Mexico long term economic cycle - Economics Essay Example
Economic Background and Concerns
In the late 1990’s there was significant concern regarding the slow growth of the Mexican economy:
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The concern stemmed from comparative studies with Latin American countries, in particularly that of Brazil, Argentina and Chile (Bulmer-Thomas, 2006).
Another basis for the concern was studies regarding the quality of life and poverty levels in the country (Stern, 1995).
The concern raised the issue of effective long-term economic planning for the country and a review of existing policies effectiveness in economic and social development (Peón, 1998).
Focus of Long-Term Economic Policies
The development of new policies coincided with the institution of the North Atlantic Free Trade Agreement (NAFTA) in 1994 which is considered as one of the key economic initiative for Mexico outside the Latin American region (Moreno-Brid et al, 2005). The focus of the reforms was to manage fiscal deficit, balance or trade, inflation and foster social development.
The key indicators that were considered to be indicative of the success of the programs were domestic and industrial growth, employment and other social indicators.
Mexican policies supported industrial growth by utilizing the development of its manufacturing industry which was also the focus of NAFTA economic initiatives.
Appendix A provides a summary of the projected key economic indicators for the country indicating that real GDP growth, money market ratios and interest rates remaining marginal in appreciation of depreciation.
In Appendix B, the concern to balance trade developed in the early 1990’s were there were severe deficits for Mexico.
Assessment of Long-Term Economic Policies
Through the NAFTA, there has been a more balanced trade between Mexico and the US particularly from 1995 to 1999. However, there is indications that increase in global competition in manufacturing are deterring balance:
Incorporating the data with real gross domestic product growth as illustrated in Appendix D, the concern for the continuing effectivity of Mexico’s policies (Moreno-Brid et al, 2005).
According to the United Nations Conference on Trade and Development (UNCTAD) (2005) one of the issue that has to be addressed are inflation levels and the lack of programs that focus on the development of other industries and attraction of foreign direct investment (FDI) into the country. Though analyses of social indicators such as education, employment and confidence and governance have progressed, unemployment and poverty remain key concerns considering their ratio in Mexico’s population (“Mexico: Economic Data”, 2007)
Direction of Future Policies
According to the Mexican government, the economy is in a period of recovery but there also has been opinion that recovery is becoming extended because of the lack of growth in GDP as well as FDI. So far, the country has been able to better control inflation, exchange rates and its balance of payment but has yet been able to post impressive growth rates with other countries in the region or with its chief trade partner, the US (see Appendix B). To be able to have an effective long-term economic plan, Mexico has to be able to mitigate discrepancies in income and quality of life which includes political stability as much it needs sound economic policies. This is a challenge that has been an issue for the country for years because of the dominance of partisan politics in the country.
Suggestions for Long-term Policies
There is a need to sustain the orthodox policies to govern the country’s fiscal and monetary systems to counteract volatility in the economy (“Mexico: Economic Data”, 2007).
To be able to become more competitive, there is also a need to increase the country’s credibility in terms of policies and performance which have been doubted in the past because of interventiona and control of the government (Brosnan, 2007).
Ultimately, the focus of Mexico should be enhance GDP growth rates and to develop independence from US economic cycles.
The success of these objectives will allow the country not only to stabilize its economic growth but also will endure the feasibility of expanding its industries and developing macroeconomic competencies that lead to long-term competitiveness.
Brosnan, Greg (2007). Mexico holds key interest rate, warns on inflation. Reuters. Retrieved on June 11, 2007 from http://go.sosd.com/servlet/nrp?cmd=sty&cid=RIM&pgn=1&ino=1137413&cat=Mexico&lno=3
Bulmer-Thomas, Victor (2006). Economic Performance And The State In Latin America. Retrieved on June 11, 2007 from http://www.fiu.edu/~ereserve/bb09171.pdf
Mexico: Economic Data (2007). The Economist. Retrieved on June 11, 2007 from http://www.economist.com/countries/Mexico/profile.cfm?folder=Profile-Economic%20Data
Moreno-Brid, Juan Carlos, Valdivia, Juan Carlos Rivas and Santamaría, Jesús (2005). Mexico: Economic growth exports and industrial performance after NAFTA. Mexico: United Nations – Economic Development Unit
Peón, Fortino Vela (1998). Demographic Transition and Economic Growth in Mexico. Mexico: Universidad Autónoma del Estado de México.
Stern, Paula (1995). The Mexico Crisis. Doing the Right Thing. Progressive Policy Institute. Retrieved on June 11, 2007 from http://www.ppionline.org/ppi_ci.cfm?knlgAreaID=108&subsecID=900009&contentID=1769
United Nations Conference on Trade and Development (2005) World Investment Report 2005.
Appendix A – Key Indicators of Mexican Economy (Source: The Economist)
Real GDP Growth (%)
Consumer Price Inflation (%)
NFPS Balance (% Of GDP)
Current-Account Balance (% Of GDP)
Commercial Banks’ Prime Rate (Av; %)
Money Market Rate (Av; %)
Exchange Rate Ps:US$ (Av)