CHAPTER 12 Mexico

1
CHAPTER 12 Mexico

• Background
• Joined GATT 1985
• Removed trade barriers by 1987
• Except agriculture
• Financial liberalization began 1989
• Lower restrictions on foreign holdings ofstocks,
  bank accounts
• Deregulated foreign direct investment
• Banks privatized, less regulated

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CHAPTER 12 Mexico

• Background
• Joined NAFTA 1994
• Trade barriers already low
• Formalized new rules
• Reduced investor uncertainty
• Government could not change rules
• Major markets would stay open

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CHAPTER 12 Mexico

• After Free Trade
• Exports boomed 1985 2000
• Non-oil exports ? 12b to 150b
• Net capital inflows 3-4 GDP

Source NAFTA and Mexicos Economic Performance,
A.Tornell, F. Westermann, L.Martinez
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CHAPTER 12 Mexico

• After Free Trade
• Credit crunch 1995
• Credit boom ? nonperforming loans
• Credit-to-GDP 49 (1994) to 17 (2002)
• GDP, export stagnation 2001 - 2003
• Partially due to US recession
• Increased competition from China

Source NAFTA and Mexicos Economic Performance,
A.Tornell, F. Westermann, L.Martinez
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CHAPTER 12 Mexico
Retail Trade
GDP
Source www.oecd.org
6
CHAPTER 12 Mexico
UE rate
CPI
Source www.oecd.org
7
CHAPTER 12 Mexico
Current Balance
3 mo. rate
Source www.oecd.org
8
CHAPTER 12 Mexico

• Underlying Problems
• Contracts difficult to enforce
• Long delays in judgments (30 months)
• Poor enforcement of decisions
• Structural reforms required
• e.g. energy ? lower input costs
• Political instability
• Revolt in Chiapas (1994)
• Presidential candidate assassinated

Source NAFTA and Mexicos Economic Performance,
A.Tornell, F. Westermann, L.Martinez