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Economic System of Mexico
Mexico, which is officially United Mexican States, is a country that is bordered by the United States, the Gulf of Mexico and the Caribbean Sea; Belize and Guatemala; and the Pacific Ocean (Concise Columbia, 2000). The country's capital is Mexico City and its other main cities include
Guadalajara, and Monterrey.
Mexico's landscape is predominantly mountainous. While lowlands lie in the southeast and along the coasts, the heart of the country is the extensive Mexican plateau, with elevations generally above 4,000 feet.
Mexico's government consists of an executive, legislative and judicial Branch. The executive branch is ruled by the president and must rule according to the law. The legislative branch is in charge of the making of laws, and discussing the countries problems with other countries.
In Mexico, a new president is elected every six years by means of election. The current president is Vicente Fox. The president is the Supreme Commander of the Army, Navy and Air Force, and has the power to declare war on other countries with the consent of the Congress. Mexican Congress does not believe in violence as a solution and tries to use but in peace treaties instead.
Since World War II, Mexico has enjoyed considerable economic growth (Concise Columbia, 2000). Agriculture engages about a quarter of the active workforce and agricultural techniques are slowly being modernized. Major irrigation projects have increased yields. Cotton, coffee, sugar, and tomatoes are the country's major export crops, and a great deal of corn, wheat, beans, and citrus fruits are grown. Livestock raising and fishing are also significant sources of growth in Mexico.
Mexico has substantial mineral resources, including immense petroleum reserves and zinc, sulfur, silver, antimony, copper, and manganese (OECD Paris, 1999). Leading industries, which are usually found in Mexico's larger cities, manufacture iron and steel, motor vehicles, engines, processed foods, beverages, tobacco, refined petroleum and petrochemicals, chemical fertilizers, and other products.. The country is also known for its handicrafts, including pottery, woven goods, and silverwork. Mexico's chief ports are Veracruz, Tampico,
Coatzacoalcos, Mazatlan, and Ensenada.
In the early 1980s, petroleum made up about three quarters of Mexico's exports. However, during the mid-1980s, that figure dropped significantly. While the petroleum industry has since seen a substantial recovery, diversification of industry is helping to keep Mexico's trade economy from becoming dependent again on a single export.
Mexico's leading imports include machinery, steel, electrical and electronic equipment, chemicals, motor vehicle parts for assembly and repair, aircraft, manufactured consumer goods, and grain; the main exports are crude oil, petroleum products, coffee, sugar, cotton, tomatoes, shrimp, engines, motor vehicles, consumer electronics, silver, sulfur, and zinc (Mexico Connect, 1996-2000).
In the past, the annual income from Mexico's imports was higher than the value of its exports (OECD Paris, 1999). However, in recent years, the tables have turned and exports are bringing in more money to the country than imports.
Assembly factories along the U.S.-Mexico border are another major source of foreign income in Mexico. Next to oil, the largest earners of foreign exchange are now these industrial assembly plants, which are called maquiladoras. Since the early 1980s, there has been a good amount of foreign investment in the maquiladoras, which take advantage of a large, low-cost labor force to produce finished goods for export to the U.S. These plants have increased Mexico's export production significantly.
Manufacturing accounts for about 22% of GDP and grew by 9.4% in 2000. Manufacturing probably fell or was stagnant in 2001 because exports to the U.S. probably fell. Construction grew by almost 7% in 2000 but was probably stagnant in 2001.
Foreign Direct Investment (FDI) plays a huge role in Mexico's economy (Concise Columbia, 2000). In 2000, Mexico received $22.5 billion, making it the largest recipient of FDI in all of Latin America. U.S. FDI, which constitutes the majority of investments, is concentrated in the manufacturing and financial sectors.
However, Mexico has seen a sharp decline in FDI, as foreign investors are decreasing their commitments in the country, waiting on the sidelines to see if there are any reforms in tax, energy, and labor.
The U.S. purchases approximately 85% of Mexico's exports, especially petroleum, cars, and electronic equipment (Mexico Connect, 1996-2000). There is considerable intra-company trade. The most popular U.S. exports to Mexico include motor vehicle parts, electronic equipment, and agricultural products.
Mexico's third most important income producer is tourism and its most popular tourism destinations include Cancun, Puerto Vallarta, Acapulco and Cozumel, as well as Mexico City itself and the country's highland centers. In addition, transmittal of funds from Mexicans working, both legally and illegally, in the United States are also crucial to the economy.
These economic factors have all contributed to the growth of Mexico over the last several decades. Mexico's population quadrupled between 140 and 1990. However, declining fertility rates among the country's residents are slowing population growth.
The great majority of Mexico's residents are of mixed Spanish and indigenous descent, but a sizable minority are of purely indigenous descent. (Concise Columbia, 2000) The official language is Spanish, but some Mexicans still speak only indigenous tongues. Approximately 90% of Mexicans are Roman Catholic.
Over the past fifty years, Mexico has become a key player in the international business field. A large amount of foreign companies have invested in Mexico, setting up businesses throughout the company (Krauze, 1999). These companies are drawn by the possibilities offered by the country both with its recent globalization and its geography.
Mexico is constantly evolving and has stabilized itself economically in recent years. International companies have recently discovered that Mexico plays a fundamental role in the world's economy.
Mexico, offers many things to foreign countries, including its location as a Latin American gateway, affordable primary resources, and increasingly competitive open market conditions.
The Mexican government has historically been a dominant presence when it comes to planning the economy. In fact, it owns and operates some of the country's most basic industries, including petroleum. However, its status is falling, as 1998 statistics reveal. The number of state-owned enterprises decreased from more than 1,000 in 1982 to fewer than 200 in 1998.
Mexico's state-owned oil company, Pemex, possesses a constitutionally bound monopoly for the exploration, production, transportation, and marketing of the country's oil. Since 1995, private investment in natural gas transportation, distribution, and storage has been permitted, yet Pemex remains in complete control of natural gas exploration and production.
Mexican trade policy is among the most open in the world. Mexico's principal trade partners are the United States, the European Union nations, Japan, and Canada. Mexico is a member of the United Nations, the Organization of American States, the North American Free Trade Agreement, the Latin American Integration Association, and the Latin American Economic System.
The road to economic stability has proven a rocky one for Mexico. From the 1940's to the 1970's, Mexico enjoyed significant economic growth. However, the 1980's caused trouble for the country. (Utley, 1996) During this period, Mexico's economy as dependent on sales of petroleum. As these prices dropped, Mexico acquired large international debts.
During the early 1990s, debt relief, diversification and privatization of the economy, and foreign investment demonstrated positive effects, and the expansion rate returned to historic levels. Yet new problems appeared with the collapse of the peso in the mid-1990s, forcing the adoption of severe austerity measures.
The country was able to pull itself together again in the late 1990's for a brief period. However, Mexico's economy hit a recession again in 2001, largely due to the economic decline in the United States. Now the country appears to be in trouble. Several Latin American countries, including Argentina and Brazil, have fallen victim to the economic disasters that are running rampant around the world. Economists fear that Mexico, one of Latin America's major economies, is on the same path.
At a recent press conference, Mexican Treasury Secretary Francisco Gil Diaz displayed a pessimistic attitude about Mexico's economy (Southwest Economy, 2002). Unless Mexico carries out tax reform and improves the situation of its public revenues, Gil said that Mexico's economy would not improve anytime soon.
The Mexican government, which faces dire shortages of public revenues, must sell public assets to meet budget needs. According to figures from the departments of foreign relations and the Navy, several Mexican consulates have been closed and some warships and planes have been suspended and grounded.
Fox has indicated that, during his term, he will change the Mexican government, which has been corrupt in the past, by separating the judicial and executive branches, moving prosecutor functions to a reformed attorney general's office, and setting up a new Ministry of Justice and Security. Such changes could reduce corruption and improve cross-border collaboration on drug trafficking and crime.
Fox believes job growth can reduce migration, lift wages to expand the middle class, and enlarge the tax base. He proposes easing restrictions on investment, ownership, and capital formation; ending the practice of granting monopoly licenses; and strengthening property rights for the rural poor so they can participate more directly in the…[continue]
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