Mexico: Crisis and Competitiveness

Present Situation in Mexico: GDP declined about 7% Economy had grown only at 1.4% annually Comparative advantages disappeared Sharp Drop in oil production

Past Performance:

Year 1821 1910-17 1945-70 1970-76 1980-90 1987 1994 Post 1994 2000-06 2008-09

Event Achieved independence from Spain Revolution against dictatorship, New constitution formulated Steady Economic growth Foreign exchange reserve depleted, currency devalued, IMF bailed out Budget deficit reached 17% of GDP Economy recovered Tequila Crisis NAFTA helped in economy growth Good growth and low inflation US crisis exposed Mexicos vulnerability

Problems Identified:

S.No Problems: 1 Pemex is not managing petroleum industry properly; over exporting to US 2 NAFTA: No regulations on Maquilas 3 Mexican income was dependant on Emigrant remittances 4 Tourism affected by HIN1 virus 5 Drugs and Organized crime on the rise 6 7 8 9 10 11 12 Under utilization of labor intensive people Lack of Trade diversification Letting Monopolists/oligarchs prevail in key sectors such as telecom, oil and electricity Regulation of entry is slow and discouraging Poor infrastructure Education levels are low Politics: One term for representatives

Impact: Not achieving self sufficiency! Leading to sudden attrition Leading to debts/deficits Affects revenue income Environment not conducive for investors Loss on boosting up the economy Making the economy vulnerable Government losing on revenues, not conducive to investors Streamlining of operations, lesser procedures for investors Lesser investors Less no of skilled workers Makes officials to be self centered

Vijay Krishnan A DM14257

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Mexico: Crisis and Competitiveness

Solutions offered: (In addition to 10 reforms proposed) Should bring in competitiveness in sectors like electricity, telecom so that monopolists dont exploit the conditions Making regulation of entry an easier ordeal to face Sound fiscal policy changes, managing oil sector in a better manner Lesser VAT on items (to increase the volume of trade, thereby achieving the target) Look beyond USA and Canada (Can concentrate on central American countries) Need for strong banking institution Better force to tackle Organized crime The geographical divide between north, central and south Mexico must be bridged. This will depreciate the Gini Coefficient.

Vijay Krishnan A DM14257

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