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.
Mexico
Foreign Trade
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.
Imports
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.
Mexico
Exports
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.
Mexico
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.)