistIntelligence Unit using figures from Conapo and INEGI; data for 2000-01 are Economist IntelligenceUnit estimates based on INEGI figures.

Sources: OECD, Economic Survey of Mexico; Instituto Mexicano de Seguro Social; Consejo Nacional de Población; Instituto Nacional

de Estadística, Geografía e Informática; Economist Intelligence Unit.

50 Mexico


Reference table 3

Unemployment rates in urban areasa

(annual averages; %)

1997 1998 1999 2000 2001 2002Openb 3.7 3.2 2.5 2.2 2.5 2.7Underemploymentc 23.3 21.8 19.1 18.9 18.8 18.0

Insufficient incomed 16.3 14.7 12.8 10.2 9.7 8.5

a Sample covering 45 cities. b A narrow measure covering persons age 12 years or over who did notwork, but were available for work in the reference week and who had unsuccessfully soughtemployment in the two months before. c Economically active population unemployed, plus thoseemployed for less than 35 hours per week. d Proportion of economically active populationunemployed or employed and earning less than the minimum wage.


Reference table 4

Crude oil and gas production1998 1999 2000 2001 2002

Crude oil production (m barrels) 1,155.50 1,094.80 1,160.00 1,177.90 n.a. Daily average (m barrels) 3.071 2.906 3.012 3.127 3.177 % change, year on year 1.6 -5.4 3.6 3.8 1.6Oil reserves (bn barrels) 60.2 57.7 58.2 53.0 n.a.Gas production (m cu ft/day) 4,791.00 4,790.00 4,679.00 4,511.00 4,422 % change, year on year 7.3 0.0 -2.3 -3.6 -2.0Gas reserves (m barrels equivalent) 12,338 12,093 11,994 13,528 n.a.

Sources: Petróleos Mexicanos; Secretaría de Energía; Instituto Nacional de Estadística, Geografía e Informática.

Reference table 5

Non-financial public-sector finances(Ps bn unless otherwise indicated)

1998 1999 2000 2001 2002a

Revenue 783 956.5 1,187.70 1,271.40 1,388.20Expenditure 830.6 1,009.30 1,248.20 1,311.70 1,460.30

Balanceb -47.6 -52.9 -60.5 -40.3 -72.1 % of GDP -1.24 -1.15 -1.1 -0.7 -1.18

a Expenditure includes a one-off charge of Ps48.9bn for the liquidation of Banrural. b Net of off-budget items, transfers and interest payments between federal government and public enterprises;includes accounting differences from financing sources.

Sources: Banco de México; Secretaría de Hacienda y Crédito Público.

Mexico 51


Reference table 6

Federal government budget revenue and expenditure(Ps bn)

1998 1999 2000 2001 2002a

Revenue 545.3 674.4 868.2 939.0 987.5 Taxes Income 169.5 216.1 258.7 285.5 319.3 Value-added tax 119.9 151.2 189.6 208.4 218.3 Excise taxes 76.6 106.7 81.5 110.7 136.5 Foreign trade 21.5 27.3 32.9 28.9 27.4 Other 16.8 20.4 18.9 21.3 26.1 Non-tax revenue 141 152.7 286.6 284.2 259.9 Oil duties 88.8 90.5 196.1 187.6 139.8Expenditure 610.3 761.2 952.1 996.9 1124.5 Primary 514.6 616.4 775.6 830.1 965.9 Wages, purchases & services 74.9 87.5 130.8 123.1 136.3 Subsidies & transfers 301 361.3 439.1 492.4 593.4 Transfers to local governments 113.9 140.7 178.1 196.9 214.9 Other primary expenditure 24.8 26.9 27.6 17.7 21.3 Debt financial cost 95.7 144.8 176.5 166.8 158.6Balance -65.0 -86.8 -83.9 -57.9 -137.0

a Expenditure includes a one-off charge of Ps48.9bn for the liquidation of Banrural.

Sources: Instituto Nacional de Estadística, Geografía e Informática; Secretaría de Hacienda y Crédito Público.

Reference table 7

Money supply and credit(Ps m unless otherwise indicated; end-period)

1997 1998 1999 2000 2001Currency in circulation 94,340 116,083 164,424 182,237 199,177

Demand deposits 169,338 190,036 229,129 266,975 317,377Money (M1) incl others 267,113 308,136 395,476 450,738 527,672 % change, year on year 29.6 15.4 28.3 14.0 17.1Quasi-money 630,137 743,404 804,977 681,206 764224Money (M2) 897,250 1,051,540 1,200,453 1,131,944 1,291,896 % change, year on year 33.9 19.7 11.8 -4.2 14.1Domestic credit 958,982 1,023,275 1,058,458 1,064,291 1,091,787

Net claims on central government 289,968 271,256 278,699 299,179 350,249 Local government 9,296 13,690 13,731 17,795 17,178 Non-financial public enterprises 1,469 5,406 2,375 4,382 5,069 Private sector 560,405 670,501 665,989 625,007 561,969 Other banking institutions 31,209 24,526 38,651 23,504 63,638 Other non-bank financial

institutions 66,635 37,896 59,013 94,424 93,684

Net foreign assets 177,810 277,001 312,981 389,152 521,029Memorandum itemAverage cost of funds (% annual

rate) 19.12 21.09 19.73 13.69 10.12

Source: IMF, International Financial Statistics.

52 Mexico


Reference table 8

Interest rates(%; period averages)

1998 1999 2000 2001 2002Money-market rate 26.9 24.1 17.0 12.9 8.26Treasury bills (28-day rate) 24.8 21.4 15.2 11.3 6.88

Deposit rate 13.8 9.6 6.3 4.7 2.83Cost of funds (av) 21.1 19.7 13.7 10.1 5.13


Reference table 9

Gross domestic product1997 1998 1999 2000 2001 2002 a

Total (Ps m)At current prices 3,179,120 3,848,218 4,599,449 5,491,018 5,771,857 5,962.09At constant 1993 prices 1,381,525 1,449,310 1,503,500 1,603,262 1,598,832 1,600,631 Real change (%) 6.8 4.9 3.7 6.6 -0.3 0.6Per head (Ps)At current prices 33,933 40,508 47,811 56,318 58,479 58,337At constant 1993 prices 14,746 15,629 15,629 16,444 16,199 15,662 Real change (%) 5.3 3.5 2.4 5.3 -1.6 -3.3


Sources: Banco de México; Instituto Nacional de Estadística, Geografía e Informática.

Reference table 10

Gross domestic product by sector(% real change; constant 1993 prices)

1998 1999 2000 2001 2002a

Agriculture, livestock, forestry &fishing 0.8 3.6 0.6 2.5 2.4

Mining 2.7 -2.1 3.8 -0.6 -0.8

Manufacturing 7.4 4.2 6.9 -3.9 -1.1Construction 4.2 5.0 5.1 -4.5 1.7

Electricity, gas & water 1.9 7.9 1.0 1.7 3.5Commerce, restaurants & hotels 5.6 3.1 12.4 -1.3 -0.5Transport & communications 6.7 7.8 9.6 2.8 1.6

Community & social services 2.9 2.1 2.9 0.5 1.3Financial services & real estate 4.6 3.6 3.2 4.1 4.4

Imputed banking services 5.6 5.9 6.8 6.2 7.9GDP 4.9 3.7 6.6 -0.3 0.6



Mexico 53


Reference table 11

Gross domestic product by expenditure(% real change; constant 1993 prices)

1998 1999 2000 2001 2002a

Private consumption 5.4 4.3 8.3 3.4 1.1Government consumption 2.3 4.7 2.0 -1.4 -1.1

Gross fixed investment 10.3 7.7 11.4 -5.9 -1.7Exports of goods & services 12.1 12.4 16.4 -5.1 1.4

Imports of goods & services 16.6 14.1 21.5 -2.9 1.8GDP at market prices 4.9 3.7 6.6 -0.3 0.6


Sources: Instituto Nacional de Estadística, Geografía e Informática.

Reference table 12

Prices and earnings(% change; period averages)

1997 1998 1999 2000 2001 2002Consumer pricesa 20.6 15.9 16.6 9.5 6.4 5.0Producer pricesa 17.5 16.0 14.2 7.8 5.0 3.7

Wages settlementsb -1.1 1.6 0.2 2.8 2.7 1.0Wages in manufacturingc -0.5 2.8 1.5 6.0 6.83 1.8d

a Without petrol and services. b Wage settlements between unions and companies, deflated byconsumer price inflation. c Deflated by consumer price inflation. d January-November.

Sources: Banco de México; Instituto Nacional de Estadística, Geografía e Informática; Secretaría del Trabajo y Previsión Social.

Reference table 13

Production of principal crops('000 tonnes)

1998 1999 2000 2001 2002a

Sugar cane 47,130 45,106 42,867 44,892 42,905

Maize 18,455 17,706 17,557 20,085 19,830Sorghum 6,475 5,720 5,842 6,517 5,776Wheat 3,235 3,021 3,493 3,284 3,301

Beans 1,261 1,059 888 1,076 1,285Barley 411 454 713 751 872

Rice 458 327 351 248 242Soybeans 150 133 102 122 119

a Estimate.


54 Mexico


Reference table 14

Livestock production('000 tonnes unless otherwise indicated)

1998 1999 2000 2001 2002a

Beef 1,380 1,400 1,409 1,428 1,450Pork 961 994 1,030 1,144 1,158

Sheep meat 30 31 33 36 38Goat meat 38 37 39 39 41

Poultry 1,442 1,599 1,732 1,825 1,939b

Turkey 8,443 9,008 9,443 9,641 n/aMilk (m litres) 8,443 9,008 9,443 9,641 9,700

Eggs 1,461 1,635 1,788 1,882 1,885Honey 55 55 59 56 61

a Estimates. b Includes turkey.

Sources: Secretaria de Agricultura, Ganadería, Desarrollo Rural, Pesca y Alimentación; Presidencia de la República, Segundo

Informe de Gobierno.

Reference table 15

Manufacturing production(% change; 1993 prices)

1998 1999 2000 2001 2002a

Food, beverages & tobacco 6.6 4.0 4.0 1.8 1.9

Clothing & footwear 3.9 3.1 5.4 -10.1 -7.3Wood products 4.4 0.4 3.9 -4.5 0.1Printing, paper & publishing 5.9 5.0 2.7 -4.0 -2.9

Chemicals, petroleum products,rubber & plastics 6.1 2.4 3.2 -4.3 -0.7

Non-metallic minerals excl oil 5.2 1.8 4.1 -4.2 3.1Basic metal industries 4.0 0.4 3.0 -5.7 -1.5Metal products, machinery &

equipment 11.5 6.9 13.5 -6.2 -2.7

Other industries 7.9 5.8 8.0 -0.7 -2.1Total manufacturing 7.4 4.2 6.9 -3.9 -1.1


Sources: Instituto Nacional de Estadística, Geografía e Informática; Banco de México.

Mexico 55


Reference table 16

Minerals production('000 tonnes unless otherwise indicated)

1998 1999 2000 2001 2002Gold (kg) 26.0 23.5 25.8 25.7 19.5Silver ('000 kg) 2.9 2.5 2.7 3.0 2.4

Zinc 371.9 339.8 358.6 427.3 329.7Copper 344.8 340.1 339.0 349.4 255.9

Manganese 187.1 169.1 156.1 99.8 57.0Lead 171.6 131.4 160.6 146.8 90.5Molybdenum 6.0 8.0 6.9 5.5 3.0

Arsenic 2.6 2.4 2.5 2.4 1.6Antimony 1.3 0.3 0.1 0.1 0.2

Cadmium 1.7 1.3 1.3 1.4 1.2Bismuth 1.2 0.5 1.1 1.4 1.0


Reference table 17

Stockmarket indicators1998 1999 2000 2001 2002

Trading volume 74.2 36 45.4 59.2 n/aShare price index (year-end) 3,959.7 7,129.9 5,652.2 6,372.3 6,127.1 % change in US$ terms -38.0 87.8 -22.0 18.8 -15.3

Market capitalisation (US$ bn) 92.0 153.7 120.0 125.7 108.1

Sources: Bolsa Mexicana de Valores; Banco de México.

Reference table 18

Merchandise sales(real terms; 1994=100)

1998 1999 2000 2001 2002a

Retail 88.7 92.4 101.7 104.4 104.6

Wholesale 93.2 95.1 99.6 92.0 85.7

a December 2001 to November 2002.


Reference table 19

Tourisma

1998 1999 2000 2001 2002b

Arrivals ('000) 9.775 10.214 10.591 10.152 5.015

Revenue (US$ m) 5.135 5.062 5.816 5.941 3.178

a Excluding crossborder tourism from the US. b January-June.

Sources: Instituto Nacional de Estadística, Geografía e Informática; Presidencia de la República, Segundo Informe de Gobierno.

56 Mexico


Reference table 20

Main exports and importsa

(US$ m)

1998 1999 2000 2001 2002b

Exports fobManufacturesc 106.1 122.1 145.3 141.4 142.0Oil exportsd 7.1 9.9 16.4 12.8 14.5Agricultural products 3.8 3.9 4.2 3.9 3.8Mining products 0.50 0.50 0.50 0.40 0.40Total 117.5 136.4 166. 5 158.4 160.7Imports fobConsumer goods 11.1 12.2 16.7 19.8 21.2Intermediate goods 96.9 109.3 133.6 126.1 126.5Capital goods 17.3 20.5 24.1 22.5 21.0Total 125.4 142.0 174. 5 168.4 168.7

a Includes maquiladoras. b Preliminary estimates. c Excludes oil products. d Includes oil products.

Source: Banco de México.

Reference table 21

Main trading partners(% of total)

1998 1999 2000 2001 2002a

Exports fob to:US 87.6 88.3 88.7 88.5 89.0Latin America & the Caribbean 5.0 3.8 3.9 3.7 3.5EU 3.3 3.8 3.4 3.4 3.3Canada 1.3 1.8 2.0 1.9 1.7Japan 0.7 0.6 0.6 0.4 0.3EFTA 0.2 0.3 0.4 0.3 0.3

Imports fob from:US 74.4 74.1 73.1 67.6 63.5EU 9.3 9.0 8.5 9.6 9.7Japan 3.6 3.6 3.7 4.8 5.7Latin America & the Caribbean 2.3 2.3 2.7 3.1 3.6Canada 1.8 2.1 2.3 2.5 2.6EFTA 0.5 0.5 0.5 0.5 0.5

a January-October.

Sources: Instituto Nacional de Estadística, Geografía e Informática; Secretaría de Economía.

Mexico 57


Reference table 22

Balance of payments, national series(US$ m)

1998 1999 2000 2001 2002a

Merchandise exports fobb 117,460 136,391 166,455 158,443 119,465Merchandise imports fobb -125,373 -141,975 -174,458 -168,396 -124,024

Trade balance -7,914 -5,584 -8,003 -9,954 -4,559Exports of non-factor services 11,523 11,692 13,712 12,660 9,511 Tourismc 5,633 5,506 6,435 6,538 5,024Imports of non-factor services 12,428 13,491 16,036 16,218 12,323 Insurance & freight 3,699 4,109 5,006 4,643 3,192 Tourismc 2,002 1,950 2,445 2,768 2,068Exports of factor services 5,047 4,517 6,091 5,139 3,189 Interest 4,034 3,736 5,025 4,075 2,243

Imports of factor services 18,313 17,447 20,918 18,968 12,923 Interest 12,482 12,946 13,699 12,674 9,458

Services balance -14,171 -14,729 -17,150 -17,387 -12,546Transfers (net) 6,012 6,313 6,994 9,338 7,645Current-account balance -16,072 -14,000 -18,160 -18,002 -9,460Direct investment 12,028 12,767 15,318 25,221 9,028Portfolio investment -612 2,852 401 1,092 811

Other capital 7,002 -2,139 1,476 -1,791 4,852Capital-account balance 18,419 13,480 17,194 24,522 14,692Net errors & omissions 576 739 3,789 805 -1,014

Change in reservesd 2,137 594 2,822 7,325 4,228

a January-September. b Includes maquiladoras. c Excludes one-day visitors. d Includes valueadjustments and purchases of gold and silver.


Reference table 23

Balance of payments, IMF series(US$ m)

1996 1997 1998 1999 2000 2001Goods: exports fob 96,002 110,431 117,459 136,392 166,456 158,443Goods: imports fob -89,469 -109,808 -125,374 -141,975 -174,457 -168,398

Trade balance 6,533 623 -7,915 -5,583 -8,001 -9,955Services: credit 10,723 11,182 11,662 11,737 13,752 12,699Services: debit -10,817 -12,615 -13,012 -14,473 -17,363 -17,194

Services balance -94 -1,433 -1,350 2,736 -3,611 -4,495Income: credit 4,033 4,431 4,911 4,476 6,049 5,098

Income: debit -17,506 -16,537 -17,731 -16,462 -19,173 -17,672Income: balance -13,473 -12,106 -12,820 -11,986 -13,124 -12,574Current transfers: credit 4,535 5,245 6,016 6,315 7,001 9,338

Current transfers: debit -30 -25 -28 -27 -29 -22Current transfers balance 4,505 5,220 5,988 6,288 6,972 9,316

Current-account balance -2,529 -7,696 -16,097 -14,017 -17,764 -17,708


58 Mexico


Reference table 24

Total foreign investment(US$ m)

1998 1999 2000 2001 2002a

Total 11,417 15,619 15,719 26,313 9,840Direct investment 12,028 12,767 15,318 25,221 9,028

Portfolio investment -612 2,852 401 1,092 811 Stockmarket -666 3,769 447 151 840 Government securities 54 -917 -461 941 -29


Source: Banco de México.

Reference table 25

External debt, World Bank estimates(US$ m unless otherwise indicated; debt stocks as at year-end)

1996 1997 1998 1999 2000Public medium- & long-term debta 94,039 84,373 87,973 87,531 81,550

Private medium- & long-term debta 20,340 27,375 37,104 50,893 49,806Total medium- & long-term debta 114,379 111,748 125,077 138,424 131,356 Official creditors 29,340 22,978 23,055 21,783 20,801 Bilateral 11,607 6,535 5,962 5,093 3,550 Multilateral 17,733 16,443 17,093 16,690 17,251 Private creditors 85,039 88,770 102,022 116,641 110,555

Short-term debt 29,839 27,860 26,321 24,062 18,932 Interest arrears 0 0 0 0 0Use of IMF credit 13,279 9,088 8,380 4,473 0

Total external debt 157,496 148,696 159,778 166,960 150,288Principal repayments 29,071 32,251 16,608 27,508 44,470

Interest payments 11,960 11,162 11,423 12,465 13,722 Short-term debt 2,964 2,231 1,774 1,924 1,892Total debt service 41,031 43,413 28,031 39,973 58,192Ratios (%)Total external debt/GDP 47.4 37.1 38.0 34.8 26.9Debt-service ratio, paidb 35.6 33.1 20.0 25.2 30.2

a Long-term debt is defined as that having an original maturity of more than one year. b Debt serviceas a percentage of earnings from exports of goods and services.

Source: World Bank, Global Development Finance 2002.

Reference table 26

Gross external debt, national estimates(US$ m; debt stocks as at year-end)

1998 1999 2000 2001 2002a

Total 160,258 166,381 148,652 144,526 140,752 Public sector 92,295 92,290 84,600 80,339 77,950 Commercial banks 15,821 14,124 11,203 8,481 6,397 Banco de Méxicob 8,380 4,468 0 0 0 Non-bank private sector 43,762 55,499 52,849 55,706 56,405

a As of June 30th 2002. b The central bank (debt owed to the IMF).

Sources: Banco de México; Secretaría de Hacienda y Crédito Público.

Mexico 59


Reference table 27Amortisation schedule of global external debta

(US$ m)2003 2004 2005 2006 2007

Public sector 8,729 6,726 5,634 5,482 5,134 Commercial banks 1,004 365 155 149 89 Bonds 2,742 3,232 2,894 2,837 3,114 World Bank & IDBb 1,745 1,799 1,842 1,850 1,655 External trade 1,371 824 384 315 219 Restructured debt 515 506 359 331 57 Pidiregasc 1,352 0 0 0 0Private sectord 10,435 8,178 6,354 5,431 12,433 Commercial banks 4,955 2,949 1,699 1,315 3,730 Bonds 1,357 2,592 2,892 3,079 6,498 External trade 4,123 2,637 1,763 1,037 2,205Total 19,164 14,904 11,988 10,913 17,567

a As of June 30th 2002. b Inter-American Development Bank. c Registered as zero after 2004 becauseonly payments for the immediate year are recorded. d Does not include Mexican banks.

Source: Secretaría de Hacienda y Crédito Público.

Reference table 28Foreign reserves(US$ m unless otherwise indicated; end-period)

1998 1999 2000 2001 2002a

Foreign exchange 31,461 30,992 35,142 44,384 46,227SDRs 337 790 366 356 381

Total reserves excl gold 31,799 31,782 35,509 44,471 46,608Memorandum item Gold (m fine troy oz) 0.223 0.159 0.249 0.231 0.244

a September.


Reference table 29Exchange rates(Ps per unit of currency unless otherwise indicated; annual averages)

1998 1999 2000 2001 2002US$ 9.15 9.55 9.46 9.34 9.66

C$ 6.17 6.43 6.37 6.03 6.15¥a 14.31 11.91 11.40 13.02 12.96£ 15.17 15.45 14.34 13.44 14.52

€b 8.15 8.97 10.25 10.43 10.22R 7.89 5.25 5.17 3.97 3.31

a Yen per peso. b Ecu prior to 1999

Source: Economist Intelligence Unit, CountryData.

Editors: Mary Stanier (editor); Ondine Smulders (consulting editor)Editorial closing date: February 18th 2003

All queries: Tel: (44.20) 7830 1007 E-mail: [email protected]

Documents

Mexico - International University of Japan · 2007-07-24 · Catholic Mexico, known as the Cristero War (1926-29). The conflict was brought to an end not by victory by either side