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| MEXICAN ECONOMY | |
 July 12, 2000  |
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Mexican President-elect Vicente Fox has proposed a more open U.S.-Mexican border and increased free trade. Three experts discuss the idea, after a background report.
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But there are a number of cautionary figures. The trade deficit with the U.S. and other nations is widening. The price of oil -- which accounts for one third of the Mexico's revenues -- is expected to decline. The wealth gap between the industrialized north and the rural South remains wide, and then there's something called the "Sexenio Curse."
For his part, the president-elect -- a former Mexican state governor and Coca Cola executive -- has set some ambitious targets: A 7 percent economic growth rate, up from the recent 4-5 percent range. 1.3 million new jobs, to provide work for all young people entering the work force, and a doubling of foreign investment -- to $20 billion a year. The specifics of the Fox agenda are still to be worked out, but a key element is expanding the North American free trade agreement, or NAFTA, using the European Union as a model. Fox spoke on the NewsHour in March.
RAY SUAREZ: After his election, fox repeated his vision for North America, and said the Mexican economy was one of his first priorities.
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| Can Fox achieve his goals? | ||||||||||||||||||||
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ROBERTO SALINAS, TV Azteca: Yes, he does. He leaves him in good macroeconomic
shape, in so far as the main fundamentals concerning the Hopefully this will also provide a window of opportunity in the next four months before transition of power takes place in order to undertake some initiatives that are before Congress that would leave him in -- that would leave Vicente Fox in an even better standing to undertake his ambitious economic agenda of 7 percent growth on an annual basis, a lowering of inflation and a doubling of foreign investment. These include among others, deregulation of the electricity sector, a sector which is still state owned, as well as deregulation of the energy sector, greater competition in telecommunications, the flexiblization of labor law, as well as other micro-economic initiatives that are critical in order to energize the Mexican economic population and begin to fuel the forces of growth. I believe this is achievable with a window of opportunity both that Ernesto Zedillo has from here to December 1 when Vicente Fox takes office, and especially in collaboration with the new team that Vicente Fox is trying to put together. RAY SUAREZ: Jorge Mariscal, is it reasonable to assume that we won't find ourselves in a every 6-year crisis this time around?
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Furthermore, the markets have reacted with a vote of confidence, they applauded his election, with, as you pointed out at the beginning of the show, a rally in the stock market in bonds, in the peso. So, so far so good. Clearly, one is the pre-election wishful feeling, and now the real world comes in, real politics, and what can be done. And now the markets are going to be watching how well he's poised to deliver on all these promises. RAY SUAREZ: Well, Carol Wise, let's talk about that intersection where politics and economics collide. In 20 years, the income of the average Mexican has only gone up a little more than 2 percent. There must be tremendous pressure to deliver quickly.
So some of the things that the president-elect has talked about are essential; he's virtually talking about a human capital shock, doubling the levels of expenditure in education, more carefully targeting education to those sectors of society that have really fallen in terms of real wages.
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| Realistic goals for all of Mexico? | ||||||||||||||||||||
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RAY SUAREZ: But can he do that and still stay within the austere spending goals that he wants to keep within and maintain the currency?
So it isn't that the PRI hasn't made some headway, but there's a tremendous amount more to do within the expenditure categories that are already allocated. RAY SUAREZ: Jorge Mariscal, we talked about it a little bit in the report that opened this segment, about how Mexico is still economically two countries, one with almost African levels of annual income and poverty, another one ready to join the global middle class. How does a new president address the concerns of both these two Mexicos?
And one of the proposals he has put forth in his pre-campaign speech at least is that he is going to give tax breaks to corporations reinvesting particularly in the South so as to create tax incentives for development in that region. But clearly this is one of the challenges; Mexico is very bipolar, and I think that addressing that through pure purely fiscal means is not enough. It's a long-term proposition. Education, which is a core element in his program, I think is going to play a tremendous role. But you pointed right, I think this is one of the big challenges he has -- poverty and isolation, particularly in the southern part of the country, is something that needs to be addressed a long time ago and hopefully now will be. RAY SUAREZ: Roberto Salinas, again looking at those two Mexicos, the exit polls also show that the poorest Mexicans are the ones who really didn't support him in large numbers, it's the ones who Jorge refers to as being part of North America, who did. What does that mean for his freedom to work in the economy now, and maybe do some big things? ROBERTO SALINAS: Well, the rural areas and the so-called poor vote
is representative of what Mexicans call a misery vote -- those that
live in extreme poverty and in poverty that depend a great deal on government
subsidies, on bureaucratic interventions and initiatives, that, there
was a I will give you subsidies in exchange for your vote. This is part of the machinery that kept the PRI for 71 years in the executive power, the longest running regime, the longest running party in the 20th century -- well, now the 21st century. Be that as it may, I think there is an opportunity now to address the issues of poverty independently of party politics or of vote buying. And this means that Fox has promised to increase spending and education, not merely increase the size of this education budget, but how do you spend it. The way that Fox plans to spend public funds on education is critical in order to invest in such human resources. Now, 7 percent growth if it's attainable, and I believe it is fully attainable, if not more, with a stable currency and a stable price level over a long period of time, Fox is talking about a 25-year vision about laying the basis for 25-year program, that's the type of long-term strategy that is going to enable to bring prosperity to the poorest regions of Mexico -- independently of the fact that there is a very deep division, as Jorge acknowledged. RAY SUAREZ: Well, Carol Wise, the president elect has talked about the differential in wages for doing the same job, when you cross the border into Texas or Southern California. Those jobs that he's talking about, putting together televisions, putting together automobiles, making computer keyboards, those are jobs that once would have provided a very nice healthy leg up into the middle class for a worker here. But there they're talking about a few dollars a day in wages. What is it that keeps those jobs at that level, and is industrialization and modern industry really going to be a road into the middle class for these Mexican workers?
Workers supported the PRI, thinking this was the only vehicle they had to advance and obtain social mobility until finally the game was up. Finally since the 1982 debt crisis, as you pointed out in the beginning of our discussion, those gains have just really not been delivered. So I believe what we're seeing now is a new president that is not beholden to the same interests, that is not going to really feel obligated to engage in the same kinds of bureaucratic interventions and whatnot and I think we can begin to see some real dynamism unleashed in what we call the real economy, everyday work life in Mexico for the first time, certainly the first time in the post World War II era. RAY SUAREZ: Jorge Mariscal, when you hear the president elect talking about making Mexico into a first world country, about a single North American currency, about using the EU as a model, what does he have to do during his six-year term to make these ten and twenty-year projects even plausible, even something that's in the realm of the real? JORGE MARISCAL: Well, there are a number of structural reforms that I think President Fox will be in a much better position to implement than his predecessors. Number one: a change in the rule of law. Everybody knows Mexican cities are dangerous, the police is corrupt. We need a stronger hand to eliminate corruption in the police, to deal with narco-traffic -- that is one area; privatizing government -- state assets that are draining the government budget and that represent a major burden on society; making sure that labor regulations create employment and not deter employment are I think some of the bases. Now, these are cultural changes that go against 71 years of history. They're not going to happen overnight, they're going to be difficult major challenges. People voted for change on July 2nd, and now the change has to be implemented and Fox has a great deal of challenge ahead for him, a lot of work. RAY SUAREZ: Roberto Salinas, reports are coming from Mexico of provincial towns with small factories with signs in the window begging for workers, talking about flows across the border to the United States slowing down if the economy continues at this pace. What does he have to do short-term, Vicente Fox, to keep that kind of robust growth going?
Fox did the impossible. He defeated the PRI. He got the PRI out of the Mexican white house, which we call Los Pinos. That gives him a great deal of political capital in order to maneuver the types of structural reforms that Jorge was alluding to. Electricity for instance is absolutely critical. There's a great deal of money -- next year alone, $5 billion are going to be spent of taxpayer money, unless the congress approves legislation to allow greater investment, private investment into the electricity sector -- labor law reform. And of course one of the big challenges, fiscal reform, tax reform to both streamline bureaucracy, streamline spending, and allow for tax simplification and the development of a broader tax base. I believe that his first year in office, certainly his first six months in office, he does have the window of opportunity, and the political honeymoon to undertake many of these reforms. It will be difficult for the divided congress and with the type of political climate that is developing right now. But I believe it is possible. And this would generate the momentum or capitalize on the good economy that he's inheriting in order to turn the Mexican economy into an economy that registers not just low inflation and stable prices, but also very high growth. RAY SUAREZ: Roberto Salinas, panelists, thank you all very much. |
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RAY
SUAREZ: After Mexicans chose Vicente Fox as their next president earlier
this month, Mexico's financial markets reacted. The stock index jumped
6 percent, and the peso gained 3 percent against the dollar. More broadly,
the economy -- which Fox inherits when he takes office December 1 --
has a number of pluses: Four straight years of growth in the gross domestic
product; inflation and unemployment at record lows; and a stable peso
-- now backed by $32 billion in currency reserves designed to prevent
a crash. 
In
each of the past four six-year election cycles Mexico has suffered a
financial collapse: The peso has plunged, interest rates have soared,
and lending has come to a halt. So far, outgoing President Ernesto Zedillo
-- an economist -- has worked hard to keep the curse at bay. 
VICENTE
FOX: (March 21) A worker on the Mexican side will make $5 a day; in
the states, the same work would make $60 a day. What we have to really
worry about at the end is reducing that gap and eliminating those differences.
I'm talking long-term. So our proposal is to move to a second phase
of NAFTA, where in five to ten years that border will be open to free
flow of people, workers, transiting in the border between our two countries,
same as we're doing with products, services and merchandise. And longer
on a 20- to 30-year period, we should try to look for a common market
of North America ideas. 
RAY
SUAREZ: For more on the Mexico economy, we're joined by Roberto Salinas,
director of policy analysis and weekly commentator with TV Azteca, a
Mexican television station serving Latin America; Jorge Mariscal, chief
Latin American investment strategist for Goldman Sachs; and Carol Wise,
professor of political economy at the Johns Hopkins University School
of Advanced International Studies. Roberto Salinas, for all the real
challenges that the new president will face, does the departing president
leave him in pretty good shape, poised to work on some of these ambitions?
deficits,
concerning the exchange rate, concerning the whole macroeconomic and
fiscal house, seem to be in order. 
JORGE
MARISCAL, Goldman Sachs: I think it's quite reasonable to assume that
this time around. The economy is, as Roberto said, is in much better
shape than it was in 1994. 
CAROL
WISE, Johns Hopkins University: There is tremendous pressure. I think,
if anything, that's what finally got the PRI at the polls during this
last election. I think if you saw a lot of the interviews with average
working people in Mexico, they see social mobility all around them,
and the impact of all this dynamism that's been delivered under the
North American Free Trade Agreement, but they don't feel it in their
immediate working lives. 
CAROL
WISE: I believe he has a lot of room to do that, because if we look
at, particularly his proposal for education expenditure, there is tremendous
room within what's being spent to improve the quality, the delivery,
the targeting, to make it more geared toward the kind of skills that
people need to improve their position in labor markets in Mexico. 
JORGE
MARISCAL, Goldman Sachs: It is a tremendous challenge. The North of
Mexico is for all practical purposes really a part of North America.
The South of Mexico is part of Latin America, if you wish. 
vicious
cycle there of a tit for tat. 
CAROL
WISE: I think you're hitting on a really important point. As far as
I see it, some of these repressed wages are sort of part of the pathology,
the political pathology that kept the PRI in power for so long, people
voted for them, as your other guests are saying because of the access
to subsidies, sort of bare subsistence subsidies, but also they call
it the politics of future promises.