Mexico Essay, Research Paper
Formal Name: United Mexican States (Estados Unidos Mexicans).
Short Form: Mexico.
Term for Citizen(s): Mexican(s).
Capital: Mexico City (called Mééxico or Ciudad de Mééxico in country).
Date of Independence: September 16, 1810 (from Spain).
National Holidays: May 5, commemorating the victory over the French at the Battle of Puebla; September 16, Independence Day.
Size: 1,972,550 square kilometers–third largest nation in Latin America (after Brazil and Argentina).
Topography: Various massive mountain ranges including Sierra Madre Occidental in west, Sierra Madre Oriental in east, Cordillera Neovolcáánica in center, and Sierra Madre del Sur in south; lowlands largely along coasts and in Yucatan Peninsula. Interior of country high plateau. Frequent seismic activity.
Drainage: Few navigable rivers. Most rivers short and run from mountain ranges to coast.
Climate: Great variations owing to considerable north-south extension and variations in altitude. Most of the country has two seasons: wet (June-September) and dry (October-April). Generally low rainfall in interior and north. Abundant rainfall along east coast, in south, and in Yucatan Peninsula.
Population: Estimated population of 94.8 million persons in mid-1996. Annual rate of growth 1.96 percent.
Language: Spanish official language, spoken by nearly all. About 8 percent of population speaks an indigenous language; most of these people speak Spanish as second language. Knowledge of English increasing rapidly, especially among business people, the middle class, returned emigrants, and the young.
Ethnic Groups: Predominantly mestizo society (60 percent); 30 percent indigenous; 9 percent European; 1 percent other.
Education and Literacy: Secretariat of Public Education has overall responsibility for all levels of education system. Compulsory education to age sixteen; public education free. Government distributes free textbooks and workbooks to all primary schools. Official literacy rate in 1990 was 88 percent.
Health and Welfare: Health care personnel and facilities generally concentrated in urban areas; care in rural areas confined to understaffed clinics operated mostly by medical graduate students. Life expectancy in 1996 estimated at seventy-three years. Infant mortality twenty-six per 1,000 live births. Leading causes of death infections, parasitic diseases, and respiratory and circulatory system failures.
Religion: About 90 percent of population Roman Catholic, according to 1990 census. Protestants (about 6 percent) ranked second. Number of Protestants has increased dramatically since 1960s, especially in southern states.
Overview: From a colonial economy based largely on mining, especially silver, in the twentieth century, the economy has diversified to include strong agriculture, petroleum, and industry sectors. Strong growth from 1940-80 interrupted by series of economic crises, caused in part by massive overborrowing. 1980s marked by inflation and lowering standard of living. Austerity measures and introduction of free-market policies led to a period of growth from 1990-94. Membership in North American Free Trade Agreement (NAFTA) in 1993 led to hopes of continued economic growth. However, growing trade deficit and overvalued exchange rate in 1994 financed by sale of short-term bonds and foreign- exchange reserves. Series of political shocks and devaluation of new peso in late 1994 caused investor panic. Inflation soared, and massive foreign intervention was required to stabilize situation. Although overall economy remains fundamentally strong, lack of confidence makes short-term prospects for strong growth unlikely.
Gross Domestic Product (GDP): Estimated at US$370 billion in 1994; approximately US$4,100 per capita.
Currency and Exchange Rate: Relatively stable throughout most of twentieth century, the peso (Mex$) began to depreciate rapidly during economic crisis of 1980s. In January 1993, peso replaced by new peso (NMex$) at rate of NMex$1 = Mex$1,000. Exchange rate in January 1993, US$1 = NMex$3.1; rate in April 1997, US$1 = NMex$7.9.
Agriculture: Contributed 8.1 percent of GDP in 1994. Main crops for domestic consumption corn, beans, wheat, and rice. Leading agricultural exports coffee, cotton, vegetables, fruit, livestock, and tobacco.
Industry: Mining, manufacturing, and construction contributed 28 percent of GDP in 1994. Industrialization increased rapidly after 1940. By 1990 large and diversified industrial base located largely in industrial triangle of Mexico City, Monterrey, and Guadalajara. Most industrial goods produced, including automobiles, consumer goods, steel, and petrochemicals. World’s sixth largest producer of petroleum and major producer of nonfuel minerals.
Energy: More than 120 billion kilowatt-hours produced in 1993, about 75 percent from thermal (mostly oil-burning) plants, 20 percent from hydroelectric, and the rest from nuclear or geothermal plants. One nuclear plant with two reactors at Laguna Verde in Veracruz State. Huge petroleum deposits discovered in Gulf of Mexico in 1970s. In 1995 sixth-largest producer of oil and had eighth-largest proven reserves.
Exports: US$60.8 billion in 1994. Manufactured exports include processed food products, textiles, chemicals, machinery, and steel. Other important export items are metals and minerals, livestock, fish, and agricultural products. Major exports to United States are petroleum, automotive engines, silver, shrimp, coffee, and winter vegetables.
Imports: US$79.4 billion in 1994. Main imports are metal-working machines, steel-mill products, agricultural machines, chemicals, and capital goods. Leading imports from United States include motor vehicle parts, automatic data processing parts, aircraft repair parts, car parts for assembly, and paper and paperboard.
Debt: Massive foreign debt. Buoyed by discovery of large petroleum reserves, government borrowed heavily in 1970s. When severe recession hit in 1982, government declared moratorium on debt payments, precipitating international economic crisis. Austerity measures and renegotiation of the debt eased crisis, but in 1995 debt stood at US$158.2 billion.
Balance of Payments: Large trade deficits from 1989 to 1993 pushed current account deeply into deficit. Dramatic improvement in trade balance in 1994 and 1995, however, nearly eliminated deficit. Heavy international borrowing allowed international reserves to rise to US$15.7 billion at end of 1995.
Transportation and Telecommunications
Roads: Extensive system of roads linking all areas. More than 240,000 kilometers of roads, of which 85,000 paved (more than 3,100 kilometers expressway). Heaviest concentration in central Mexico. Many roads in poor condition as result of lack of maintenance and heavy truck traffic.
Railroads: More than 20,000 kilometers. Standard gauge, largely government-owned. System concentrated in north and central areas. Numerous connections to United States railroads; system largely used for freight and in need of modernization. Extensive, heavily used subway system in Mexico City; smaller subway in Guadalajara.
Ports: No good natural harbors. On east coast, Veracruz is principal port for cargo; Tampico, Coatzacoalcos, and Progreso handle petroleum. Guaymas, Mazatláán, and Manzanillo are principal ports on Pacific.
Air Transport: Adequate system of airlines and airports. More than 1,500 airstrips in 1994, of which 202 had permanent-surface runways. Principal international airport in Mexico City; other international airports in Monterrey, Guadalajara, Méérida, and Cancúún. Aééromexico is main domestic airline.
Telecommunications: Highly developed system undergoing expansion and privatization. Long-distance telephone calls go via mix of microwave and domestic satellite links with 120 ground stations. International calls via five satellite ground stations and microwave links to United States. Demand still exceeds supply for new telephones in homes, but situation improving. More than 600 mediumwave amplitude modulation (AM) stations, privately owned. Twenty-two shortwave AM stations. Almost 300 television stations, most organized into two national networks.
Government and Politics
Government: Constitution of 1917 in force in 1997. Formally a federal republic, although federal government dominates governments of thirty-one states and Federal District. Central government power concentrated in president, who directs activities of numerous agencies and state-owned business enterprises. Bicameral legislature (128-member Senate and 500-member Chamber of Deputies) relatively weak. Federal judiciary headed by Supreme Court of Justice. State governments headed by elected governors; all states have unicameral legislatures; state courts subordinate to federal courts. Federal District governed by mayor (regente) indirectly elected by legislative body of the Federal District beginning in 1996; more than 2,000 local governments headed by elected municipal presidents and municipal councils.
Politics: Authoritarian system governed by president, who cannot be reelected to another six-year term. Major political organization Institutional Revolutionary Party (Partido Revolucionario Institucional–PRI), which incorporates peasant groups, labor unions, and many middle-class organizations within its ranks. Many opposition parties have had limited electoral success; largest is the conservative Party of National Action (Partido de Accióón Nacional–PAN). Direct elections at regular intervals; rule of no reelection applies to most offices. Election by majority vote, except for 200 seats in Chamber of Deputies reserved for opposition parties chosen by proportional representation. Extensive participation by interest groups and labor unions in government and PRI affairs.
Foreign Relations: Major attention devoted to United States. Trade and immigration along shared border subjects of continuing negotiations. Foreign policy traditionally based on international law; nonintervention the major principle. Widely active in hemispheric affairs, including good relations with Cuba.
International Agreements and Memberships: Party to Inter-American Treaty of Reciprocal Assistance (Rio Treaty). Membership in international organizations includes Organization of American States and its specialized agencies, United Nations and its specialized agencies, Latin American Alliance for Economic Development, and Latin American Economic System. Joined NAFTA in 1993.
Armed Forces: Total strength in 1996 about 175,000 active-duty personnel. Army, 130,000; air force, 8,000; and navy (including naval aviation and marines), 37,000. Approximately 60,000 conscripts, selected by lottery. Reserve force of 300,000. Women serving in armed forces have same legal rights and duties as men but in practice not eligible to serve in combat positions, be admitted to service academies, or be promoted beyond rank equivalent of major general in United States armed forces.
Military Units: Two government ministries responsible for national defense: Secretariat of National Defense and Secretariat of the Navy. Country divided into nine military regions with thirty-six military zones. Each military zone usually assigned at least two infantry battalions composed of some 300 troops each; some zones also assigned cavalry regiments (now motorized) or one of three artillery battalions. Personnel assigned to air force also within command structure of Secretariat of National Defense, distributed among air base installations throughout country. Principal air base, Military Air Base Number 1, located at Santa Lucíía in state of Mééxico. Personnel under command of Secretariat of the Navy assigned to one of seventeen naval installations located in each coastal state.
Equipment: Under modernization program begun in 1970s, armed forces began to replace aging World War II-vintage equipment. Attention also given to development of domestic military industry. Mexican navy benefited significantly in terms of new vessels–most domestically built. Plans for additional acquisitions from abroad constrained by country’s economic problems.
Police: Various federal, state, and local police provide internal security. Senior law enforcement organization is Federal Judicial Police, controlled by attorney general, with nationwide jurisdiction. More than 3,000 members in 1996. Each state and the Federal District has its own force, as do most municipalities. Low pay and corruption remain serious problems at all levels. Protection and Transit Directorate–known as "Traffic Police"–major Mexico City police force; in 1996 employed some 29,000 personnel.
FROM THE 1940s UNTIL THE MID-1970s, the Mexican economy enjoyed strong growth averaging more than 6 percent, single-digit inflation, and relatively low external indebtedness. These conditions all began to change during the 1970s. Expansionary government policies generated higher inflation and severe external payments problems while failing to produce sustained growth. Government spending outpaced revenues, generating steep budget deficits and increased external indebtedness. Low real interest rates also discouraged domestic saving.
A brief financial and economic crisis in 1976 signaled the need to address the economy’s fundamental problems, but subsequent petroleum discoveries reduced incentives for reform and postponed the inevitable day of reckoning. The government expanded its debt-financed spending in the late 1970s in anticipation of continued low interest rates and high oil revenue. It also maintained a highly overvalued peso (for value of the peso–see Glossary), aggravating balance of payments problems, undermining private-sector confidence, and encouraging capital flight.
External conditions turned sharply against Mexico in the early 1980s, producing a deep recession that forced a fundamental change in the country’s decades-old development strategy. Higher interest rates and falling oil prices combined with rising inflation, massive capital flight, and an unserviceable foreign debt to provoke an economic collapse. Lacking access to international capital markets, the government of Miguel de la Madrid Hurtado (1982-88) had to generate huge nonoil trade surpluses to restore macroeconomic balance. Import volume fell sharply at the expense of fixed investment and consumption. As a result of the government’s stringent economic stabilization program, the fiscal deficit was eliminated, international reserves rebuilt, and export growth restored, but at the cost of lower real wages and extensive unemployment. Economic output remained flat between 1983 and 1988, and inflation remained high, reaching more than 140 percent in 1987. Real exchange-rate depreciation boosted the country’s debt-to-gross domestic product (GDP–see Glossary) ratio by almost 30 percentage points between 1982 and 1987.
To control persistently high inflation and restore growth and international competitiveness, the government pursued a major policy reorientation in the late 1980s. It reduced state involvement in economic production and regulation and integrated Mexico more fully into the world economy. An anti-inflation plan was introduced in late 1987 under which the government, the private sector, and organized labor agreed to limit wage and price increases. In 1989 the government reached agreement with its external creditors on extensive debt restructuring and reduction.
In an effort to restore self-sustaining growth, the administration of Carlos Salinas de Gortari (1988-94) boosted investment as a share of GDP. It also accelerated the privatization of state-owned productive enterprises, both to raise state revenue and to promote economic restructuring and modernization. The government eased foreign investment regulations, stabilized the currency, deregulated the prices of most goods, and enacted extensive trade liberalization measures, including the reduction or elimination of import barriers and the pursuit of free-trade agreements with Mexico’s trading partners, especially the United States.
The Salinas government allowed the currency to become increasingly overvalued during 1994, despite mounting trade and current account deficits resulting from trade liberalization and economic growth. It kept real interest rates high to ensure sufficient inflows of foreign (mainly short-term portfolio) investment to cover the current account deficit. During 1994 the government treasury issued a large number of dollar-denominated bonds (tesebonos ) to reinforce its capital position.
By the end of 1994, the almost total disappearance of Mexico’s international reserves made the government’s exchange-rate policy no longer tenable. The new administration of President Ernesto Zedillo Ponce de Leon was forced in December 1994 to devalue the new peso (for value of the new peso–see Glossary), despite promises to the contrary. The government’s mismanaged new peso devaluation cost the currency nearly half of its value and the government much of its credibility and popular support. Inflation and interest rates rose sharply in subsequent weeks, throwing millions of Mexicans out of work and putting many consumer goods beyond the reach of the middle class, to say nothing of the impoverished majority. Public and private investment plummeted, and Mexico entered its worst economic recession since the 1930s. By early 1996, however, the economy had begun to recover, as capital inflows increased and most productive sectors registered positive growth rates.
In the early 1950s, the manufacturing sector eclipsed agriculture as the largest contributor to Mexico’s overall GDP. Largely because of extensive import substitution, manufacturing output expanded rapidly from the 1950s through the 1970s to satisfy rising domestic demand. The value added by manufacturing rose from 20 percent of GDP in 1960 to 24 percent in 1970, and again to 25 percent by 1980. Manufacturing output grew at an annual average of 9 percent during the 1960s, and by a slightly lower annual rate of 7 percent in the 1970s.
This forty-year trend of manufacturing growth abruptly stopped and then reversed itself during the early 1980s. Sharp reductions in both exports and internal demand caused manufacturing output to fall by 10 percent between 1981 and 1983. After recovering briefly in 1985, manufacturing output fell again by 6 percent the following year. Production of consumer durables suffered especially, with the domestic electrical goods and consumer electronics goods sectors losing between 20 percent and 25 percent of their markets during the mid-1980s. Government industrial policies began to favor manufactured goods destined for the export market, in particular machinery and electrical equipment, automobiles and auto parts, basic chemicals, and food products (especially canned vegetables and fruit).
In the late 1980s, the manufacturing sector began to recover. In 1988 manufacturing output grew by a modest 4 percent. After expanding a robust 7 percent in 1989, manufacturing output steadily slowed; it grew by only 2 percent in 1992, as a result of weak export growth and falling domestic demand. After contracting by 2 percent in 1993, manufacturing output expanded by 4 percent in 1994. The most dynamic manufacturing subsectors in 1994 were metal products, machinery, and equipment (9 percent growth), followed by basic metals industries (9 percent growth). In 1994 the manufacturing sector accounted for 20 percent of the country’s total GDP and employed about 20 percent of all Mexican workers.
Mexico’s export base for manufactured goods is narrow, with three subsectors (vehicles, chemicals, and machinery and equipment) accounting for more than two-thirds of non-maquiladora foreign earnings. The value of Mexico’s imports of manufactured goods rose sharply following trade liberalization, from US$11 billion in 1987 to US$48 billion in 1992 (US$62 billion including maquiladora imports). Increased foreign competition has seriously threatened many Mexican manufacturing enterprises, almost all of which are small and medium-sized companies employing fewer than 250 workers. In 1991 Mexico had 137,200 manufacturing enterprises, some 90 percent of which employed no more than twenty workers.
The principal industrial centers of Mexico include the Mexico City metropolitan area (which includes the Federal District), Monterrey, and Guadalajara. In the early 1990s, the capital area alone accounted for about half of the country’s manufacturing activity, nearly half of all manufacturing employment, and almost one-third of all manufacturing enterprises. About one-third of formal-sector workers in the capital area were engaged in manufacturing. Manufacturers have been drawn to greater Mexico City because of its large and highly skilled work force, large consumer market, low distribution costs and proximity to government decision makers and the nation’s communications system. In the early 1990s, the chemical, textile, and food processing industries accounted for half of all manufacturing activity in the Federal District, and metal fabrication accounted for another one-quarter. Heavy industry (including paper mills, electrical machinery plants, and basic chemical and cement enterprises) tended to locate in the suburbs of Mexico City, where planning and environmental restrictions were less rigorous.
By the late 1980s, more than two-thirds of all foreign investment in Mexico was concentrated in maquiladora zones near the United States border. In 1965 the government began to encourage the establishment of maquiladora plants in border areas to take advantage of a United States customs regulation that limited the duty on imported goods assembled abroad from United States components to the value added in the manufacturing process. The maquiladora zones offered foreign investors both proximity to the United States market and low labor costs. Most maquiladora plants were established in or near the twelve main cities along Mexico’s northern border. Some of these enterprises had counterpart plants just across the United States border, while others drew components from the United States interior or from other countries for assembly in Mexico and then reexport.
The maquiladora sector grew nearly 30 percent annually between 1988 and 1993. By the latter year, more than 2,000 maquiladora businesses were in operation, employing 505,000 workers. These plants generated US$4.8 billion in value added during 1992. Their main activities included the assembly of automobiles, electrical goods, electronics, furniture, chemicals, and textiles. To increase their purchase of domestic materials, the Mexican government decided in December 1989 to exempt local sales to maquiladoras from the value-added tax and to let these enterprises sell up to half of their output on the domestic market. Nevertheless, almost all in-bond products have been exported to the United States.
In 1994 food processing, beverages, and tobacco products constituted the leading manufacturing sector in terms of value, accounting for about 26 percent of total manufacturing output and employing 17 percent of manufacturing workers. Food, beverage, and tobacco output expanded by an annual average of 3 percent between 1990 and 1994, largely as a result of export growth. In 1994 it expanded by less than 1 percent. In the early 1980s, well over 50 percent of Mexico’s productive units were involved in food processing, and Mexico’s beer industry was the world’s eighth largest.
Metal products, machinery, and transportation equipment accounted for 24 percent of manufacturing GNP in 1994. The automobile subsector was among the most dynamic manufacturing sectors in the early 1990s and led among manufacturing exporters. Mexico’s automobile manufacturers were led by Volkswagen, General Motors (GM), Ford, Nissan, and Chrysler. Ford expanded production by 33 percent during 1991, Chrysler by 17 percent, and GM by 10 percent. Volkswagen controlled 25 to 30 percent of the domestic automobile market, and Nissan another 15 to 20 percent. Mexican automobile exports earned US$6.1 billion in 1992, not counting maquiladora production, which earned an additional US$1.3 billion. Export revenue from passenger vehicle sales rose by 21 percent in 1993 and by 22 percent in 1994, while domestic sales fell by some 14 percent in 1993 and rose by less than 1 percent in 1994.
In 1983 the government encouraged the automobile industry to shift from import substitution to export production. It lowered national content requirements for exporters and required assemblers to balance imports of auto parts with an equivalent value of automobile exports. In 1990 the government eliminated restrictions on the number of production lines that automobile producers could maintain and allowed producers to import finished automobiles (although they were required to earn US$2.50 in automobile exports for every US$1 spent on imports).
In the early 1980s, automobile exports increased as domestic demand fell. Export growth leveled off in the early 1990s as the domestic market recovered. Growth of total vehicle output slowed from 21 percent in 1991 to 9 percent in 1992. In 1994 vehicle production totaled more than 1 million units, of which 850,000 were cars. Production fell by 16 percent between January and November 1995. During those months, exports rose by 37 percent to 700,000 units, while domestic sales fell by 70 percent, to 140,000 units.
Textiles, clothing, and footwear together accounted for 9 percent of manufacturing output in 1994 and employed about 7 percent of all manufacturing workers. Textile and clothing production stagnated throughout the 1980s because of low domestic demand, high labor costs, antiquated and inefficient technology, more competitive export markets (especially in Asia), and heavy import competition resulting from trade liberalization. In the early 1990s, the textile industry operated at just 60 percent of capacity. Import competition caused footwear and leather output to decline 4 percent annually between 1982 and 1989. In 1990 domestic footwear enterprises produced almost 200,000 pairs of shoes per week. In 1992 footwear and leather goods accounted for 4 percent of manufacturing GDP.
Non-maquiladora export earnings for textile, clothing, and footwear sales rose from US$499 million in 1990 to US$890 million in 1992. Imports also rose sharply to almost US$2 billion in 1992. The sector showed signs of strong recovery in late 1993, following its forced modernization.
The chemicals sector (including oil products, rubber, and plastics) accounted for 18 percent of manufacturing GDP in 1994. Its output increased by 5 percent during 1994. In 1990 this sector employed 130,000 workers. Although the chemical industry was the most important foreign-exchange earner in the manufacturing sector, its output fell far short of domestic demand. Exports of non-maquiladora chemicals and petrochemicals earned US$2.5 billion in 1992, but the country imported US$5.8 billion worth of chemicals and petrochemicals. The imbalance resulted partly from domestic price controls, inadequate patent protection, and high research and development costs. Chemicals and petrochemicals accounted for 72 percent of total non-maquiladora export revenues in 1992. The chemical industry slumped in early 1993, as sales fell by 10 percent, operating profits by 61 percent, and net profits by 59 percent.
Petrochemicals accounted for less than 2 percent of overall GDP in 1992. The state oil monopoly, Mexican Petroleum (Petróóleos Mexicanos–Pemex), dominated the country’s more than 200 petrochemical companies, which together operated more than 700 plants. The petrochemical subsector enjoyed robust annual growth of 7 percent between 1982 and 1988, but output slowed thereafter. Pemex produced 18.5 million tons of petrochemicals in 1993, down from 19 million tons in 1992. In 1992 the Salinas government reduced the number of basic petrochemicals reserved for Pemex to just eight and lifted restrictions on foreign investment in "secondary" petrochemicals to improve the oil company’s cost-effectiveness, raise the industry’s productivity, and attract new private investment.
Although Mexico’s pharmaceutical industry consisted of some 450 companies, the largest ten enterprises accounted for 30 percent of all sales in 1993. In the early 1990s, some fifty-six firms controlled three-quarters of pharmaceutical production. Nonmetallic minerals (excluding oil) accounted for 7 percent of manufacturing gross national product (GNP–see Glossary) in 1994. The subsector concentrated on production of cement, glass, pottery, china, and earthenware. Total cement output in 1993 was 27 million tons. Cement exports fell from 4.5 million tons in 1988 to 1.4 million tons in 1992 because of higher domestic demand and United States antidumping sanctions. A new cement plant came into operation in Coahuila in early 1993, and the expansion of two other plants in Hidalgo was completed.
Mexico’s largest cement producer is the privately owned Mexican Cement (Cementos Mexicanos–Cemex). By 1994 Cemex had become the world’s fourth largest cement company, with annual earnings of US$3 billion. In an effort to establish itself as a major multinational corporation, Cemex expanded its operations during the early 1990s into the United States and twenty-five countries in Europe, Asia, and Latin America.
The basic metals subsector (dominated by iron and steel) accounted for 6 percent of manufacturing GNP in 1994. Mexico’s iron and steel industry is one of the oldest in Latin America, comprising ten large steel producers and many smaller firms. The industry is centered in Monterrey, where the country’s first steel mills opened in 1903. Steel plants in Monterrey (privatized in 1986) and nearby Monclova accounted for about half of Mexico’s total steel output in the early 1990s. Most of the rest came from the government’s Láázaro Cáárdenas-Las Truchas Steel Plant (Sicartsa) and Altos Hornos de Mééxico (Ahmsa) steel mills, which were sold to private investors in 1991.
Export revenue from steel and steel products fell from US$1.03 billion in 1991 to US$868 million in 1992. Spurred by rising demand from the automobile industry, crude steel output rose 6 percent to 9 million tons in 1993. During the first half of 1993, output rose 10 percent over the same period in 1992, to 4 million tons. Production of semifinished steel rose 86 percent, reaching 573,000 tons, and rolled steel production expanded 5 percent to more than 2.6 million tons. Pipe production fell 13 percent to 174,400 tons. In 1993 Mexico was Latin America’s second largest steel producer after Brazil, accounting for some 20 percent of Latin America’s total steel production of 43 million tons.
Paper, printing, and publishing contributed about 5 percent of manufacturing output in 1994. Mexico produced almost 3 million tons of paper and 772,000 tons of cellulose in 1990. The country had some 760 publishing enterprises in 1990, 48 percent of which published books, 44 percent periodicals, and 8 percent both. These companies produced a total of 142 million books and 693 million periodicals. Trade liberalization hurt the domestic publishing industry in 1992, as imports rose to US$1.6 billion from US$1.3 billion in 1991. Exports of Mexican publications declined in value from US$232 million in 1991 to US$217 million in 1992.
Finally, wood products contributed 3 percent of manufacturing GDP in 1994. Although output of wood products fell in the late 1980s because of high investment costs and other adverse conditions in the primary forestry industry, it began to recover in 1993. Output of wood products increased by 2 percent during 1994.
Introduced in 1950, television reached some 70 percent of the Mexican population by the early 1990s. In 1995 Mexico had 326 television stations (almost 25 percent of all stations in Latin America), most of them owned by or affiliated with the Mexican Telesystem (Telesistema Mexicano–known popularly as Televisa) and the state-run Mexican Institute of Television (Instituto Mexicano de Televisióón–Imevisióón). In 1996 Mexico had about 800 television transmitters and an average of one television set per 8.9 viewers.
In the early 1990s, Televisa was reportedly the largest communications conglomerate in the developing world. Although a private corporation, Televisa is very close to the ruling PRI. It operates three commercial television networks in Mexico and four stations in the United States. Its main network broadcasts twenty-four hours a day, and the others broadcast between twelve and eighteen hours daily. Televisa’s flagship news program is "24 Horas," which has long been the most important source of news for many Mexicans. Televisa exports 20,000 hours of television programming to other Latin American countries. In addition to television and radio, Televisa has interests in newspaper and book publishing; production of records and home videos; motion picture distribution, advertising and marketing; and real estate, tourism, and hotels.
The state-run Imevisióón operates two national television networks, as well as several regional and specialized channels. The government also operates Mexican Republic Television (Televisióón de la Repúública Mexicana), which broadcasts news and educational and cultural programs to rural areas, and Cultural Television of Mexico (Televisióón Cultural de Mééxico). A competing network, Televisióón Independiente, operates seven stations. There are also some twenty independent stations.
In November 1993, the government granted licenses for sixty-two new local television stations, increasing Televisa’s total number of stations from 229 to 291. Most of the new stations are concentrated in northern Mexico. Televisa showed considerable financial strength in 1993, with third-quarter profits of some US$120 million, up 43 percent from the same period of 1992. The company planned additional large investments in an effort to maintain its 90 percent share of Mexico’s television market. Televisa’s main competitor is Televisióón Azteca, which owns 179 stations in two national networks. Although it commanded less than 10 percent of the national television market in 1993, it is attempting to increase its market share to 24 percent by 2000.
During the 1970s and 1980s, tourism generated more than 3 percent of Mexico’s GNP and between 9 percent and 13 percent of its foreign-exchange earnings. Only petroleum generated more net foreign exchange. The number of arriving tourists rose steadily from more than 5 million in 1987 to 7 million in 1990, despite the peso’s overvaluation during those years. The number of arrivals subsequently fell to about 6 million in 1991 and 1992 as the overvalued peso raised costs for United States visitors. Mexico had 7 million foreign arrivals in 1994, and tourism generated total revenue of US$4.2 billion.
Eighty-three percent of foreign visitors to Mexico in 1993 came from the United States, many of them from the border states for short visits. Eight percent of foreign visitors came from Europe, and 6 percent from other Latin American countries. In 1990 United States residents made some 70 million visits to Mexico’s border towns, and Mexicans made 88 million visits to United States border towns. In 1984 visitors to Mexican border areas spent some US$1.3 billion, compared with US$2.0 billion spent by all tourists in the interior. By 1990 border visitors spent more than US$2.5 billion, while visitors to the interior spent approximately US$4.0 billion. In 1991 each foreign tourist spent an average amount of US$594. In 1992 Mexico had some 8,000 hotels and some 353,000 hotel rooms.
In the early 1990s, Mexico City was the most popular destination for foreign tourists, followed by Acapulco. In the mid-1970s, the official tourist development agency, Fonatur, began to promote new tourist areas, including Zihuatanejo, Ixtapa, and Puerto Escondido on the Pacific coast, and Cancúún on the Caribbean coast. In 1986 and 1987, work began on the new Pacific coast tourist resort of Huatulco. Mexico’s tourist industry is particularly vulnerable to external shocks such as natural disasters and bad weather, international incidents, and variations in the exchange rate, as well as changes in national regulations. For instance, a 1985 earthquake that had an epicenter near Acapulco damaged many of Mexico City’s central hotels. In September 1987, Hurricane Gilbert struck Cancúún, causing US$80 million worth of damage that took three months to repair.
Stabilization and adjustment policies implemented by the Mexican government during the 1980s caused a sharp fall in imports and a corresponding increase in exports. Average real exchange rates rose, domestic demand contracted, and the government provided lucrative export incentives, making exportation the principal path to profitable growth. The 1982 peso devaluation caused Mexico’s imports to decline 60 percent in value to US$8.6 billion by the end of 1983. After years of running chronic trade deficits, Mexico achieved a net trade surplus of US$13.8 billion in 1993.
After 1983 the government eliminated import license requirements, official import prices, and quantitative restrictions. This trade liberalization program sought to make Mexican producers more competitive by giving them access to affordable inputs. By 1985 the share of total imports subject to licensing requirements had fallen from 75 percent to 38 percent. In 1986 Mexico acceded to the General Agreement on Tariffs and Trade (GATT), now the World Trade Organization (WTO), and in 1987 it agreed to a major liberalization of bilateral trade relations with the United States.
As a consequence of trade liberalization, the share of domestic output protected by import licenses fell from 92 percent in June 1985 to 18 percent by the end of 1990. The maximum tariff was lowered from 100 percent in 1985 to 20 percent in 1987, and the weighted average tariff fell from 29 percent in 1985 to 12 percent by the end of 1990. The volume of imports subject to entry permits was reduced from 96 percent of the total in 1982 to 4 percent by 1992. The remaining export controls applied mainly to food products, pharmaceuticals, and petroleum and oil derivatives.
The value of Mexico’s imports rose steadily from US$50 billion in 1991 to US$79 billion in 1994 (19 percent of GDP). It rose in response to the recovery of domestic demand (especially for food products); the new peso’s new stability; trade liberalization; and growth of the nontraditional export sector, which required significant capital and intermediate inputs (see table 11, Appendix). As a result of the new peso devaluation of December 1994, Mexico’s imports in 1995 were US$73 billion, 9 percent lower than the 1994 figure. In 1995 Mexico imported US$5 billion worth of consumer goods (7 percent of total imports), US$9 billion worth of capital goods (12 percent), and US$59 billion worth of intermediate goods (81 percent). Renewed growth and the new peso’s real appreciation were expected to increase demand for foreign products during 1996. Imports rose by 12 percent in the first quarter of 1996 to US$20 billion.
The government tried to curb the early 1990s’ rise in imports by acting against perceived unfair trade practices by other countries. In early 1993, Mexico retaliated against alleged dumping of United States, Republic of Korea (South Korean), and Chinese goods by imposing compensatory quotas on brass locks, pencils, candles, fiber products, sodium carbonate, and hydrogen peroxide. Antidumping duties were applied to steel products, and all importers were required to produce certification of origin.
But Mexico also was subject to complaints by other countries, which charged that Mexico itself engaged in unfair practices. The European Community (now the European Union–EU) and Japan lodged complaints with the GATT about Mexico’s invocation of sanitary standards in late 1992 to limit meat imports.
The mid-1980s decline in world petroleum prices caused the value of Mexico’s exports to fall from US$24 billion in 1984 to US$16 billion in 1986, reflecting the country’s continued heavy dependence on petroleum export revenue. Lower oil earnings helped to reduce Mexico’s trade surplus to almost US$5 billion in 1986. Export revenue rose slightly to US$21 billion in 1987, as oil prices began to recover. Exports continued to rise modestly but steadily thereafter, reaching US$28 billion in 1992. The government promoted exports vigorously in an effort to close a trade gap that began in 1989 and widened in subsequent years. The state-run Foreign Commerce Bank channeled finance to a wide range of potential exporters, especially small and medium-sized firms and agricultural and fishing enterprises. In 1993 it provided US$350 million for the tourist sector, representing a 35 percent increase over 1992.
The value of Mexico’s exports rose steadily from US$43 billion in 1991 to US$61 billion in 1994, despite the new peso’s overvaluation. The currency devaluation of late 1994 contributed to a significant jump in the value of Mexico’s exports to US$80 billion in 1995, a 31 percent increase over the previous year.
Total export earnings for the first quarter of 1996 were US$22 billion. Manufactures accounted for US$67 billion (84 percent) of Mexico’s exports in 1995, followed by oil exports (US$9 billion or 11 percent), agricultural products (US$4 billion, or 5 percent), and mining products (US$545 million, or less than 1 percent). This improved export performance resulted from the new peso devaluation, weak domestic demand because of the recession, new export opportunities opened by NAFTA, and improved commodity prices. Export growth was expected to slow during 1996, as a result of recovery of domestic demand, expected drops in the prices of oil and other nonfood items, capacity constraints, and strengthening of the new peso.
Composition of Exports
The 1985 peso devaluations and the 1986 oil price collapse produced a dramatic shift in the composition of Mexico’s exports. The value of Mexico’s oil exports plummeted from US$13 billion in 1985 to less than US$6 billion in 1986. The oil sector’s share of total export revenue consequently fell from 78 percent in 1982 to 42 percent in 1987. Oil export revenue recovered in 1987 to US$7.9 billion as petroleum prices rose. Prompted by the peso devaluation and low domestic demand, nonoil exports rose 41 percent in 1986 and an additional 24 percent in 1987. In 1987 manufactured exports (especially engineering and chemical products) constituted 48 percent of total exports by value, eclipsing petroleum and reducing Mexico’s vulnerability to fluctuations in the world oil price. Between 1988 and 1991, petroleum exports fell 22 percent in value because of lower world oil prices and declining sales, while nonoil exports rose 15 percent in value. By 1992 petroleum contributed only 30 percent of total exports by value.
In 1994 petroleum and its derivatives accounted for US$7 billion, or 12 percent, of Mexico’s total export revenue of US$62 billion. Transport equipment and machinery exports earned US$33 billion, or 54 percent of total exports. Chemicals earned US$3 billion, or 5 percent, and metals and manufactured metal products earned US$3 billion, or 5 percent. Agricultural, processed food, beverage, and tobacco products accounted for US$3 billion, or 5 percent of total exports.
Foreign Investment Regulation
Restrictions on direct foreign investment were eased during the administrations of presidents de la Madrid and Salinas. In 1990 the government revised Mexico’s 1973 foreign investment law, opening up to foreign investment certain sectors of the economy that previously had been restricted to Mexican nationals or to the state. The new regulations permitted up to 100 percent foreign ownership in many industries.
However, in 1992 the government continued to retain sole rights to large parts of the economy, including oil and natural gas production, uranium production and treatment, basic petrochemical production, rail transport, and electricity distribution. Economic sectors reserved for Mexican nationals included radio and television, gas distribution, forestry, road transport, and domestic sea and air transport. The government limited foreign investors to 30 percent ownership of commercial banks, 40 percent ownership of secondary petrochemical and automotive plants, and 49 percent ownership of financial services, insurance, and telecommunications enterprises. However, foreign investors could obtain majority ownership of certain activities by means of a fideicomiso , or trust.
In November 1993, the government announced a new foreign-investment law that vastly expanded foreign-investment opportunities in Mexico. The new law replaced Mexico’s protectionist 1973 investment code and united numerous regulatory changes that Salinas previously had imposed by decree without congressional approval. The new law allowed foreigners to invest directly in industrial, commercial, hotel, and time-share developments along Mexico’s coast and borders, although such investment had to be carried out through Mexican companies. Foreigners previously had been prohibited from owning property within fifty kilometers of Mexico’s borders, and their investments in areas beyond fifty kilometers had to be carried out through bank trusts. In practice, however, foreigners already had invested in many of the listed border industries and areas through complex trust and stock ownership arrangements, although risk and bureaucratic requirements had deterred some potential investors and financiers.
The new investment code also opened the air transportation sector to 25 percent direct foreign investment and the secondary petrochemical sector to full 100 percent direct foreign investment. Mining also was opened to 100 percent direct foreign ownership; previously foreigners could provide 100 percent investment but had to invest through bank trusts for limited periods of time. Other sectors opened to foreign investors included railroad-related services, ports, farmland, courier services, and cross-border cargo transport. The new code eliminated performance requirements previously imposed upon foreign investors, along with minimum domestic content requirements.
The Future of the Economy
The market-oriented structural reforms of the 1980s and early 1990s transformed Mexico’s economy from a highly protectionist, public-sector-dominated system to a generally open, deregulated "emerging market." President Salinas’s moves to privatize and deregulate large sectors of the Mexican economy elicited widespread support from international investors and the advanced industrial nations. With its positive effect on trade and capital flows, NAFTA was widely interpreted by Mexican decision makers as a validation of their market-oriented economic policies. The currency collapse of December 1994 and the ensuing deep recession, however, erased the economic gains that Mexico had achieved in previous years, shook the nation’s political stability, and depressed hopes for an early return to growth.
Although Mexico remained in a difficult economic condition in mid-1996, the worst of the recession had passed and the country appeared headed toward recovery. The economy registered positive growth in the second quarter of 1996, inflation and interest rates abated, and portfolio investment returned, as reflected in Mexico’s rising stock exchange index. Despite continuing problems exacerbated by low investor confidence, analysts agreed that Mexico’s economy in the mid-1990s was fundamentally sound and capable of long-term expansion.
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Mexico’s postwar economic growth and development policies are reviewed in James M. Cypher’s State and Capital in Mexico , Roger Hansen’s The Politics of Mexican Development , and Clark W. Reynolds’s The Mexican Economy . The best examinations of Mexican economic policy during the 1970s and 1980s are John Sheahan’s Conflict and Change in Mexican Economic Strategy and Nora Lustig’s Mexico: The Remaking of an Economy . Denise Dresser’s Neopopulist Solutions to Neoliberal Problems: Mexico’s National Solidarity Program offers an in-depth analysis of the structure and political implications of Pronasol, the Salinas administration’s major anti-poverty program.
The United States Department of Agriculture maintains extensive statistical data on a variety of Mexican agricultural products, and its annual reports on various crops provide detailed information on specific sectors. Among the best treatments of Mexico’s agricultural policy are the volume edited by James Austin and Gustavo Esteva, Food Policy in Mexico , and Steven Sanderson’s The Transformation of Mexican Agriculture . Government-business relations are examined in Roderic A. Camp’s Entrepreneurs and Politics in Twentieth-Century Mexico and The Government and Private Sector in Contemporary Mexico , edited by Sylvia Maxfield and Ricardo Anzaldua.
The United States Department of Energy’s International Energy Annual provides statistical data on Mexican oil production and reserves. Petroleum policy is examined in Judith Gentleman’s Mexican Oil and Dependent Development and Laura Randall’s The Political Economy of Mexican Oil . Among the best examinations of Mexico’s international economic relations are David Barkin’s Distorted Development and Van R. Whiting, Jr.’s The Political Economy of Foreign Investment in Mexico . (For further information and complete citations, see Bibliography.)