Mexico (6926 words) Essay

Country Profile
Formal Name: United Mexican States (Estados
Unidos Mexicans).

Short Form: Mexico.

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Term for Citizen(s): Mexican(s).

Capital: Mexico City (called Meexico
or Ciudad de Meexico 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

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 Neovolcaanica 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

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

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, Mazatlaan, 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, Meerida, and Cancuun.

Aeeromexico 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 Accioon 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.

National Security
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 Luciia
in state of Meexico. 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.

The Economy
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

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

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
(Petrooleos 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

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 Laazaro Caardenas-Las
Truchas Steel Plant (Sicartsa) and Altos Hornos de Meexico
(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 Televisioon–Imevisioon).

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 Imevisioon
operates two national television networks, as well as several regional
and specialized channels. The government also operates Mexican Republic
Television (Televisioon de la Repuublica Mexicana),
which broadcasts news and educational and cultural programs to rural areas,
and Cultural Television of Mexico (Televisioon Cultural de
Meexico). A competing network, Televisioon
Independiente, operates seven stations. There are also some twenty independent

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 Televisioon
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 Cancuun 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 Cancuun, causing US$80 million worth of damage that
took three months to repair.

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.

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

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.

* *
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.)


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