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The economy of Mexico is 10th to 12th largest in the world Since the 1994 crisisadministrations have improved the countrys macroeconomic fundamentals Mexico wasnot significantly influenced by the recent 2002 South American crisis and has maintained positive although low rates of growth after a brief period of stagnation in 2001 Moodys (in March 2000) and Fitch IBCA (in January 2002) issued investment-grade ratings for

Mexicos sovereign debt In spite of its unprecedented macroeconomic stability whichhas reduced inflation and interest rates to record lows and has increased per capitaincome enormous gaps remain between the urban and the rural population the northernand southern states and the rich and the poor[2] Some of the governments challengesinclude the upgrade of infrastructure the modernization of the tax system and labor lawsand the reduction of income inequality

The economy contains a mixture of modern and outmoded industry and agriculture bothof which are increasingly dominated by the private sector Recent administrations haveexpanded competition in ports railroads telecommunications electricity generationnatural gas distribution and airports with the aim of upgrading infrastructure As an

export-oriented economy more than 90 of Mexican trade is under free tradeagreements (FTAs) with more than 40 countries including the European Union JapanIsrael and much of Central and South America The most influential FTA is the NorthAmerican Free Trade Agreement (NAFTA) which came into effect in 1994 and wassigned in 1992 by the governments of the United States Canada and Mexico In 2006trade with Mexicos two northern partners accounted for almost 90 of its exports and55 of its imports[3] Recently the Congress of the Union approved important tax pension and judicial reforms and reform to the oil industry is currently being debatedAccording to the Forbes Global 2000 list of the worlds largest companies in 2008Mexico had 16 companies in the list[4]

Contents

[hide]

bull 1 History

bull 2 Macroeconomic financial and welfare indicators

o 21 Main indicators

o 22 Poverty

o 23 Remittances

o 24 Regional economies

bull 3 Components of the economy

o 31 Agriculture and food production 311 History 312 Importance of agriculture to Mexicos economy 313 Crops

o 32 Industry

o 33 Energy and mineral resources

o 34 Services

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341 Overview 342 Tourism 343 Financial sector

3431 Banking system 3432 Securities market

bull

4 Government policies and the Central Bank o 41 Currency policy

o 42 Monetary system

bull 5 Trade

o 51 Free trade agreements

511 NAFTAo 52 Mexican Trade Facilitation amp Competitiveness

bull 6 See also

bull 7 References

bull 8 External links

[edit] History

Main article Economic history of Mexico

Following five decades of political turbulence following the independence of Mexico thefour consecutive administrations of president Porfirio Diacuteaz (during the last quarter of thenineteenth century) brought unprecedented economic growth This growth wasaccompanied by foreign investment and European immigration the development of anefficient railroad network and the exploitation of the countrys natural resources GDP per capita levels circa 1900 were on par with Argentina and Uruguay almost three times thatof Brazilhi and Venezuela[5] Annual economic growth between 1876 and 1910 averaged33[6] Political repression and fraud as well as huge income inequalities exacerbated bythe land distribution system based on latifundios in which large haciendas were owned by a few but worked by millions of underpaid peasants living in precarious conditionsled to the Mexican Revolution (1910ndash1917) an armed conflict that drasticallytransformed Mexicos political social cultural and economical structure during thetwentieth century under a premise of social democracy The war itself however left aharsh toll in the economy and population which decreased over the 11-year period between 1910 and 1921 The reconstruction of the country was to take place in thefollowing decades

The period from 1930 to 1970 was dubbed by economic historians as the MexicanMiracle a period of economic growth spurred by a model of import substitutionindustrialization (ISI) which protected and promoted the development of nationalindustries Through the ISI model the country experienced an economic boom throughwhich industries rapidly expanded their production[7] Important changes in the economicstructure included free land distribution to peasants under the concept of ejido thenationalization of the oil and railroad companies the introduction of social rights into the

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constitution the birth of large and influential labor unions and the upgrading of infrastructure While population doubled from 1940 to 1970 GDP increased sixfold[8]

The ISI model had reached its peaked in the late 1960s During the 1970s theadministrations of Echeverriacutea and Loacutepez Portillo tried to include social development in

their policies an effort that entailed more public spending With the discovery of vast oilfields in a time in which oil prices were surging and international interest rates were low-and even negative- the government decided to borrow from international capital marketsto invest in the state-owned oil company which in turn seemed to provide a long-runincome source to promote social welfare In fact this method produced a remarkablegrowth in public expenditure[7] and president Loacutepez Portillo announced that the time hadcome to learn to manage prosperity[9] as Mexico multiplied its oil production to becomethe worlds fourth largest exporter[10]

Average annual GDP growth by period

President Caacuterdenas

1900ndash1929 34

1929ndash1945 42

1945ndash1972 65

1972ndash1981 55

1981ndash1996 15

1995ndash2000 51

Sources[11] and[7]

In the period of 1981ndash1982 the international panorama changed abruptly oil prices

plunged and interest rates rose In 1982 president Loacutepez Portillo just before ending hisadministration suspended payments of foreign debt devalued the peso and nationalizedthe banking system along with many other industries that were severely affected by thecrisis among them the steel industry While import substitution had produced an era of industrialization in previous decades by the 1980s it was evident that that protracted protection had produced an uncompetitive industrial sector with low productivity gains[7]

8142019 The Economy of Mexico is 10th to 12th Largest in the World

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President de la Madrid was the first of a series of presidents that began to implementneoliberal reforms After the crisis of 1982 lenders were unwilling to return to Mexicoand in order to keep the current account in balance the government resorted to currencydevaluations which in turn sparked unprecedented inflation[7] which reached a historichigh in 1987 at 1597[12]

The first step toward the liberalization of trade was Mexicos signature of the GeneralAgreement on Tariffs and Trade (GATT) in 1986 During the Salinas administration manystate-owned companies were privatized In 1992 the North American Free TradeAgreement was signed between the United States Canada and Mexico and after thesignature of two additional supplements on environments and labor standards it cameinto effect on January 1 1994 Salinas also introduced strict price controls and negotiatedsmaller minimum wage increments with labor unions with the aim of curbing inflationWhile his strategy was successful in reducing inflation growth averaged only 28 percenta year[7] Moreover by fixing the exchange rate the peso became rapidly overvaluedwhile consumer spending increased causing the current account deficit to reach 7 of

GDP in 1994 The deficit was financed through tesobonos a type of public debtinstrument that reassured payment in dollars[13] The Chiapas uprising and theassassinations of the ruling partys presidential candidate Luis Donaldo Colosio and theSecretary-General of the party and brother of the Assistant-Attorney General JoseacuteFrancisco Ruiz Massieu in 1994 sent a disquieting message to investors Public debtholders rapidly sold their tesobonos depleting the Central Banks reserves[13] while portfolio investments which had made up 90 of total investment flows left the countryas fast as they had come in[7] This unsustainable situation eventually forced the entrantZedillo administration to abandon the fixed exchange rate The peso sharply devalued andthe country entered into an economic crisis in December 1994 The boom in exports aswell as an international rescue package crafted by American president Bill Clinton

helped cushion the crisis In less than 18 months the economy was growing again andannual rate growth averaged 51 percent between 1995 and 2000 [7]

President Zedillo and president Fox continued with trade liberalization and during hisadministrations several FTAs were signed with Latin American and European countriesJapan and Israel and both strove to maintain macroeconomic stability Thus Mexico became one of the most open countries in the world to trade and the economy baseshifted accordingly Total trade with the United States and Canada tripled and totalexports and imports almost quadrupled between 1991 and 2003[14] The nature of foreigninvestment also changed from portfolio to foreign-direct investment (FDI)

[edit] Macroeconomic financial and welfare indicators

Macroeconomic indicators

8142019 The Economy of Mexico is 10th to 12th Largest in the World

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Mexican notes and coins

GDP (PPP) US $1134 trillion (2006)

GDP growth 48 (2006)

GDP per capita PPP US $12500 (2007)

GNI per capita PPP US $11990 (2006)

Inflation (CPI) 3 (2007)

Gini index 445

Unemployment 37 (2007)

HDI 0829

Labor force 4538 million (2007)

Pop in poverty 138

[edit] Main indicators

Mexicos Gross Domestic Product (GDP) in purchasing power parity (PPP) was

estimated at US $1353 trillion in 2006 and $8864 billion in nominal exchange rates[3]

As such its standard of living as measured in GDP in PPP per capita was US $12500The World Bank reported in 2007 that the countrys Gross National Income in marketexchange rates was the second highest in Latin America after Brazil at US $820319 billion[15] which lead to the highest income per capita in the region at $7830[16] As suchMexico is now firmly established as an upper middle-income country After theslowdown of 2001 the country has recovered and has grown 42 30 and 48 percent in

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2004 2005 and 2006[17] even though it is considered to be well below Mexicos potentialgrowth[13]

The Mexican currency is the peso (ISO 4217 MXN symbol $) One peso is divided into100 centavos (cents) MXN replaced MXP in 1993 at a rate of 1000 MXP per 1 MXN

The exchanged rate has remained stable since 1998 oscillating between 920 and 1150MXN per USD Interest rates in 2007 were situated at around 7 percent[18] havingreached a historic low in 2002 below 5 percent Inflation rates are also at historic lowsthe inflation rate in Mexico in 2006 was 41 percent and 3 percent by the end of 2007Unemployment rates are the lowest of all OECD member countries at 32 percentHowever underemployment is estimated at 25 percent[3] Mexicos Human developmentindex was reported at 0829[19] (comprising a life expectancy index of 084 an educationindex of 086 and a GDP index of 077) ranking 52 in the world within the group of high-development

[edit] Poverty

After the 1994ndash1995 economic crisis probably the most severe in the countrys history50 of the population fell into poverty A rapid growth in exports propitiated by NAFTAand other trade agreements and the restructuring of the macroeconomic finances initiatedduring Zedillos and continued during Foxs administration had significant results in thereduction of the poverty rate according to the World Bank poverty was reduced to176 in 2004[20] Most of this reduction was achieved in rural communities whose rateof poverty declined from 42 to 279 in the 2000ndash2004 period although urban povertystagnated at 12[20] According to the World Bank in 2004 176 of Mexicos population lived in extreme poverty while 21 lived in moderated poverty[21] The CIAFactbook on the other hand reported that 138 of the population was under the poverty

line as measured in food-based poverty[22]

[edit] Remittances

Remittances or contributions sent by Mexicans living abroad mostly in the UnitedStates to their families at home in Mexico are a substantial and growing part of theMexican economy they comprised $18 billion in 2005[23] In 2004 they became thesecond largest source of foreign income after crude oil exports roughly equivalent toforeign direct investment (FDI) and larger than tourism expenditures and represented 25 percent of the nations Gross Domestic Product[24] The growth of remittances has beenremarkable they have more than doubled since 1997 Recorded remittance transactions

exceeded 41 million in 2003 of which 86 percent were made by electronic transfer[25]

It is estimated that half or more of Mexican immigrants to the United States are legal andhave access to formal transfer channels usually blocked to illegals simply due to the lack of accepted identification documents The Mexican government cognizant of theeconomic viability of immigrant workers began issuing an upgraded version of theMatriacutecula Consular de Alta Seguridad (MACS High Security Consular Identification)an identity document issued at Mexican consulates abroad This document is now

8142019 The Economy of Mexico is 10th to 12th Largest in the World

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accepted as a valid identity card in 32 US states as well as thousands of police agencieshundreds of cities and counties as well as banking institutions[25]

The main receptors of remittances in 2004 were the states of Michoacaacuten GuanajuatoJalisco Mexico and Puebla which jointly captured 45 of total remittances in that

year[24]

Several state governments with the support of the federal government haveimplemented programs to use part of the remittances to finance public works This program called Dos por Uno (Two for every one) is designed in a way that for each pesocontributed by migrants from their remittances the state and the federal governments willinvest two pesos in building infrastructure at their home communities[26]

[edit] Regional economies

Map of Mexican states indicating HDI (2004) 080 and higher 0750ndash0799 070ndash

0749

Regional disparities and income inequality continue to be a problem in Mexico While allconstituent states of the federation have a Human Development Index (HDI) superior to070 (medium to high development) northern and central states have higher levels of HDI than the southern states Nuevo Leoacuten and the Federal District have HDI levelssimilar to European countries whereas that of Oaxaca and Chiapas is similar to that of Syria or Egypt[27] At the municipal level disparities are even greater San Pedro GarzaGarciacutea in Nuevo Leoacuten has an HDI similar to that of Italy whereas Metlatonoc inGuerrero would have an HDI similar to that of Malawi The majority of the federalentities with high development (superior to 080) are located in the northern region (with

the exception of Colima Jalisco Aguascalientes the Federal District Quereacutetaro as wellas the southeastern states of Quintana Roo and Campeche) The less developed states(with medium development in terms of HDI superior to 070) are located at the southernPacific coast (with the exception of Veracruz)

In terms of share in GDP per sector (in 2004) the largest contributors in agriculture areJalisco (97) Sinaloa (77) and Veracruz (76) the greatest contributors in industrial production are the Federal District (158) State of Meacutexico (118) and Nuevo Leoacuten(79) the greatest contributors in the service sector are also the Federal District(253) State of Meacutexico (89) and Nuevo Leoacuten (75)[28]

Since the 1980s the economy has slowly become less centralized the annual rate of GDPgrowth of the Federal District from 2003ndash2004 was the smallest of all federal entities at amere 023 with drastic drops in the agriculture and industrial sectors Nonetheless itstill accounts for 218 of the nations GDP The states with the highest GDP growthrates are Quintana Roo (904) Baja California (889) and San Luis Potosiacute (818)[29] In 2000 the federal entities with the highest GDP per capita in Mexico werethe Federal District (US $17696) Campeche (US $13153) and Nuevo Leoacuten (US

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$13033) the states with the lowest GDP per capita were Chiapas (US $3302) Oaxaca(US $3489) and Guerrero (US $4112)[30]

[edit] Components of the economy

Gross Domestic Product (GDP) in purchasing power parity (PPP) in 2006 was estimatedat US $1134 trillion and GDP per capita in PPP at US $10600[3] The service sector isthe largest component of GDP at 705 followed by the industrial sector at 257 (2006est) Agriculture represents only 39 of GDP (2006 est) Mexican labor force isestimated at 38 million of which 18 is occupied in agriculture 24 in the industrysector and 58 in the service sector (2003 est)

[edit] Agriculture and food production

[edit] History

Food and agriculture

Farmers in Puebla

Product Quantity (Tm) World Rank 1

Avocados 1040390 1

Onions and chayote 1130660 1

Limes and lemons 1824890 1

Sunflower seed 212765 1

Dry fruits 95150 2

Papaya 955694 2

Chillies and peppers 1853610 2

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Whole beans 93 000 3

Oranges 3969810 3

Anise badian fennel 32 500 3

Chicken meat 2245000 3

Asparagus 67247 4

Mangoes 1503010 4

Corn 20000000 4

1SourceFAO[31]

After the Mexican Revolution Mexico began an agrarian reform based on the 27th articleof the Mexican Constitution than included transfer of land andor free land distribution to peasants and small farmers under the concept of the ejido[32] This program was further extended during president Caacuterdenas administration during the 1930s[33] and continuedinto the 1960s at varying rates[34] The cooperative agrarian reform which guaranteedsmall farmers a means of subsistence livelihood also caused land fragmentation and lack of capital investment since commonly held land could not be used as collateral In aneffort to raise rural productivity and living standards this constitutional article wasamended in 1992 to allow for the transfer of property rights of the communal lands tofarmers cultivating it[35] With the ability to rent or sell it a way was open for the creation

of larger farms and the advantages of economies of scale Large mechanized farms arenow operating in some northeastern states (mainly in Sinaloa) However privatization of ejidos continues to be very slow in the central and southern states where the greatmajority of peasants produce only for subsistence

Up until the 1990s the government encouraged the production of basic crops (mainlycorn and beans) by maintaining support prices and controlling imports through the National Company for Popular Subsistence (CONASUPO) With trade liberalizationhowever CONASUPO was to be gradually dismantled and two new mechanisms wereimplemented Alianza and Procampo Alianza provides income payments and incentivesfor mechanization and advanced irrigation systems Procampo is an income transfer

subsidy to farmers This support program provides 35 million farmers who produce basiccommodities (mostly corn) and which represent 64 of all farmers with a fixed incometransfer payment per unit of area of cropland This subsidy increased substantially during president Foxs administration mainly to white corn producers in order to reduce theamount of imports from the United States This program has been successful and in2004 roughly only 15 of corn imports are white corn ndashthe one used for humanconsumption and the type that is mostly grown in Mexicondash as opposed to 85 of yellow

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and crashed corn ndashthe one use for feeding livestock and which is barely produced inMexico[36]

[edit] Importance of agriculture to Mexicos economy

Agriculture as a percentage of GDP has been steadily declining and now resembles thatof developed nations in that it plays a smaller role in the economy In 2006 agricultureaccounted for only 39 of GDP[3] down from 7 in 1980[37] and 25 in 1970[38]

Nonetheless given the historic structure of ejidos it still employs a considerably high percentage of the work force 18 in 2003[3] mostly of which grows basic crops for subsistence compared to 2ndash5 in developed nations in which production is highlymechanized

[edit] Crops

In spite of being a staple in Mexican diet Mexicos comparative advantage in agriculture

is not in corn but in horticulture tropical fruits and vegetables Negotiators of NAFTAexpected that through liberalization and mechanization of agriculture two-thirds of Mexican corn-producers would naturally shift from corn production to horticultural andother labor-intensive crops such as fruits nuts vegetables coffee and sugar cane[39]

While horticultural trade has drastically increased due to NAFTA it has not absorbeddisplaced workers from corn production (estimated at around 600000)[36] Moreover corn production has remained stable (at 20 million metric tons) arguably as a result of incomesupport to farmers or a reticence to abandon a millenarian tradition in Mexico not onlyhave peasants grown corn for millennia corn originated in Mexico Even today Mexicois still the fourth largest corn producer in the world[31]

The area dedicated to potatoes has changed little since 1980 and average yields havealmost tripled since 1961 Production has reached a record 17 million tonnes in 2003Per capita consumption of potato in Mexico stands at 17 kg a year very low compared toits maize intake of 400 kg[40] On average potato farms in Mexico are larger than thosedevoted to more basic food crops Potato production in Mexico is mostly for commercial purposes the production for household consumption is very small[41]

Approximately 160000 small- and medium-sized farmers grow sugar cane in 15Mexican states currently there are 57 sugar mills around the country Mexicos sugar industry is characterized by high production costs and lack of investment Mexico produces more sugar than it consumes[42]

[edit] Industry

Industrial production

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Mercedes-Benz factory in Santiago Tianguitenco

Main

industries

Aircraft automobile industry petrochemicalscement and construction textiles food and beverages mining consumer durables

tourism

Industrial

growth rate

36 (2006)

Labor force 24 of total labor force

GDP of

sector

257 of total GDP

The industrial sector as a whole has benefited from trade liberalization in 2000 itaccounted for almost 90 of all export earnings [14] Among the most important industrialmanufacturers in Mexico is the automotive industry whose standards of quality areinternationally recognized The automobile sector in Mexico differs from that in other Latin American countries and developing nations in that it does not function as a mereassembly manufacturer The industry produces technologically complex components andengages in some research and development activities[14] The Big Three (GeneralMotors Ford and Chrysler ) have been operating in Mexico since the 1930s whileVolkswagen and Nissan built their plants in the 1960s[43] Later Toyota Honda BMWand Mercedes-Benz joined in Given the high requirements of North American

components in the industry many European and Asian parts suppliers have also moved toMexico in Puebla alone 70 industrial part-makers cluster around Volkswagen[14] Therelatively small domestic car industry still is represented by DINA Camiones SA de CVthat has built buses and trucks for almost half a century and the new car companyMastrettadesign that builds the race car Mastretta MXT

Some large industries of Mexico include Cemex the third largest cement conglomerate inthe world[44] the alcohol beverage industries including world-renowned players likeGrupo Modelo conglomerates like FEMSA which apart from owning breweries and theOXXO convenience store chain is also the second-largest Coca-Cola bottler in the worldGruma the largest producer of corn flour and tortillas in the world and Grupo Bimbo

Telmex Televisa among many others In 2005 according to the World Bank high-techindustrial production represented 196 of total exports[45]

Maquiladoras (Mexican factories which take in imported raw materials and producegoods for export) have become the landmark of trade in Mexico This sector has benefited from NAFTA in that real income in the maquiladora sector has increased155 since 1994 though from the non-maquiladora sector has grown much faster [13]

Contrary to popular belief this should be no surprise since maquiladoras products could

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enter the US duty free since the 1960s industry agreement Other sectors now benefitfrom the free trade agreement and the share of exports from non-border states hasincreased in the last 5 years while the share of exports from maquiladora-border stateshas decreased

Currently Mexico is focusing in developing an aerospace industry and the assembly of helicopter and regional jet aircraft fuselages is taking place Foreign firms such as MDHelicopters and Bombardier build helicopter and regional jets fuselages respectively inMexico Although the Mexican aircraft industry is mostly foreign as is its car industryMexican firms have been founded such as Aeromarmi which builds light propeller airplanes and Hydra Technologies which builds Unmanned Aerial Vehicles such as theS4 Eheacutecatl

[edit] Energy and mineral resources

Mineral resources are the nations property (ie public property) by constitution As

such the energy sector is administered by the government with varying degrees of privateinvestment Mexico is the sixth-largest oil producer in the world with 37 million barrels per day[46] Pemex the public company in charge of administering research exploitationand sales of oil is the largest company (oil or otherwise) in Latin America making US$86 billion in sales a year [47] a sum larger than the GDP of some of the regions countries Nonetheless the company is heavily taxed a significant source of revenue for thegovernment of almost 62 per cent of the companys sales [7] Without enough money tocontinue investing in finding new sources or upgrading infrastructure and being protected constitutionally from private and foreign investment some have predicted thecompany may face institutional collapse[7] While the oil industry is still relevant for thegovernments budget its importance in GDP and exports has steadily fallen since the

1980s In 1980 oil exports accounted for 616 of total exports by 2000 it was only73[14]

[edit] Services

[edit] Overview

The service sector was estimated to account for 705 of the countrys GDP and employs58 of the active population[3] This section includes transportation commercewarehousing restaurant and hotels arts and entertainment health education financialand banking services telecommunications as well as public administration and defense

Mexicos service sector is strong and in 2001 replaced Brazils as the largest servicesector in Latin America in dollar terms[48]

[edit] Tourism

Tourism is one of the most important industries in Mexico It is the fourth largest sourceof foreign exchange for the country[25] Mexico is the eight most visited country in theworld (with over 20 million tourists a year)[49]

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[edit] Financial sector

[edit] Banking system

According to the IMF the Mexican banking system is strong in which private banks are

profitable and well-capitalized

[50]

The financial and banking sector is increasinglydominated by foreign companies or mergers of foreign and Mexican companies with thenotable exception of Banorte The acquisition of Banamex one of the oldest survivingfinancial institutions in Mexico by Citigroup was the largest US-Mexico corporatemerger at US $125 billion[51] In spite of that the largest financial institution in Mexicois Bancomer associated to the Spanish BBVA[52]

The process of institution building in the financial sector in Mexico has evolved hand inhand with the efforts of financial liberalization and of inserting the economy more fullyinto world markets[53] Over the recent years there has been a wave of acquisitions byforeign institutions such as US-based Citigroup Spainrsquos BBVA and the UKrsquos HSBCTheir presence along with a better regulatory framework has allowed Mexicorsquos bankingsystem to recover from the 1994ndash95 peso devaluation Lending to the public and privatesector is increasing and so is activity in the areas of insurance leasing and mortgages[54]

However bank credit accounts for only 22 of GDP which is significantly lowcompared to 70 in Chile[55] Credit to the Agricultural sector has fallen 455 in sixyears (2001 to 2007) and now represents about 1 of total bank loans[56] Other important institutions include savings and loans credit unions government development banks ldquonon-bank banksrdquo bonded warehouses bonding companies and foreign-exchangefirms[54]

A wave of acquisitions has left Mexicorsquos financial sector in foreign hands Their foreign-run affiliates compete with independent financial firms operating as commercial banks brokerage and securities houses insurance companies retirement-fund administratorsmutual funds and leasing companies Other important institutions include savings andloans credit unions government development banks ldquonon-bank banksrdquo bondedwarehouses bonding companies and foreign-exchange firms[57]

[edit] Securities market

Mexico has a single securities market the Mexican Stock Exchange ( Bolsa Mexicana de

Valores known as the Bolsa) The market has grown steadily with its main indicesincreasing by more than 150 in 2003ndash05 It is Latin Americas second largest exchangeafter Brazils Still the Bolsa remains relatively small when compared to other North

American exchanges The New York Stock Exchange is about 100 times larger theToronto Stock Exchange is six times larger

The Indice de Precios y Cotizaciones (IPC the general equities index) is the benchmark stock index on the Bolsa In 2005 the IPC surged 378 to 1780271 from 1291788 backed by a stronger Mexican economy and lower interest rates It continued its steeprise through the beginning of 2006 reaching 1927263 points at end-March 2006 Thestockmarket also posted a record low vacancy rate according to the central bank Local

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stockmarket capitalisation totalled US$236bn at end-2005 up from US$170bn at end-2004 As of March 2006 there were 135 listed companies down from 153 a year earlierOnly a handful of the listed companies are foreign Most are from Mexico City or Monterrey companies from these two cities compose 67 of the total listed companies

The IPC consists of a sample of 35 shares weighted according to their marketcapitalisation Heavy hitters are America Telecom the holding company that managesLatin Americarsquos largest mobile company Ameacuterica Moacutevil Telefonos de MexicoMexicorsquos largest telephone company Grupo Bimbo Mexico and Latin Americarsquos biggest baker and Wal-Mart de Meacutexico a subsidiary of the US retail giant The makeup of theIPC is adjusted every six months with selection aimed at including the most liquid sharesin terms of value volume and number of trades

Mexicorsquos stockmarket is closely linked to developments in the US Thus volatility in the New York and Nasdaq stock exchanges as well as interest-rate changes and economicexpectations in the US can steer the performance of Mexican equities This is both

because of Mexicorsquos economic dependence on the US and the high volume of trading inMexican equities through American Depositary Receipts (ADRs) Currently the declinein the value of the dollar is making non-US markets including Mexicos more attractive

Despite the recent gains investors remain wary of making placements in second-tier initial public offerings (IPOs) Purchasers of new issues were disappointed after pricesfell in numerous medium-sized companies that made offerings in 1996 and 1997 IPOactivity in Mexico remains tepid and the market for second-tier IPOs is barely visibleThere were three IPOs in 2005[58]

[edit] Government policies and the Central Bank

Financial indicators

Banco de Meacutexico headquarters

Currency exchange rate 993 MXN per 1 USD (July 2008)

Reserves including gold US $8501 billion (2006)

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Government budget US $1965 billion (revenues)

Public debt 207 of GDP (2006)

External debt US $1783 billion (2006)

Bank funding rate 7 (22007)

Banco de Meacutexico is Mexicos central bank an internally autonomous public institutionwhose governor is appointed by the president and approved by the legislature to which itis fully responsible Banco de Meacutexicos functions are outlined in the 28th article of theconstitution and further expanded in the Monetary Law of the United Mexican States[59]

Banco de Meacutexicos main objective is to achieve stability in the purchasing power of the

national currency It is also the lender of last resort

[edit] Currency policy

Mexico has had a floating exchange-rate regime since the December 1994 pesodevaluation Under this system Banco de Meacutexico makes no commitment to the level of the peso exchange rate although it does employ an automatic mechanism to accumulateforeign reserves It also possesses tools aimed at smoothing out volatility The ExchangeRate Commission sets policy it is made up of six membersmdashthree each from theMinistry of Finance and Public Credit (Secretariacutea de Hacienda y Creacutedito Publicomdash SHCP) and the central bank with the SHCP holding the deciding vote

In August 1996 Banco de Meacutexico initiated a mechanism to acquire foreign reserveswhen the peso is strong without giving the market signals about a target range for theexchange rate The resulting high levels of reserves mostly from petroleum revenueshave helped to improve the terms and conditions on debt Mexico places on foreignmarkets However there is concern that the government relies too heavily on oil incomein order to build a healthy base of reserves According to the central bank internationalreserves stood at US $758 billion in 2007[60] In May 2003 Banco de Meacutexico launched a program that sells US dollars via a monthly auction with the goal of maintaining astable but moderate level of reserves

In the summer of 2008 the Mexican economy became the strongest of Latin America theUS Dollars devaluation alongside with the Mexican Pesos strong stance has led to a purchase parity of $993 MXN per $100 USD the best value of the currency since the1994 Economic Crisis when the Peso plummeted

Experts believe that Mexico is going to be the 5th or 6th biggest economy in the world bythe year 2050 behind China United States India Brazil and Russia

8142019 The Economy of Mexico is 10th to 12th Largest in the World

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[edit] Monetary system

Mexicorsquos monetary policy was revised following the 1994ndash95 financial crisis whenofficials decided that maintaining general price stability was the best way to contribute tothe sustained growth of employment and economic activity As a result Banco de Meacutexico

has as its primary objective maintaining stability in the purchasing power of the peso Itsets an inflation target which requires it to establish corresponding quantitative targetsfor the growth of the monetary base and for the expansion of net domestic credit

The central bank also monitors the evolution of several economic indicators such as theexchange rate differences between observed and projected inflation the results of surveys on the public and specialistsrsquo inflation expectations revisions on collectiveemployment contracts producer prices and the balances of the current and capitalaccounts

A debate continues over whether Mexico should switch to a US-style interest rate-

targeting system Government officials in favor of a change say that the new systemwould give them more control over interest rates which are becoming more important asconsumer credit levels rise

Until 2008 Mexico used a unique system amongst the OECD countries[54] to controlinflation in a mechanism known as the corto (lit shortage) a mechanism that allowedthe central bank to influence market interest rates by leaving the banking system short of its daily demand for money by a predetermined amount If the central bank wanted to push interest rates higher it increased the corto If it wished to lower interest rates itdecreased the corto Starting in 2008 the Central Bank will set a referential interest ratelike the Federal Reserve Bank nonetheless the transition period will include the use of

the corto in certain circumstances[61]

[edit] Trade

International trade

World Trade Center in Mexico City

8142019 The Economy of Mexico is 10th to 12th Largest in the World

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Exports US $2488 billion fob (2006)

Imports US $2531 billion fob (2006)

Current

account

US $4001 million (2006)

Export

partners

US 909 Canada 22 Spain 14Germany 13 Colombia 09 (2006)

Import

partners

US 534 China 8 Japan 59 (2005)

Mexico is an export oriented economy It is an important trade power as measured by thevalue of merchandise traded and the country with the greatest number of free tradeagreements[62] In 2005 Mexico was the worlds fifteenth largest merchandise exporter and twelfth largest merchandise importer with a 12 annual percentage increase inoverall trade[63] In fact from 1991 to 2005 Mexican trade increased fivefold[64] Mexico isthe biggest exporter and importer in Latin America in 2005 Mexico alone exported US$2137 billion roughly equivalent to the sum of the exports of Brazil ArgentinaVenezuela Uruguay and Paraguay[63] However Mexican trade is fully integrated withthat of its North American partners close to 90 of Mexican exports and 50 of itsimports are traded with the United States and Canada Nonetheless NAFTA has not produced trade diversion[13] While trade with the United States increased 183 from1993ndash2002 and that with Canada 165 other trade agreements have shown even moreimpressive results trade with Chile increased 285 with Costa Rica 528 andHonduras 420[14] Trade with the European Union increased 105 over the same time period[14]

[edit] Free trade agreements

Mexico joined the General Agreement on Tariffs and Trade (GATT) in 1986 and today isan active and constructive participant of the World Trade Organization Foxsadministration promoted the establishment of a Free Trade Area of the Americas Puebla served as temporary headquarters for the negotiations and several other cities are nowcandidates for its permanent headquarters if the agreement is reached and implemented

Mexico has signed 12 free trade agreements with 44 countries

bull the North American Free Trade Agreement (NAFTA) (1994) with the United

States and Canada

8142019 The Economy of Mexico is 10th to 12th Largest in the World

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bull Grupo de los tres Group of the three [countries] or G-3 (1995) with Colombia

and Venezuela the latter decided to terminate the agreement in 2006 Mexicoannounced its intention to invite Ecuador Peru or Panama as a replacement

bull Free Trade Agreement with Costa Rica (1995)

bull Free Trade Agreement with Bolivia (1995)

bull

Free Trade Agreement with Nicaragua (1998)

Countries with which Mexico has signed an FTA

bull Free Trade Agreement with Chile (1999)

bull Free Trade Agreement with the European Union (2000)

bull Free Trade Agreement with Israel (2000)

bull TN Free Trade Agreement (2001) with Guatemala El Salvador and Honduras

bull Free Trade Agreement with the European Association of Free Trade integrated by

Iceland Norway Liechtenstein and Switzerland (2001)bull Free Trade Agreement with Uruguay (2004) and

bull Free Trade Agreement with Japan (2005)

Mexico has shown interest in becoming an associate member of Mercosur [65] TheMexican government has also started negotiations with South Korea Singapore andPeru[66] and also Mexico have interested with Australia to start negotiations for a tradeagreement between the two countries

[edit] NAFTA

Main article North American Free Trade Agreement

NAFTA emblem

The North American Trade Agreement (NAFTA) is by far the most important TradeAgreement Mexico has signed both in the magnitude of reciprocal trade with its partnersas well as in its scope Unlike the rest of the Free Trade Agreements that Mexico hassigned NAFTA is more comprehensive in its scope and was complemented by the NorthAmerican Agreement for Environmental Cooperation (NAAEC) and the North AmericanAgreement on Labor Cooperation (NAALC)

The NAAEC agreement was a response to environmentalists concerns that companieswould relocate to Mexico or the United States would lower its standards if the threecountries did not achieve a unanimous regulation on the environment The NAAEC in anaim to be more than a set of environmental regulations established the North AmericanCommission for Environmental Cooperation (NACEC) a mechanism for addressingtrade and environmental issues the North American Development Bank (NADBank) for assisting and financing investments in pollution reduction and the Border Environmental

8142019 The Economy of Mexico is 10th to 12th Largest in the World

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Cooperation Commission (BECC) The NADBank and the BECC have providedeconomic benefits to Mexico by financing 36 projects mostly in the water sector Bycomplementing NAFTA with the NAAEC it has been labeled the greenest tradeagreement[67]

The NAALC supplement to NAFTA aimed to create a foundation for cooperation amongthe three members for the resolution of labor problems as well as to promote greater cooperation among trade unions and social organizations in all three countries in order tofight for the improvement of labor conditions Though most economists agree that it isdifficult to assess the direct impact of the NAALC it is agreed that there has been aconvergence of labor standards in North America Given its limitations however NAALC has not produced (and in fact was not intended to achieve) convergence inemployment productivity and salary trend in North America[68]

The agreement fell short in liberalizing movement of people across the three countries Ina limited way however immigration of skilled Mexican and Canadian workers to the

United States was permitted under the TN status NAFTA allows for a wide list of professions most of which require at least a Bachelors degree for which a Mexican or aCanadian citizen can request TN status and temporarily immigrate to the United StatesUnlike the visas available to other countries TN status requires no sponsorship butsimply a job offer letter

The overall benefits of NAFTA have been quantified by several economists whosefindings have been reported in several publications like the World Bank s Lessons from NAFTA for LA and the Caribbean[68] NAFTAs Impact on North America[69] and NAFTArevisited by the Institute for International Economics[13] They assess that NAFTA has been positive for Mexico whose poverty rates have fallen and real income salaries have

risen even after accounting for the 1994ndash1995 Economic Crisis Nonetheless they alsostate that it has not been enough or fast enough to produce an economic convergence nor to reduce the poverty rates substantially or to promote higher rates of growth Some havesuggested that in order to fully benefit from the agreement Mexico should invest ineducation and promote innovation as well as in infrastructure and agriculture[68]

Contrary to popular belief the maquiladora program was in place far before NAFTA insome sense dating all the way back to 1965 A maquiladora manufacturer operates byimporting raw materials into Mexico either tariff free (NAFTA) or at a reduced rate on atemporary basis (18 months) and then using Mexicos relatively less expensive labor costs to produce finished goods for export Prior to NAFTA maquiladora companiesimporting raw materials from anywhere in the world were given preferencial tariff rates by the Mexican government so long as the finished good was for export The US prior to NAFTA allowed Maquiladora manufactured goods to be imported into the US with thetariff rate only being applied to the value of non US raw materials used to produce thegood thus reducing the tariff relative to other countries NAFTA has eliminated all tariffson goods between the two countries but for the maquiladora industry significantlyincreased the tariff rates for goods sourced outside of NAFTA

8142019 The Economy of Mexico is 10th to 12th Largest in the World

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Given the overall size of trade between Mexico and the United States there areremarkably few trade disputes involving relatively small dollar amounts These disputesare generally settled in WTO or NAFTA panels or through negotiations between the twocountries The most significant areas of friction involve trucking sugar high fructosecorn syrup and a number of other agricultural products[38]

[edit] Mexican Trade Facilitation amp Competitiveness

A research brief published by the World Bank [70] as part of its Trade Costs and Facilitation Project suggests that Mexico has the potential to substantially increase trade flows andeconomic growth through trade facilitation reform The study examines the potentialimpacts of trade facilitation reforms in four areas port efficiency customs administrationinformation technology and regulatory environment (including standards)

The study projects overall increments from domestic reforms to be on the order of $318 billion equivalent to 224 percent of total Mexican manufacturing exports for 2000-03

On the imports side the corresponding figures are $171 billion and 112 percentrespectively Increases in exports including textiles would result primarily fromimprovements in port efficiency and the regulatory environment Exports of transportequipment would be expected to increase by the greatest increment from improvementsin port efficiency whereas exports of food and machinery would largely be the result of improvements in the regulatory environment On the imports side Mexicanimprovements in port efficiency would appear to be the most important factor althoughfor imports of transport equipment improvements in service sector infrastructure wouldalso be of relative importance[71]

[edit] See also

bull Infrastructure

o Communications in Mexico

o Transportation in Mexico

bull List of Mexican companies

bull Next Eleven

bull Demographics of Mexico

[edit] References

1 ^ Mexicos IPC August 2007 Banco de Meacutexico (2008-09-01) Retrieved on 11September 2008

2 ^ Mexico World Banks Country Brief Retrieved on February 19 20073 ^ a b c d e f g Mexico The World Factbook CIA4 ^ forbes (2008-04-02) Latest release forbes Retrieved on 2006-07-015 ^ Perry GE Loacutepez JH Maloney WF et al (2006) Poverty Reduction and

Growth Virtuous and Vicious Cycles Washington DC The International Bank for Reconstruction and Development The World Bank p p148

8142019 The Economy of Mexico is 10th to 12th Largest in the World

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8142019 The Economy of Mexico is 10th to 12th Largest in the World

httpslidepdfcomreaderfullthe-economy-of-mexico-is-10th-to-12th-largest-in-the-world 2224

27 ^ (Spanish)Programa de las Naciones Unidas para el Desarrollo Informe sobredesarrollo humano Meacutexico 2004 (PDF) United Nations Retrieved on 2007-02-16

28 ^ (Spanish)INEGI Producto interno bruto por entidad federativa Participacioacutensectorial por entidad federativa Retrieved on 2007-02-16

29 ^ (Spanish)INEGI Producto interno bruto por entidad federativa Variacioacutenanual Retrieved on 2007-02-1630 ^ (Spanish)CONAPO Indices de Desarrollo Humano (PDF) Retrieved on

2007-02-1631 ^ a b Major Food and Agricultural Commodities and Producers Retrieved on

2007-02-1632 ^ (Spanish) Ejido Retrieved on 2007-05-2933 ^ (Spanish)Secretariacutea de Reforma Agraria Las Transformaciones del

Cardenismo Retrieved on 2007-05-2934 ^ Secretariacutea de Reforma Agraria Nuevas Demandas Campesinas Retrieved on

2007-05-29

35 ^ (Spanish)Secretariacutea de Reforma Agraria Trasformacioacuten InstitucionalRetrieved on 2007-05-2936 ^ a b Zanhiser S Coyle W (2004) US-Mexico Corn Trade During the NAFTA

Era New Twists to an Old StoryhttpwwwersusdagovpublicationsFDSmay04fds04D01 retrieved on 28September 2006

37 ^ Instituto Nacional de Geografiacutea Estadiacutestica e Informaacutetica Banco deInformacioacuten Econoacutemica Retrieved on 2007-02-16

38 ^ a b Hufbauer GC Schott JJ (October 2005) Chapter 5 Agriculture NAFTA Revisited Achievements and Challenges Washington DC Institute for International Economics pp 283ndash363 ISBN 0-88132-334-9httpwwwiiecompublicationschapters_preview33205iie3349pdf

39 ^ Nadal A (2002) Zea Mays Effects of Trade Liberalization of Mexicos CornSector in Deere CL Greening the Americas MIT Press Cambridge MAISBN-10 0262541386

40 ^ Potato World 41 ^ ISAAA Briefs 42 ^ httpwwwsignonsandiegocomnewsmexico20071211-1327-mexico-sugar-

html Sign on San Diego43 ^ Hufbauer GC Schott JJ (October 2005) Chapter 6 The Automotive

Sector NAFTA Revisited Achievements and Challenges Washington DCInstitute for International Economics pp 1ndash78 ISBN 0-88132-334-9 httpwwwiiecompublicationschapters_preview33206iie3349pdf

44 ^ Federal Trade Commission With Conditions FTC Allows CemexrsquosAcquisition of RMC Retrieved on 2007-05-29

45 ^ The World Bank Mexico Data Profile Retrieved on 2007-05-2946 ^ Energy Information Administration Top World Oil Net Exporters and

Producers Retrieved on 2007-02-1647 ^ Ameacuterica Economia Top 500 Companies in Latin America (Requires

subscription) Retrieved on 2007-02-16

8142019 The Economy of Mexico is 10th to 12th Largest in the World

httpslidepdfcomreaderfullthe-economy-of-mexico-is-10th-to-12th-largest-in-the-world 2224

27 ^ (Spanish)Programa de las Naciones Unidas para el Desarrollo Informe sobredesarrollo humano Meacutexico 2004 (PDF) United Nations Retrieved on 2007-02-16

28 ^ (Spanish)INEGI Producto interno bruto por entidad federativa Participacioacutensectorial por entidad federativa Retrieved on 2007-02-16

29 ^ (Spanish)INEGI Producto interno bruto por entidad federativa Variacioacutenanual Retrieved on 2007-02-1630 ^ (Spanish)CONAPO Indices de Desarrollo Humano (PDF) Retrieved on

2007-02-1631 ^ a b Major Food and Agricultural Commodities and Producers Retrieved on

2007-02-1632 ^ (Spanish) Ejido Retrieved on 2007-05-2933 ^ (Spanish)Secretariacutea de Reforma Agraria Las Transformaciones del

Cardenismo Retrieved on 2007-05-2934 ^ Secretariacutea de Reforma Agraria Nuevas Demandas Campesinas Retrieved on

2007-05-29

35 ^ (Spanish)Secretariacutea de Reforma Agraria Trasformacioacuten InstitucionalRetrieved on 2007-05-2936 ^ a b Zanhiser S Coyle W (2004) US-Mexico Corn Trade During the NAFTA

Era New Twists to an Old StoryhttpwwwersusdagovpublicationsFDSmay04fds04D01 retrieved on 28September 2006

37 ^ Instituto Nacional de Geografiacutea Estadiacutestica e Informaacutetica Banco deInformacioacuten Econoacutemica Retrieved on 2007-02-16

38 ^ a b Hufbauer GC Schott JJ (October 2005) Chapter 5 Agriculture NAFTA Revisited Achievements and Challenges Washington DC Institute for International Economics pp 283ndash363 ISBN 0-88132-334-9httpwwwiiecompublicationschapters_preview33205iie3349pdf

39 ^ Nadal A (2002) Zea Mays Effects of Trade Liberalization of Mexicos CornSector in Deere CL Greening the Americas MIT Press Cambridge MAISBN-10 0262541386

40 ^ Potato World 41 ^ ISAAA Briefs 42 ^ httpwwwsignonsandiegocomnewsmexico20071211-1327-mexico-sugar-

html Sign on San Diego43 ^ Hufbauer GC Schott JJ (October 2005) Chapter 6 The Automotive

Sector NAFTA Revisited Achievements and Challenges Washington DCInstitute for International Economics pp 1ndash78 ISBN 0-88132-334-9 httpwwwiiecompublicationschapters_preview33206iie3349pdf

44 ^ Federal Trade Commission With Conditions FTC Allows CemexrsquosAcquisition of RMC Retrieved on 2007-05-29

45 ^ The World Bank Mexico Data Profile Retrieved on 2007-05-2946 ^ Energy Information Administration Top World Oil Net Exporters and

Producers Retrieved on 2007-02-1647 ^ Ameacuterica Economia Top 500 Companies in Latin America (Requires

subscription) Retrieved on 2007-02-16

8142019 The Economy of Mexico is 10th to 12th Largest in the World

httpslidepdfcomreaderfullthe-economy-of-mexico-is-10th-to-12th-largest-in-the-world 2324

48 ^ The Mark Twain Institute Mexico Services Sector posts strong growthArgentina falls behind Based on Latin Business Chronicle on Services in LatinAmerica Retrieved on 2007-02-16

49 ^ UNTWO Worlds Top Tourism Destinations (absolute numbers) (PDF)Retrieved on 2007-02-16

50 ^ Mexico Financial System Stability Assessment Update (PDF) Retrieved on2007-05-2951 ^ Grupo Financiero Banamex Retrieved on 2007-02-1652 ^ (Spanish) Acerca de Bancomer Retrieved on 2007-02-1653 ^ Globalization The Role of Institution Building in the Financial Sector The

Case of Mexico (PDF) Retrieved on 2007-02-1654 ^ a b c Country Finance Main Report April 26 2006 (Mexico) (Requires

subscription) Retrieved on 2007-02-1655 ^ (Spanish) Mantiene sistema financiero baja penetracioacuten Werner Retrieved

on 2007-02-1656 ^ (Spanish) Zuacutentildeiga Juan Antonio (2006-02-20) El creacutedito a la agricultura cayoacute

455 en 6 antildeos La Jornadahttpwwwjornadaunammx20070220indexphpsection=economiaamparticle=028n1eco

57 ^ Country Finance Main Report April 26th 2006 (Mexico) Banks Overview58 ^ Country Finance Main Report April 26th 2006 (Mexico) Securities Market

Overview59 ^ (Spanish)Ley Monetaria de los Estados Unidos Mexicanos (PDF) Retrieved

on 2007-05-2960 ^ (Spanish)CF109 - Reporte sobre las reservas internacionales y la liquidez

Retrieved on 2007-05-2961 ^ Yuste Joseacute (2008) Corto con Tasas de Referencia Mundo Ejecutivo Access

date 20 February 200762 ^ (Spanish) Sobre Meacutexico Retrieved on 2007-02-1663 ^ a b WTO World Trade in 2005 - Overview (PDF) Retrieved on 2007-02-1664 ^ With data as reported by INEGI at httpwwwinegigobmx 65 ^ (Spanish) EFE (2006-07-21) Espera Meacutexico ser miembro del Mercosur El

Universal httpwwweluniversalcommxnotas363904html 66 ^ Think Tank Proposes FTA with EU Mexico Retrieved on 2007-05-2967 ^ Hufbauer GC Schott JJ (October 2005) Chapter 3 Environment

NAFTA Revisited Achievements and Challenges Washington DC Institute for International Economics pp 1ndash78 ISBN 0-88132-334-9httpwwwiiecompublicationschapters_preview33203iie3349pdf

68 ^ a b c Lederman Daniel William F Maloney amp Luis Serveacuten (2004) Lessons from

NAFTA for Latin American and Caribbean Countries A Summary of Research

Findings The World Bank ISBN-10 082135813869 ^ Weinstraub S (2004) NAFTAs Impact on North America The First Decade

CSIS Press Washington DC ISBN-10 089206451X70 ^ Trade Facilitation Reform Promises Large Gains to Trade in Mexico John S

Wilson amp Benjamin Taylor Trade Facilitation Reform Research Brief The WorldBank 2008

8142019 The Economy of Mexico is 10th to 12th Largest in the World

httpslidepdfcomreaderfullthe-economy-of-mexico-is-10th-to-12th-largest-in-the-world 2424

71 ^ Trade Facilitation Reform Promises Large Gains to Trade in Mexico John SWilson amp Benjamin Taylor Trade Facilitation Reform Research Brief The WorldBank 2008

[show] v bull d bull e

North American Free Trade Agreement (NAFTA)

[show] v bull d bull e

Member economies of the Asia-Pacific Economic Cooperation (APEC)

[show]

v bull d bull eCaribbean Community (CARICOM)

[show] v bull d bull e

Organisation for Economic Co-operation and Development (OECD)

[show] v bull d bull e

Members of the World Trade Organization (WTO)

[edit] External links

bull (Spanish) Mexican Council for Economic and Social Development

bull (Spanish) Mexico Development Gateway

bull

(English) OECDs Mexico country Web site and OECD Economic Survey of Mexico

Retrieved from httpenwikipediaorgwikiEconomy_of_MexicoCategories Economy of North America | Economy of Mexico | WTO member economies | OECD member economies