The Mexican Economy 



       I. Historical, Population, Culture, Political, and Economic Information History Mexico was the site of some of the earliest and most advanced
       civilizations in the western hemisphere. The Mayan culture, according to archaeological research, attained its greatest development about the 6th
       century AD. Another group, the Toltec, established an empire in the Valley of Mexico and developed a great civilization still evidenced by the ruins
       of magnificent buildings and monuments. The leading tribe, the Aztec, built great cities and developed an intricate social, political, and religious
       organization. Their civilization was highly developed, both intellectually and artistically. The first European explorer to visit Mexican territory was
       Francisco Fernndez de Crdoba, who in 1517 discovered traces of the Maya in Yucatn. In 1535, some years after the fall of the Aztec capital,
       the basic form of colonial government in Mexico was instituted with the appointment of the first Spanish viceroy, Antonio de Mendoza. A
       distinguishing characteristic of colonial Mexico was the exploitation of the Native Americans. Although thousands of them were killed during the
       Spanish conquest, they continued to be the great majority of inhabitants of what was referred to as New Spain, speaking their own languages and
       retaining much of their native culture. Inevitably they became the laboring class. Their plight was the result of the 'encomienda' system, by which
       Spanish nobles, priests, and soldiers were granted not only large tracts of land but also jurisdiction over all Native American residents. A second
       characteristic of colonial Mexico was the position and power of the Roman Catholic church. Franciscan, Augustinian, Dominican, and Jesuit
       missionaries entered the country with the conquistadores. The Mexican church became enormously wealthy through gifts and bequests that could
       be held in perpetuity. Before 1859, when church holdings were nationalized, the church owned one-third of all property and land. A third
       characteristic was the existence of rigid social classes: the Native Americans, the mestizos, mixed Spanish and Native American (an increasingly
       large group during the colonial era), black slaves which were brought from Africa and the Caribbean, freed blacks and white Mexicans. The white
       Mexicans were themselves divided. Highest of all classes was that of the peninsulares, those born in Spain, as opposed to the criollos, or
       Creolespeople of pure European descent who had been born and raised in New Spain. The peninsulares were sent from Spain to hold the
       highest colonial offices in both the civil and church administrations. The peninsulars held themselves higher than the criollos, who were almost never
       given high office. The resentment of the criollos became an influential force in the later movement for independence. In 1808 the viceroy, under
       pressure from influential criollos, permitted them to participate in the administration. Other peninsular officials objected and expelled the viceroy. In
       the midst of these factional struggles a political rebellion was begun by the Mexican people. Mexico has been rocked by political rebellion during
       most of its entire history in one way or another. Under the various dictatorships that Mexico found itself under at times in history, it made
       tremendous advances in economic and commercial development. Many of the new undertakings were financed and managed by foreigners (mostly
       American and European). This was and continues to be a major factor in the discontent of most Mexicans. Moreover, the government favored the
       rich owners of large estates, increasing their properties by assigning them communal lands that belonged to the Native Americans. When the
       Native Americans revolted, they were sold into peonage. Discontent, anger and a spirit of revolt continued to grow throughout Mexico. Madero
       was elected president in 1911, but was not forceful enough to end the political strife. Other rebel leaders, particularly Emiliano Zapata and
       Francisco (Pancho) Villa, completely refused to submit to presidential authority. Victoriano Huerta, head of the Madero army, conspired with the
       rebel leaders and in 1913 seized control of Mexico City. New armed revolts under Zapata, Villa, and Venustiano Carranza began, and Huerta
       resigned in 1914. Carranza took power in the same year, and Villa at once declared war on him. In addition to the ambitions of rival military
       leaders, intervention by foreign governments seeking to protect the interests of their nationals added to the confusion. In August 1915, a
       commission representing eight Latin American countries and the United States recognized Carranza as the lawful authority in Mexico. The rebel
       leaders, except for Villa, laid down their arms. The bandit leader incited his forces to commit crimes against Americans to show his resentment
       against the United States and in 1916 led a raid on Columbus, New Mexico. As a result, an American force under General John J. Pershing was
       sent to Mexico. A new constitution, enacted in 1917, provided for a labor code, prohibited a president from serving consecutive terms,
       expropriated all property of religious orders, and restored communal lands to the Native Americans. Many provisions dealing with labor and social
       welfare were advanced. Some of the most drastic were intended to curb foreign ownership of mineral properties and land. In 1936 an
       expropriation law was passed enabling the government to seize private property whenever necessary for public or social welfare. The national
       railways of Mexico were nationalized in 1937, as were the soil rights of the oil companies. A government agency called Petrleos Mexicanos, or
       Pemex, was created to administer the nationalized industry. The expropriations seriously affected the Mexican oil industry, for it became difficult
       for Mexico to sell oil in U.S., Dutch, and British territories. Mexico was forced to arrange barter deals with Italy, Germany, and Japan. The oil
       trade with these nations was interrupted by World War II. In 1940, the so-called Good Neighbor Policy of the United States became dominant in
       Mexican politics. This policy involved close cooperation with the United States in commercial and military matters. Mexico agreed to allow the
       United States Air Force to use Mexican airfields and also agreed to export critical and strategic materials (mostly minerals) only to countries in the
       western hemisphere. Consistent with its policy of cooperation with the United States, Mexico severed diplomatic relations with Japan, Italy and
       Germany in December 1941. In May 1942, after the sinking of two Mexican ships by submarines, the Mexican Congress declared war on
       Germany, Italy, and Japan. Later that same year a trade agreement, establishing mutual tariff concessions, was negotiated by Mexico and the
       United States. In 1944, Mexico agreed to pay U.S. oil companies $24 million plus interest, for oil properties expropriated in 1938. In June 1945,
       Mexico became an original member of the United Nations. The government stabilized the peso in with the aid of loans from the Treasury of the
       United States and the International Monetary Fund. In 1950, the problem of Mexican laborers who entered the United States to seek seasonal
       farm employment became a matter of grave concern to the two governments. Official agreements between Mexico and the United States provided
       for the legal entry of a specified number of such workers annually. Approximately 1 million, however, crossed the border illegally every year. The
       problem was further complicated by the demand of the Mexican government for guarantees against the exploitation of its citizens by U.S.
       employers and by the hostility of U.S. farm labor organizations toward the competition of Mexican migratory laborers willing to work for
       substandard wages. In March 1952, the Congress of the United States passed a bill providing for the punishment by fines and imprisonment of
       those recruiting and employing aliens who entered the country illegally. The Mexican economy grew at a healthy annual pace during the period
       from 1970 to 1974, but beginning in 1975 growth decreased markedly and inflation rose substantially. In an attempt to reduce the nation's
       foreign-trade deficit, the government in 1976 devalued the peso by more than 50 percent by changing from a fixed to a freely floating exchange
       rate. A potentially beneficial economic development was the discovery in 1974 and 1975 of huge crude-petroleum deposits in Campeche,
       Chiapas, Tabasco, and Veracruz states. Oil production more than doubled during the latter half of the 1970s. By the mid-1980s a rapid increase
       in foreign debt, coupled with falling oil prices, had plunged the country into severe financial straits. In 1989, the Salinas government sped up the
       privatization of state-controlled corporations and modified restrictive trade and investment regulations to encourage foreign investment by
       permitting full control of corporations by foreign investors. The current president, Ernesto Zedillo, is a strong advocate of reform. He has taken the
       lead in performing budget cuts, price and tax adjustments, tight monetary policy and further deregulation and privatization. Population The Mexican
       population is composed of three main groups: the people of Spanish descent, the Native Americans, and the people of mixed Spanish and Native
       American ancestry, or mestizos. Of these groups, the mestizos are by far the largest, constituting about 55 percent of the population. The Native
       Americans total about 30 percent. The population of Mexico is 90,419,606. The population density in 1990 was 119 people per square mile with
       about 73 percent of Mexicans living in urban areas. (Encarta, "Mexico") Political Divisions Mexico consists of 32 administrative divisions31
       states and the Distrito Federal (federal district), which is the seat of the federal administration. The national executive power is vested in a
       president, who must be Mexican-born and the child of a native Mexican. The president is popularly elected for a six-year term and may never be
       reelected. The president appoints the cabinet, which is confirmed by the congress. The legislative power in Mexico consists of the senate and the
       chamber of deputies. The upper house is a senate, with 64 members popularly elected for six years. Two senators are elected from each state and
       from the federal district. The lower house is a chamber of deputies, made up of 500 members elected to 3-year terms. Three hundred are elected
       from single-member districts based on population, and the remainder are elected according to a system of proportional representation. Senators
       and deputies may not serve two consecutive terms. The highest tribunal in Mexico is the supreme court of justice, made up of 21 full-time
       members appointed by the country's president with the consent of the senate. Other important judicial bodies in Mexico include circuit courts and
       district courts. The chief executive of each state is a governor, popularly elected to a six-year term. The governor of the federal district is
       appointed by the president of Mexico. Legislative power in the states is vested in chambers of deputies, whose members are elected to three-year
       terms. The Partido Revolucionario Institucional (Institutional Revolutionary Party; PRI) is the largest and most important political party in Mexico.
       It was formed in 1928 as the Partido Nacional Revolucionario (National Revolutionary Party) and has been continuously in power since that time,
       although under several different names. Opposition parties exist, but not until the 1980's did they represent a serious challenge to the PRI. Chief
       among them is the Partido de Accin Nacional (National Action Party; PAN), a conservative, pro-Catholic group drawn primarily from the middle
       class and the Frente Democrtico Nacional (National Democratic Front, FDN), a coalition of leftist opposition groups. (Encarta, "Mexico")
       Culture Mexican culture is a rich, complex blend of Native American, Spanish, and American traditions. Rural areas are populated by Native
       Americans, descendants of the highly developed societies of the Maya, Aztec, and Toltecs, and by Spanish and mestizo farmers and laborers.
       Each of these heritages has enriched the regional culture. In the cities, both European and North American influences are evident. Most
       contemporary Mexican artists are striving to produce identifiably Mexican work that blends Spanish, Native American, and modern European
       styles. (Encarta, "Mexico") Economy Mexico reflects a shift from a primary-production economy, based on mining and agriculture, to a
       semi-industrialized nation. Economic achievements are the result of a vigorous private enterprise sector and government policies that have made
       economic growth a predominant objective. Traditionally, the government also emphasized Mexicanization of industry, and local control of
       companies engaged in mining, fishing, transportation, and exploitation of forests was required by law. More recently, however, foreign investment
       in new enterprises has been actively encouraged, and government controls on some sectors of the economy have been loosened. Mexico's gross
       domestic product (GDP) increased by 6.5 percent annually during the period from 1965 to 1980 but only 0.5 percent yearly during 1980 to 1988.
       Weak oil prices, rising inflation, a foreign debt of more than $100 billion, and worsening budget deficits exacerbated the nation's economic
       problems in the mid-1980s, although the economic picture brightened toward the end of the decade. In 1992 the GDP was $324.29 billion. The
       annual budget included $107 billion in revenue and $122 billion in expenditure. (Encarta, "Mexico") II. NAFTA In December of 1992, Presidents
       Salinas and Bush and Prime Minister Brian Mulroney of Canada signed the North American Free Trade Agreement (NAFTA). The Mexican
       legislature ratified NAFTA in 1993 and the treaty went into effect on January 1, 1994, creating the largest free-trade zone in the world. Creating a
       North American free-trade zone and privatizing state-owned industry was part of a plan by the Salinas government to revive the Mexican
       economy. By 1993, the Mexican government had sold 80 percent of its industries to private investors for about $21 billion and had reduced
       inflation from 150 percent to 10 percent. In November 1993, President Clinton predicted that if the trade agreement passes, American companies
       will add another 200,000 jobs by 1995. NAFTA's promoters predicted that by the end of 1995 the U.S. would enjoy a $9 billion trade surplus
       with Mexico. The reality is that the post-NAFTA surge in imports from Mexico has resulted in an $8.6 billion trade deficit with Mexico for just the
       first six months of 1995. By adding the Mexican trade deficit numbers to the current deficit with Canada, the overall U.S. NAFTA trade deficit for
       the first six months of 1995 alone is $16.7 billion. Using the Department of Commerce trade data in the formula used by NAFTA proponents used
       to predict job gains, the real accumulated NAFTA trade deficit would translate into over three hundred thousand U.S. jobs lost. A number of
       companies that specifically promised to create new jobs actually laid workers off because of the agreement. Allied Signal, General Electric, Mattel,
       Proctor and Gamble, Scott Paper and Zenith all made specific promises to create jobs, and all have laid off workers because of NAFTA as
       certified by the U.S. Department of Labor's special NAFTA unemployment assistance program (NAFTA TAA). As of mid-August 1995, the
       U.S. Department of Labor has certified 38,148 workers as having lost their jobs to NAFTA. A total of 68,482 U.S. workers have filed to receive
       NAFTA-related unemployment assistance through the NAFTA-TAA program. Despite the job losses, trade officials said NAFTA remains a net
       gainer for U.S. workers. Increased exports to Mexico and Canada will support some 3 million U.S. jobs this year, up some 500,000 from two
       years ago, according to the U.S. Trade Representative's office. (Briones) III. Recent Events A. The Chiapas Uprising and the Zapatistas On
       January 1, 1994, a group of Native Americans called the Zapatista National Liberation Army (EZLN) captured four towns in the southern
       Mexican state of Chiapas and demanded reforms from the Salinas government for better treatment for poor Indians there. They chose to begin
       their rebellion to coincide with the implementation of NAFTA because they consider it a "death sentence." They demand bilingual and intercultural
       education in their indigenous language as well as in Spanish. They want titles and protection of the lands where they live. Finally, they say that the
       governments should ratify the International Labor Office's (ILO) resolution 169 on the promotion and protection of the rights of indigenous people.
       The group is named for Emiliano Zapata, a 19th-century Mexican revolutionary leader and agrarian reformer. The EZLN has organized itself
       among some of the most dispossessed people of the world. Its' soldiers are drawn from the forests, mountains and small towns of the region, both
       from the indigenous Mayan population, and from immigrants from Central and Northern Mexico. The EZLN soldiers have been subsistence
       cultivators and landless wage-laborers. They have grown and marketed their own export crops and have worked on the plantations and ranches of
       others. A very few are intellectuals drawn to the area over a decade ago by their ideals and hopes. The EZLN understands how NAFTA opens
       Mexico to U.S. exports and imports, and how the most threatening of these is corn, the basic food crop of the indigenous population and an
       important source of cash income. Already they are suffering from low prices for coffee, another cash crop, due to government's elimination of
       financial support for that production. They also know that export development means ecological destruction, especially deforestation. (Marcos)
       Although Mexican troops quickly retook most of the territory held by the rebels and a cease-fire was called soon afterward, the rebel group
       generated momentum for political reform in Mexico. A government negotiating team, headed by former Mexico City mayor Manuel Camacho
       Solis, met with rebel leaders and offered them a 34-point proposed agreement that included promises of political changes, new social programs,
       land reform, and better standards of living. However, the group rejected the plan in June. Subcommandante Marcos is the enigmatic spokesperson
       and highest army commander of the Zapatista National Liberation Army. He is known for his well-written press releases filled with wit and
       sarcasm. He is always masked in public, and often smokes a pipe. The government claims to have "identified" Marcos as Rafael Sebastian Guillen
       Vicente, but Marcos and the EZLN have denied this. Major Ana Mari'a was the commander of the operation for taking the municipal palace of
       San Cristo'bal for the Zapatista National Liberation Army (EZLN). She was 25 years old when she joined the Zapatista Army and saw almost the
       whole process of how it moved forward. She was one of the first women who was part of the ranks of the Army and has risen to hold the highest
       rank of any woman in the EZLN. (Gabriel) This revolt affects the current exchange rate due to the uncertainty surrounding this uprising. Many
       valuable resources can be found in the Chiapas region, such as timber, coffee and oil. Many foreign industries have reduced or canceled work in
       the region for fear of being caught between the EZLN and government troops. There is much more fighting taking place than most American
       newspapers report. With businesses reducing their spending in Mexico, the inflow of U.S. dollars is reduced which increases the demand for the
       dollar in Mexico. This causes the dollar to strengthen against the peso. B. The Colosio Assassination On March 23, 1994, during the Mexican
       presidential campaign, the PRI's candidate Donaldo Luis Colosio Murrieta, was assassinated while campaigning in Tijuana, Baja California.
       Unnamed U.S. intelligence officials have stated that former Mexican police commander Fernando de la Sota Rodalleguez, charged in connection
       with the assassination, was a paid informant for the U.S. Central Intelligence Agency in Mexico City from 1990 to 1992. De la Sota began his
       police career in 1973 working for Mexico's Federal Security Directorate, and by 1992 he had become investigations department commander for
       the federal attorney general's office. He was fired that year on suspicion of taking bribes from alleged drug lord Rafael Aguilar Guajardo and the
       CIA dropped him soon after. De la Sota was working as the head of the private security team for Colosio on the day of the assassination. Federal
       investigators arrested De la Sota in February of this year on charges of giving false and conflicting testimony about the assassination. Despite his 20
       years' experience in police work, De la Sota claimed that the gunshots set off a diabetic attack which kept him from seeing what was happening.
       He was released on Feb. 28 on a $7,000 bond. At the time of his arrest, Mexican officials indicated off the record that De la Sota was closely
       connected to the assassination. Currently two men are under arrest for the murder: Mario Aburto Martinez, a factory worker who allegedly shot
       Colosio in the head from the right side, and Othon Cortes Vazquez, who is charged with shooting the candidate in the abdomen from the left side.
       Cortes Vazquez and De la Sota knew each other. Cortes Vazquez worked for various PRI officials as a driver and messenger, and on the day of
       the murder he was driving for Gen. Domiro Roberto Garcia Reyes, who was in charge of the official security for Colosio. One of the videotapes
       held by the attorney general's office reportedly shows De la Sota and another member of the private security team, Hector Javier Hernandez
       Thomassiny, guarding Colosio's left side. Cortes Vazquez suddenly "replaced" the two experienced bodyguards just before he and Aburto shot the
       candidate, according to people who saw the tape. As soon as Colosio fell, De la Sota and Hernandez Thomassiny allegedly seized Aburto and let
       Cortes Vazquez escape. The uprising in Chiapas and the murder of presidential candidate Luis Donaldo Colosio are two examples of how
       Mexico's social and civic institutions are crumbling under the pressure of drug-related lawlessness and corruption, factors that are making Mexico
       a very dangerous place even for members of the ruling elite. Indeed, the same environment of lawlessness and impunity that has allowed Mexico's
       ruling party, known as the PRI, to govern for over 65 years is now aiding the expansion of the influence of the narcotics trade. Federico Reyes
       Heroles, editor of the monthly magazine Este Pais, says bluntly that the killing was a deliberate hit by Mexico's powerful drug lords. News reports
       in the days following the killing included numerous off-the-record comments by government officials confirming the suspicion that the killing was a
       hit organized and paid for by drug traffickers. Another prominent Mexico City editor, speaking off-the record, says that the Mexican politicians are
       being killed off because of a power struggle related to money and drugs, not over questions such as democracy and human rights. Beyond the
       death of Colosio, however, another explanation exists: the need to maintain the appearance of "fighting drugs" to satisfy Washington. Eduardo
       Valle, former aide to Interior Minister Jorge Carpizo, has given the Mexican government documents and testimony allegedly linking government
       officials and drug traffickers to the assassination of presidential candidate Colosio. The former official, who is known as "the owl", worked as a
       senior official directing Mexico's anti-drug efforts. He says that Colosio was murdered by members of the Grupo del Gulfo cocaine cartel, with the
       involvement of Colosio campaign officials close to Communications and Transportation Minister Emilio Gamboa. Included with the documents
       provided by Valle during testimony given at the Mexican consulate in Washington was a DEA report about telephone calls last December by cartel
       members to the offices of the presidency. (Whalen, p.2-4) Assassinations affect exchange rates due to the uncertainty that is caused. Many
       investors flee from the market if there is a risk of losing their investments. Without these investments, the economy begins to tumble downward due
       to increased unemployment and a lower demand for goods. This may cause the dollar to strengthen as the people move away from the uncertain
       peso. IV. Exchange rate See graph attachment. V. Devaluation of the Peso Due to the weaken peso, caused by constant printing of money and
       high inflation, Mexican investors took close to $11 billion dollars out of Mexico in a few days in December 1994. The political turmoil from
       regional insurrection to a string of assassinations and disrupted elections help cause the collapse of the peso, requiring a $20 billion bailout from the
       U.S. Treasury. The International Monetary Fund has pledged another $17.8 billion, while the central banks of other industrialized nations, acting
       through the Bank of International Settlements, are obligated for an additional $10 billion. (Banda) VI. Advantages/Disadvantages of
       Importing/Exporting Goods A Houston company exporting to Mexico will find some difficulty selling its goods in a country were the peso is weak
       against the U.S. dollar. The Mexican businesses will be forced to buy only the necessities due to the unfavorable exchange rate. However, on the
       positive side, if the Mexican businesses expect that the peso will devalue further, it may decide to purchase big ticket items now in hopes of beating
       any further devaluation. A Mexican company whose primary business is exporting Mexican made products to the U.S. will enjoy the weak peso,
       strong dollar economy. Imports from Mexico into the U.S. has resulted in an $8.6 billion trade deficit with Mexico for the first six months of 1995.
       While the Mexican company is paying for its labor and overhead with weakened pesos, it is receiving a stronger U.S. dollar for its goods. The
       company can request payment in the stronger U.S. dollar and invest them into various financial instruments until the peso can rebound or is needed
       to continue operations. VII. Opinion The signs are growing ever stronger that Mexico's determined adherence to its economic austerity program is
       setting the stage for a remarkably solid and sustainable recovery from the recent financial crisis. The country's Bolsa stock index has rebounded
       more than 60 percent from its February low, the peso has stabilized, compared to what it has done in the past, and Mexico's recent $500 million
       bond offering was oversubscribed by $1.3 billion. Mexico is making clear progress in improving its debt structure, and strong export growth is
       producing a dramatic correction in Mexico's current account imbalance. Mexico has a balanced federal budget and a largely privatized economy.
       The North American Free Trade Agreement and Mexico's other trade pacts are continuing to play a significant role in creating new opportunities
       for Mexican businesses. A number of U.S. companies have chosen to create co-production partnerships with Mexican firms over geographically
       more remote partners in Asia because of Mexico's proximity, modern infrastructure and industrious workforce. NAFTA is playing a key role in
       encouraging such partnerships. By reducing North American trade barriers, NAFTA is enabling firms which might otherwise manufacture in Asia
       to work with Mexican partners instead. The growth of business partnerships, along with Mexico's ongoing economic, legal, judicial and political
       reforms helps to explain Mexico's ability to attract long-term investment. However, the peso is currently in a tailspin against the dollar due mostly
       to currency speculators. If the Mexican government can stay with its current plans and programs with minor adjustment, the peso should rebound.
       The bottom line from Mexico is that its continued commitment to open markets and economic integration is paying off and will be reflected in the
       overall strengthening of the Mexican peso against the U.S. dollar in the long run. REFERENCES Banda, M., (1995, September 5). Economic,
       Political Crisis Shadows Zedillo's First National Address. Associated Press, Internet (WWW), http://www1.trib.com/NEWS/APwire.html.
       Briones, J., (1995, September 4). NAFTA's Broken Promises. Public Citizen Publication, p.10. Dean, D., (1995, September 20). Mexico Doing
       Right Things to Turn Itself Around. Houston Chronicle, Sec. A, p.29. Gabriel, S., Mount Holyoke College. Internet (WWW), Newsgroup:
       soc.culture.mexican. Marcos, Subcomandante Insurgente, (1995, August 30). Sub. Marcos Communique to the National Conference for Peace.
       La Jornada, Internet (WWW), Newsgroup: soc.culture.mexican. 



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