Juan Vargas

John Boulet
November 22 2014
Comparative economic systems
Strengths and Weaknesses of Mexico
As a country Mexico has always been under the shadow of much
bigger countries for many reasons, mainly the main ally and one
of the closest ones U.S.A. But very few if any realize that this
country has not only potential but also a great future. Through
history is has undergone many changes ( insert here main
changes).
The current administration has not been characterized for
favoring the lower classes in Mexico, but regardless it has
allowed time to solve some of the issues that because of a lack
of capacity were not solved promptly in the negotiations tables.
The mechanisms of control applied by the current government to
the economic variables have solved some of the issues that
through the years previous governments had neglected.
On the flip side aspects that had been addressed started to be
neglected during the current government, some of these were the
basic activities for national development and growth of
employment for example agriculture and national industry, and
this complicated social stability.

During the six years (standard length) of mandate by the

previous president Vicente Fox Quesada many things changed, some
of them were:
GDP
The GDP has decreased during the last three mandates starting
with a reduction of 3.9% during the presidency of Carlos
Salinas, of 3.5% during Ernesto Zedillos and of 1.988% during
Vicente Foxs.
Demand in the world has kept a steady growth rhythm, regardless,
the participation of the Mexican Gross domestic product in the
global market has decreased from 73% to 70.1% during the last
six years, meeting the rest of the demand with an increase of
the imports from 27% to 29.5%. The participation of private
consumers in the world demand descended from 51.6% to 50.3%
during the same period. Government consumption went from 7% to
6% favoring the formation of gross capital that went up, from
14.3% to 15.2% and exports from 24.7% to 27.8% during the same
period.
PUBLIC DEBT
The gross public debt of the public sector went from 84,600.2
millions of dollars during the last quarter of the year 2001 to
73,002.5 during the second quarter of the year 2006, decreasing
its participation in the GDP from 13.9% to 8.8% in this period.
The reduction in the external debt was due to the surplus of

foreign investment in capital and the transferences of common

accounts, even though the factory and non-factory services
perceived a slight deficit. Internal debt did not suffer the
same tendency it increased from 712,046.7 millions of dollars to
1,476,525.4 million raising its participation in the GDP from
12.3% to 15.6%. Internal and external debts contracted their
participation in the GDP from 26.2% to 24.4% during the same
period.
COMMERCIAL BALANCE
Maquiladora Industry
The maquiladora industry represented 40.3% of the 2,057,784.9
millions of dollars commercialized in Mexico with the rest of
the world during the six years of mandate of president Fox. The
dynamism in the exports was enough to generate a surplus of
109,095.3 millions of dollars from year 2001 to the month of
June in the year 2006; outcome of the exports for 469,686.9
millions of dollars and imports for 360,591.6.
Non Maquiladora Industry
Opposite from the maquiladora industry, which for every dollar
imported generated exports for l.3 dollars, the non-maquiladora
industry presents during these six years a deficit of 147,980.4
millions of dollars, outcome of the imports of merchandise for
687,743.4 millions of dollars and exports for 539,763 million.
For every dollar that the industry exported the national

industry imported 1.27 dollars. Both industries maquiladora and

non-maquiladora presented together a deficit overall of 38,885.1
millions of dollars during president`s Fox Mandate.
EXTERNAL DEBT
The external debt of Mexico saw a deduction from 144,526.6
millions of dollars in the year 2001 to 133,647.9 during the
second quarter of the year 2006.
Total Credit of the Consolidated Commercial Banks
The total credit of the consolidated commercial banks moved from
882,752 millions of dollars in the year 2001 to 1,246,385 in the
year 2006; where the credits that grew the most were those
destined to consumption going from 58,741 millions of dollars in
the year 2001 to 320,768 millions of dollars in the year 2006.
From the credits destined to economic activities, the ones that
were affected the most were the farmers when they contracted
during the same period from 30,132 millions of dollars to 20,142
million.
PERFORMING LOANS
Consolidated commercial bank
Nonperforming loans reached their highest level in 1998 at
314,964 millions of dollars. Initially the six years had a
balance of 156,065, but at the end of June 2006 it had fallen to
23,535 millions of dollars. All sectors seem to have gone down
in the general balance of their overdue loans, except for

consumer credit which increased from 5,223 million to 12,195

million dollars in the same period.
Development Banks
Development banks followed the same behavior as the commercial
banks to reduce non-performing loans form 29,480 million dollars
at the beginning of the administration of President Fox to 8.034
billion dollars as of June 2006.
TOTAL POPULATION
The total population increased in the country from 97.5 million
inhabitants in 2000 to 103.3 million people by the year 2005 at
an average annual rate of growth of 1.16% in this period. The
growth rate has been decreasing during the last twenty years:
1985 to 1990 of 2.64%, from 1990-1995 to 2.32% and from 1995 to
2000 the increase was 1.35%. The trend of declining birth rates,
and Mexican emigration to other countries most notably the
United States of America in the last ten years, which has
received an average of 350,000 Mexicans per year, explains why
the populations growth rate is decreasing to the point in which
it will not before long reach a deficit.
Exchange rate
Exchange rate went from 9.45 in December 2000 to 10.98 in June
2006 representing an annual decline of the Mexican peso against
the dollar of 2.5% annually. The consumer price index in Mexico
was built during the presidency, of 1.3157% and cumulatively for

the United States of 1.1664%. Assuming that trade is done mainly

with the United States, the real exchange at the end of his term
would 10.66 dollars. (TRC. = 9.45 * (1.3157 / 1.1664). If the
exchange rate in the market is 10.98 presumably it would be
undervalued with a pro-Mexico trade.
ECONOMIC STRENGTHS AND WEAKNESSES OF THE NATION:
Strengths
The external public debt declined by 11,597.7 million.
The maquiladora industry besides generating employment in the
country contributed with 109,095.3 dollars.
The total external debt declined by 10,878.7 dollars
By reducing the debt, the debt service did too, generating
savings of 3,796 million.
Development banks bad loans fell to 27.2% of the existing one
at the beginning of this administration.
The annual population growth has drastically decreased to less
than half in the last 20 years, but is still higher than the
growth of world population despite the emigration.
Control of inflation and dollar inflows from foreign
investors, maquiladoras and Remittances, held an equilibrium
exchange rate, despite the growing deficit of the nonmaquiladora.

 Nonperforming loans of the consolidated commercial banks were

reduced to 15% of the total existing at the beginning of his
term, conserving only the ones destined for consumption.
Weaknesses
In an attempt to control inflation and the rates they lost the
opportunity for GDP growth despite the lack of economic crisis.
Gross domestic product lost 2.9 points against imports into
the attention of the global demand.
The public and private consumption lost 2.2 points in favor of
the gross capital formation and exports
Internal public debt rose from 712,046.7 million dollars to
1,476,525.4.
The maquiladora industry has a deficit of 147,980.4 millions
of dollars, averaging annual missing of 25,000 million.
Monetary aggregates suffered sharp increases generated by the
additional placement of government securities held by domestic
residents for 1,175,258 million dollars and held by residents
outside for 127,629 million dollars
The only commercial bank loans were promoted for consumption
and the most affected were those for agriculture.
Opportunities
Stability of economic variables with openness and security for
new investors.

 Opportunities for internal investment to the unmet demand

attended by foreign markets.
Possibility of saving in foreign exchange through import
substitution.
Profitable investments in public companies with the resources
generated by maquiladoras and transfers from abroad in national
development.
All transactions related to financial costs are balanced and
this reduces volatility and risk for the consumers money.
Reduced uncertainty in financial markets.
Threats
The relationship with the population marginalized by the
controls applied by the government has been reduced, to reduce
economic variables.
The threat of social unrest over rising unemployment,
emigration, crime, and the fate of public increase spending to
ensure public and private safety.
As a result of the control of the finance industry,
agriculture and services there has been a contraction in GDP
growth and consumption, paralyzing economic activity.
The increasing degradation of the domestic industry and the
disappearance of its infrastructure for control markets by
foreign industry.

 The gradual disappearance of crops and agricultural

infrastructure contribute to the loss of competitiveness in the
local and global market due to a lack of advice and financial
support.
The exchange rate apparently favors the nation, yet has only
benefited large corporations with the capacity of globalization
and competitive capacity operating on both sides of the border
by destroying the structures of regional development and
incorporating more and more to well positioned markets
traditionally occupied by Small and medium enterprises.
CONCLUSIONS
President Vicente Fox Quesada delivers good account in the
economic field, but he faces a society that feels marginalized
by lack of employment, progressive destruction of its industrial
and agricultural infrastructure, migration issues and the
absence of domestic policies that strengthen the internal
structures. While the government has a choice, he forgot that
his policies should be implemented by maintaining an economic
balance to give priority to the Mexican society in the country
rather than outside because this will raise GDP. The unregulated
globalization has allowed large corporations to saturate global
markets and gradually extended to well positioned markets that
were traditionally served by Small and medium enterprises,
promoting their disappearance. The possibility of supply of

cheap raw materials from anywhere in the world has allowed the
disappearance of unprofitable agricultural activities
intensifying regional unemployment and migration, which also has
created some if not all of the cultural problems the society
has.