The purpose of this analysis is to present
how economic trends affect internal politics in Mexico. The choice
of studying the internal political economic workings of our neighbors to
the south is based partly on its interdependence with the United States,
but also because Mexico is an excellent case study to observe the neoliberal
experiment in practice. Thus, this essay is inspired from the arguments
proposed by Thomas Friedman and William Greider with regards to neoliberal
economics. I guess you could say that this analysis is set up to
prove or reject some a priori suggestions about current global economics.
Very recently (February 23, 2000) the Secretaría de Hacienda y Crédito Público (SHCP)-Mexico's Finance Secretariat, released its latest numbers with regards to Gross Domestic Product (GDP) growth in 1999. The findings conclude that this previous year (1999), Mexico's GDP was reported at 3.7%, no surprise in part to a 5.2% high during fourth quarter earnings. For comparative purposes, Mexico expected an average growth of 3.0% for 1999-It closed the year 0.7% above expected. According to Javier Murcio, an economist for Credit Suisse First Boston in Latin America, "most of the growth in the year had been in industrial production geared towards exports." Deputy finance secretary Carlos Noriega Curtis boasts that the creation of 700,000 jobs in the formal economy was an important effect of this year's strong economic growth. However, Noriega cautioned that "this does not mean that our problem is solved…It only means that a dynamic economy revented our unemployment situation from worsening."
Although the Zedillo administration estimated a 1.25% fiscal deficit compared to GDP, the SHCP's numbers were .10% lower, reflecting 52.51 Billion pesos-equivalent to 1.15% of Mexico's GDP. Annual inflation held at 12.3% for 1999-which was lower than expected-however the University of New Mexico's Latin American Institute's figures-which this essay is based on, does not provide (how low?) was Mexico's predicted annual inflation rate. It is expected that for this fiscal year 2000, Mexico's annual inflation rate will drop from 12.3% to 10%, and 1999's fiscal deficit of 1.15% of GDP should look something more like 1.0% for 2000.
These numbers are not provided to amuse economic audiences, but rather
to illustrate the following section that focuses on the role of international
The Electronic Herd, argues Friedman makes its investment decisions in nations such as Mexico based on the ratings of Moody's Investors Service and Standard and Poor's. Moody's Investors Service has as one of its functions, to monitor a country's economic performance to determine credit access. During a 1995 visit to Canada (a NAFTA partner), the Moody's team advised the Canadian Finance Ministry and legislature that if their "deficit-to-GDP ratio" did not conform with international expectations, Canada's rating of "triple-A" would be downgraded: A financial blow that would compel Canada and Canadian companies to accept higher interest rates to borrow abroad (Friedman, 92). After a recent February visit to Mexico, Moody's team changed its "stable" outlook to a "positive" one with regards to Mexico's "investment grade. Carlos Fritsch, an analyst of Casa de Bolsa Interacciones was quoted by saying that "it is too risky for Moody's to change its rating for Mexico until the new government is in place."
At this point, it is safe
to assume that the reader is probably asking him/herself-what is so important
about a change in investment grade in Mexico? The answer: Elections, baby,
elections. In July 2, millions of registered Mexican voters will determine
the fate of the Partido Revolucionario Institucional (P.R.I.)-Mexico's
ruling party for 71 years. If Moody's makes its decision prior to elections,
then Francisco Labastida-the frontrunner for the P.R.I could cite the successful
change of "investment grade" rating as a political "see what the P.R.I.
has done for you" sound bite. However the contender from the Partido Acción
Nacional's (P.A.N)--Vicente Fox should be at least concerned. Mauro
Leos, a sovereign-debt analyst at Moody's was quoted in saying that "(Moody's)
could well decide to change its Mexico rating before the election, especially
given the incident-free primary held by the governing Partidio Revolucionario
Institucional (PRI) in November." In short, if Moody's decides to change
its "investment grade" before elections, this "will help lower financing
costs and give us greater access to credit" said a hopeful Finance Secretary,
Jose Angel Gurria Trevino. If the argument of economic growth equals
prosperity holds true, then greater access to international credit would
give Mexican entrepreneurs incentives to expand in an economy where commercial
banks provide less that one-fourth of financing to the private sector.
I can see Labastida's speechwriters now: "thanks to the P.R.I's economic
success managing our fiscal deficit, we were able to receive a higher international
credit rating which allowed our Mexican businesses to invest, expand, and
create more jobs for you, for our us, for Mexico!…(the crowd cheers)
…!Viva México!…¡Viva el P.R.I!…¡Que Viva Labastida!…!"
"said the upgrade reflected its belief that, whichever of the two leading candidates won the July 2 presidential election, they would maintain prudent macroeconomic policies. These included cautious fiscal and monetary policies, a manageable current account deficit financed mostly by foreign direct investment, and a falling foreign debt burden."
The a-political nature of the decision by Standard and Poor's was a savvy political statement, but also an important feature of centrist politics today. Although the P.R.I. and the P.A.N have different ideological perspectives, a recent article by The Economist reveals that both Labastida and Fox promise 7% economic growth and 1.35 million jobs by relying on foreign investment and exports. If you recall the introduction to this essay, it provided some economic indicators for the current administration that revealed GDP growth at 3.7% and job growth at 700,000 for 1999. As you can see, both candidates expressed the idea of 'doubling' the 1999 figures-given this economic ideological predictability-we see S & P's decision as rational.
But international actors such as the Inter-American Development Bank is concerned that instead of focusing on foreign direct investment, policymakers in Latin America should consider courting "portfolio investment and debt finance", reported the Financial Times on March 24th.
Arturo Porzecanski-chief economist at ING Barings, Latin America-is
concerned "In public and in private, several government officials have
been expressing their concerns over the ramifications of too much capital
coming into Mexico" (Financial Times, March 8th). His concerns are shared
by senior Latin American economist at Merrill Lynch in New York-Gray Newman.
Newman reported to the L.A. Times that good news from Moody's would bring
large inflows of cash to Mexico, thus resulting in "a rapid growth in consumption."
James F. Smith, who wrote the piece in the Times, proposes that Mexico's
balance-of-payments deficit situation could increase as a result of increasing
The Financial Times, London:
The Arizona Republic, 3.21.2000
The L.A. Times, 3.10.2000
Freidman, Thomas L. The Lexus and the Olive Tree
The Economist, February 19, 2000.