So far, so good. The Mexican Policy Makers now need to get back to The Drawing Board if they want to Convert The Recent Rebound in Economic Activity into a long-term Sustainable Recovery.
Further, much of the boost to the economic numbers comes from the Mexican government, which stepped up its assistance to the economy during 2010. Government consumption expenditures increased by 5.7% during Q2 2010 compared to a meager increase of 0.6% during Q2 2009. No doubt, the rebound has some teeth if Mexico’s export sector (exports of goods and services grew by 28.8% y-o-y during H1 2010) is examined, but this positive performance too is negated by a 25.9% increase in the imports during the same period.
So, is there a way out for this crime-prone nation that also has a history of bad economic decision making (Economic Deterioration in the 1970s, 1982 Debt Crisis, 1995 Tequila Crisis, to name a few)? While Banco de México didn’t respond to the queries sent by B&E (till the time this magazine went to print), Eugenio J. Aleman, the US based Senior Economist at Wells Fargo Securities tells B&E, “The Mexican economy requires serious reforms that must include constitutional changes to allow FDI in the all-important petroleum sector. However, we believe there is no political will to do this today. Maybe a change in the political landscape in the coming years will create the opportunity to move in this direction.”
No doubt, the government’s responses to the recent global financial crisis have helped the country weather the 2009 recession, but then Mexico’s key challenge now will be to reform its tax system to replace the declining share of oil revenues (which constitutes about 40% of total revenues) with tax revenues as the oil production in the country has fallen from over 2 million barrels per day in 2005 to below 1 million barrels per day. With Mexico’s tax revenues representing only 10% of GDP (Mexico has one of the lowest tax collection rates in Latin America), policymakers will now find it hard to meet the economy’s growing needs.
Further, Mexico’s over dependence on US, which makes it vulnerable to the economic threats, also needs to be done away with. Although Mexican policymakers have done their bit over the last 20 years through trade liberalisation, privatisation efforts, and a floating exchange rate regime, these policies have not been enough to protect Mexico from fluctuations in the US. What’s more? Mexico shipped about 80% of its total exports (about 26% of its GDP in 2009) to US last year. Thus, a change in US demand can have a severe impact on Mexico’s economic health.
No doubt, the Mexican economy is rebounding, but there is nothing much for policy makers to actually celebrate. And if they really want to do so, they definitely need to get back to the drawing board to craft structurally logical polices that ensure a steep rise in the gross fixed investments and tax revenues apart from some serious reforms which includes allowing FDI in all-important petroleum sector. Else, the war on drugs may soon become their secondary focus!
So, is there a way out for this crime-prone nation that also has a history of bad economic decision making (Economic Deterioration in the 1970s, 1982 Debt Crisis, 1995 Tequila Crisis, to name a few)? While Banco de México didn’t respond to the queries sent by B&E (till the time this magazine went to print), Eugenio J. Aleman, the US based Senior Economist at Wells Fargo Securities tells B&E, “The Mexican economy requires serious reforms that must include constitutional changes to allow FDI in the all-important petroleum sector. However, we believe there is no political will to do this today. Maybe a change in the political landscape in the coming years will create the opportunity to move in this direction.”
No doubt, the government’s responses to the recent global financial crisis have helped the country weather the 2009 recession, but then Mexico’s key challenge now will be to reform its tax system to replace the declining share of oil revenues (which constitutes about 40% of total revenues) with tax revenues as the oil production in the country has fallen from over 2 million barrels per day in 2005 to below 1 million barrels per day. With Mexico’s tax revenues representing only 10% of GDP (Mexico has one of the lowest tax collection rates in Latin America), policymakers will now find it hard to meet the economy’s growing needs.
Further, Mexico’s over dependence on US, which makes it vulnerable to the economic threats, also needs to be done away with. Although Mexican policymakers have done their bit over the last 20 years through trade liberalisation, privatisation efforts, and a floating exchange rate regime, these policies have not been enough to protect Mexico from fluctuations in the US. What’s more? Mexico shipped about 80% of its total exports (about 26% of its GDP in 2009) to US last year. Thus, a change in US demand can have a severe impact on Mexico’s economic health.
No doubt, the Mexican economy is rebounding, but there is nothing much for policy makers to actually celebrate. And if they really want to do so, they definitely need to get back to the drawing board to craft structurally logical polices that ensure a steep rise in the gross fixed investments and tax revenues apart from some serious reforms which includes allowing FDI in all-important petroleum sector. Else, the war on drugs may soon become their secondary focus!
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
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An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
