The Global Economic Crisis and Mexico: Forecast for the FuturePrintable Version
Thursday, May 28, 2009
For the first event in its newly-launched "Global Economic Crisis" study series, the Center for National Policy welcomed former Ambassador James Jones, co-chairman of Manatt Jones, and Leonardo Martinez- Diaz, a political economy fellow at the Brookings Institution and deputy director of the Partnership for the America's Commission, for a discussion focused on the impact of the global economic crisis on stability in Mexico and what that means for the United States. The discussion was moderated by National Public Radio's Tom Gjelten, an award winning journalist who covers economic, national security and intelligence issues for NPR.
Ambassador Jones opened the discussion by clarifying America's common misconceptions of the economic and security situation in Mexico. He first addressed the drug traffic activity in the country, which continues to be a criminal issue causing security issues and border trouble. He noted some of the immense difficulties in combating a problem that is so omnipotent through parts of the country while also remarking on the need to address the consumption issue in the United States as part of the solution. Also looking back to the 1990s and the peso devaluation that devastated the Mexican economy, Ambassador Jones described how much Mexico's crisis management capabilities have evolved since then, especially in terms of government transparency, banking and regulatory practices that have developed an increased confidence both in the nation and from the international community about the nation. Ambassador Jones also discussed the heavy impact the United States' recession has had on the country because of our highly integrated economic relationship. Mexico is the second largest market for United States exports, while 85% of Mexican exports come to the United States. While Ambassador Jones predicts there will be a significant decline in Mexico's GDP tied to the recent swine flu outbreak and other complimentary economic problems, he expressed confidence that Mexico is not presently—and will not become— a failing state because of its drastic improvements in governance as well as its growth potential in the future.
Martinez- Diaz then outlined five crucial economic challenges facing the country that its leadership must address in order to stimulate a full and sustainable recovery. The first obstacle Mexico must address is improving its global competiveness, especially with China. With its growing unemployment rates in the current downturn, Mexico is struggling to keep up with market demands. Related to this, Martinez-Diaz put forth domestic competition as the second challenge the Mexican leadership must deal with. Third, he discussed the ongoing need to increase tax revenue because the government's inability to collect taxes at a sufficient rate impacts its ability to fund projects. Also in terms of government revenue, he noted that Mexico must address the problem of declining oil revenues as well as the need to tap into alternative energy sources since some projections by the country's leadership believe that its oil exporting capabilities may only have "ten years left." Lastly, Martinez explained the need to establish a strong infrastructure and transportation network, especially in its trucking industry. This is necessary to facilitate not only domestic economic growth, but its ability to export to the United States and Canada. Martinez-Diaz compared Mexico's industrial decline to the auto industry of Detroit in terms of the ripple effect that it is has had on jobs in the country. In order to climb out of the current economic downswing, he believes that the country must focus on greater access to capital for the private sector, focusing on a shift away from reliance on oil, and making sure that the country's political system continues to adopt good governance reforms.
Both referenced the extreme disparities in wealth in the country as a major economic problem, with 40% of the population remaining in poverty. However, they feel that economic recovery and new employment opportunities may significantly lower this number. Both speakers also discussed the impact that the swine flu outbreak had on one of the national's major industries, tourism, but also how the government displayed a high degree of competence in dealing with the crisis. Provided the right resources, cooperation between the municipal and national government, and the support of the United States, both speakers felt that Mexico is well on the road to recovery and has the potential to rise one of the world's top five economies in the future.