Can Mexico Live Up to its Economic Promise?
Can Mexico Live Up to its Economic Promise?
“The political reality is that the honeymoons always wear off,” suggests AS/COA’s Eric Farnsworth on Mexico’s economic setbacks as reforms loom ahead.
Investors worldwide saw in Mexico a new global economic darling when the reform-minded administration of Enrique Pena Nieto returned the country’s Institutional Revolutionary Party, or PRI, to power on December 1. Optimism over structural reforms including education, telecommunications and energy, and taxation underpinned the widespread predictions that Mexico was the new Brazil.
Such lofty expectations have been scrapped, at least for this year, as external and internal factors have held Mexico back.
The U.S. economy has yet to pick up the speed needed to spur growth in Mexico, which exports 80 percent of manufactured goods to its northern neighbor. Meanwhile, the ongoing financial crisis in Europe hasn’t helped, either.
Domestically, Mexico remains hampered by entrenched structural issues including high levels of informality, weak market competition in important sectors and low wages that prevent internal consumption from driving growth, says Alejandro Villagomez, an economist with the Mexico City-based Center for Research and Teaching in Economics, or CIDE.
“All these elements have come together to create a very, very weak year,” he said.
Mexico’s finance secretariat has slashed its outlook twice this year, from 3.5 percent to 3.1 percent in May and, in August, to 1.8 percent. The GDP expanded an anemic 0.6 percent in the first quarter and 1.5 percent in the second, according to Mexico’s statistics agency INEGI....
“The political reality is that the honeymoons always wear off,” said Eric Farnsworth, vice president of the Council of the Americas. “The reform agenda is so immense that it was obvious that affected parties would try to claw back some of the protections that they had.”
Since late August, tens of thousands of unionized teachers have flooded the streets of the capital on an almost daily basis, snaggling traffic and even blocking road access to the international airport. They camped out in Mexico City’s historic Zocalo square until the Pena Nieto government evicted them ahead of the country’s independence day celebrations in mid-September....
