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Mexico and its Automobile industry Mexico’s Economy, Past & Present The country of Mexico is known for being our poor neighbor to the South, but is this stereotype true? To find out, one must examine the economic data. The following table summarizes Mexico’s economy. (1998 Data) Mexico U.S. GDP ($) 815 Billion 8.5 Trillion GDP Growth (%) 4.8 3.9 GDP per Capita ($) 8,300 31,500 Inflation (%) 18.6 1.6 Unemployment (%) 2.6 4.5 Exports 117.5 Million 663 Million Imports 111.5 Million 912 Million Partners w/, Exp (%) 87.5 10.0 Partners w/, Imp (%) 74.2 10.0 Population 100.3 Million 272.7 Million Government Type Democratic Repub. Democratic Repub. Data from CIA World Fact Book 1999 All these data are current, but Mexico’s economy hasn’t been performing quite as well as these data would lead someone to believe. The following is a short history of Mexico’s recent economic history. Mexico’s Economy boomed after World War II, growing 3-4% with a comfortable 3% inflation rate until the 1960s. High debt, fiscal mismanagement and an overvalued peso forced currency devaluation in 1980. This caused a major recession in the 80s, while the U.S. was also suffering from a recession—making it worse for Mexico, the U.S. being their major trading partner (Washington Post). In 1988 President Carlos Salinas de Gortari removed trade barriers, encouraged foreign investment and reduced inflation through several reforms and by cleaning up the government’s budget while encouraging Mexico’s businesses. At this point, Mexico’s economy seemed to be destined for great things. To make things even better (or so they thought), Mexico joined in on the North American Free Trade Agreement with the U.S. and Canada. Unfortunately for Mexico, rebels in Mexico’s Chiapas State revolted New Year’s Day, 1994, the day NAFTA was enacted. To add to the fire, the Presidential candidate of the ruling Institutional Revolutionary Party and Secretary General were assassinated. Also, high consumption, low domestic savings, a large Trade deficit and dying foreign currency reserves forced yet another devaluation of the peso (started 1994 3.37 pesos per $1 U.S., ended at 6.4 pesos per $1). Investors ran in staggering numbers with devastating results—the biggest Mexican recession in 60 years. In 1995 in Mexico (according to the Washington Post), 30,000 businesses went under, two million people became unemployed, interest rates soared to 140%, inflation hit 52%, and the economy shrank more than 6%. Such a cataclysmic crash caused the U.S. to fear what repercussions may be in store for trade (Mexico being the U.S.’s 3rd largest trading partner) (Washington Post). To help cushion the fall, the U.S. gave $20 billion in aid to Mexico and pushed for the rest of the World Bank and other G-7 institutions to give more. The world responded by giving Mexico $40 billion in aid to rebuild reserves and reduce debt (CIA World Fact Book). By late 1995 low labor costs drew manufactures to Mexico.
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