Mexico is the twelfth largest economy on the globe, with a GDP exceeding one trillion dollars. It has the highest per-capita income and the highest purchasing power parity out of all the countries in Latin America. Mexico is also the only South American member of the Organization for Economic Cooperation and Development. Mexico has been experiencing constant economic growth over the past years. It is estimated, in one of Goldman Sachs' studies, that the country will be one of the world's economic leaders by 2050, along with Brazil, Japan, China and the US. Mexico's economy is quite mature and stable, although the gap between the rich and the poor is continuously growing.

1994 was a rough year for Mexico's economy. The administration has been trying since then to ameliorate the country's macroeconomic situation. In 2002 South Africa suffered an economic crisis, but this didn't have a considerable effect on Mexico's economic state. In the present day, Mexico is affected, like many other countries, by the run up in food and oil. The levels of inflation and the interest rates are very low, especially since the Mexican government has been making sure of it.

Recent studies have shown that, in spite of its economic growth, Mexican economy has plenty of fundamental problems. There is an economic discrepancy between one region of the country and another, especially between the south and the north. Rural areas are being left way behind the urban areas, from not only the economic point of view, and the gap between the rich and the poor has increased over the past few years.

A certain level of inequality exists also as far as incomes are concerned. This inequality needs to be decreased in order to improve Mexico's economy and to minimize the chances of social and political instability. Mexico's infrastructure also needs to be improved. The tax system has to be modernized and labor laws have to be amended.

An important role in the Mexico Economy is played by agriculture. The private sector has begun to get more and more involved both in the industrial and in the agricultural sector. Competition exists in certain sectors such as generation and distribution of power, airports, railroads, seaports, and telecommunications. This is due to the measures taken by the government, hoping to improve the Mexican economy by building infrastructure while clamping down on its black economy.
Juan Abdel Nasser is a writer with the economic reports site Economy Watch , an extensive resource on economics, finance, investing and business worldwide.

This week Marcelo was once again on about the positive economic relations which are developing between China and Argentina. At the other end of the scale is Mexico. This article from the Providence Journal once more illustrates the problem. And it isn't that Mexico's wages have rocketed upwards, more to the point is that China's wage advantage is enormous. And Mexico has failed to really get the full advantage from the good times, the infrastrucure hasn't been built. The principal labour market problem still is demographic: the 1 million workers who enter the labour force every year. On the China front, if you want to know more about how the 'my job just went to China syndrome' is a little wide of the reality, you could check out my piece 'who stole my job', where you will find that manufacturing jobs are even disappearing in China at a rapid rate: the culprit - increased productivity and the transition to a services economy.

Blue-smocked, blue-jeaned and youthful, maquiladora assembly plant workers stream across busy Porfirio Diaz Boulevard, nine hours of labor -- the fruits of NAFTA dreams -- behind them and the destiny of Mexico in their future. The debate in Mexico and the United States over the North American Free Trade Agreement centered on this generation: Young people, given productive lives, would be able to raise their standard of living and buy American products -- spurring U.S. exports and jobs, suppressing illegal Mexican immigration and cementing a win-win-win scenario among Mexico, the United States and Canada.

"NAFTA for Mexico has been a success in terms of increasing trade and foreign investment until about 2000," said Kevin P. Gallagher, a research associate at Tufts University's Global Development and Environment Institute. But the benefits of trade -- the billions in foreign investment -- were to be used to finance development, according to stated goals in Mexico's National Development Plan. "They missed the opportunity to take their foreign investment and build domestic demand and the economy. Now that their investment has dried up, there are no legs for growth," Gallagher said.......

But real wages in Mexico are lower today than when NAFTA was approved and have not kept pace with productivity gains, a study by the Carnegie Endowment for International Peace found. The rural sector has lost some 1.3 million jobs, causing farm families to depend more heavily on the $12 billion in remittances sent annually from the United States. Neither poverty nor the flow of undocumented workers has abated.Mexico's weak economic growth can't absorb the 1 million young people who enter the work force every year, so the flow of undocumented workers to the United States has ballooned from an estimated 200,000 a year in 1994 to more than 300,000 a year today, according to Mexico's National Institute of Statistics. Government statistics show that while extreme poverty has fallen sharply, the number of people classified as poor or extremely poor has risen from 62 million to 69 million, out of a population of more than 100 million..................

Since 2000, factories in Chinese export zones have replaced towns like Reynosa as the favorite factory floor of U.S. multinationals. More than 300,000 Mexican maquiladora workers have lost their jobs since 2000, some because of the U.S. economic downturn, some because of an outflow to Central America but more because of the exodus to China. Mike Allen, president and chief executive of the McAllen Economic Development Corp. and Foreign Trade Zone, said Reynosa has competed well with China compared to other border towns that have lost scores of assembly plants.
Prospective companies arrive with a list of Chinese costs and tell Mexico, "You match this," he said.

For Mexico, the migration to China costs more than jobs. Of equal concern is the drop in foreign direct investment that was to finance economic advancement. "We are now witnessing the beginning of the end of the preferential agreement," said Mexico's former deputy trade minister, Luis de la Calle, who ran Mexico's NAFTA office in Washington. "We reached the end of the benefits of NAFTA in 2003." Mexico failed to use NAFTA's initial flood of capital to invest in education and urgently needed infrastructure projects such as power plants, roads and water treatment facilities, said Tufts' Gallagher. This lack of infrastructure is glaring along the border. While Reynosa's skies are relatively unpolluted compared to other border cities, and manicured new industrial parks house modern facilities, the city's water treatment plants have not kept pace with the growth in population. Snaking to the border near Reynosa's international bridge is a canal choked with lime-green slime. A recent report by the Fitch credit rating agency, "Boom Times at the Rio Grande: U.S.-Mexico Border Region Expands," warned that lagging infrastructure was causing Mexico to become uncompetitive. "The long delay or the postponement of investing in all the infrastructure is really putting Mexico at a huge disadvantage compared to China," said Gersan Zurita, managing director of international public finance at Fitch. "It is limiting the potential growth of the country."

I am essentially repeating here a modified form of a post I have just put up over at Fistful of Euros. Understandably the focus is different: who - if anyone - should Latin America endorse in the US presidential elections?

As it happens here the big news of the week must be the endorsement of Howard Dean by Al Gore. A somewhat smaller, but still interesting, development - although this isn't exactly new, but simply new to my attention - is the fact that someone has created an Economists for Dean weblog.

They contacted me this morning and I discover that I've been blogrolled - along with Paul Krugman and Brad Delong, among others. Now the first question which reasonably arises here is what place do non-US citizens have in a US presidential election? Normally my answer would be, precious little. I say this not simply because elections are not one of my strong points, but also because I think we have to respect due political process. The Americans choose their president, the British their Prime Minister and the Germans their Chancellor, and there the story ends. But at the moment something seems to be different.

It is different because the current US administration seems to see part of its function as 'remodelling the world' - and in this case we are all, each and every one of us, affected. It is also different because the Bush administration is fuelling a level of rhetorical abuse and international tension of the kind that I, for one, cannot remember having seen before. So if we want to live in a more peaceful world, one were each of us has a say, and one which has a much lower level of verbal pollution, then we'd better listen up and start thinking. In a global world you need to think globally.

So I am convinced, not of the need to endorse any specific candidate, but of the need to dis-endorse Bush. Having said that I have, in the past, come pretty close to endorsing Wesley Clark. I have been tempted by Clark since he seems highly intelligent, knowledgeable in the key global strategic questions, and above all do-able, in the sense that he could win. This is the famous voice of pragmatism. Equally pragmatic would be my willingness to support Colin Powell, if he would only give us the opportunity, or even, at a push, Swartznegger: anyone with whom dialogue would be possible. This is certainly not a party partisan argument I'm trying to push.

But what about Howard Dean? Actually he does seem quite attractive on the face of things. He is, after all, the David going out to do battle with Goliath. Whatsmore he does seem to be the candidate of the new technologies, and his endorsement by Gore only serves to underline this. It is my firm opinion that one of the greatest lasting failings of the Bush administration, as far as the average American is concerned, will turn out to be the emphasis on old economy interests.

On the negative side, they tell me that Dean has been flirting with protectionism. Undoubtedly there are other weaknesses there of which I am not aware. So what I would like to do here is throw this open to debate, there seem to be a number of pertinent questions to ask:

- should Latin Americans involve themselves in US elections?
- if they should, and going by the running field we have to date, is Dean the man?
- and would it be better or worse for the candidate to have support from Latin America?

Since taking office, President Lula has spent an extraordinary amount of time outside Brazil, ostensibly attempting to establish a new political and economic alliance of developing countries. While the people broadly support Lula's travels (52% support them, 30% oppose them), local critics are beginning to suggest that he ought to spend more time at home, minding the store; making sure his government is delivering on the promises he's made. Lula has visited 23 countries in his first year in office.

A persistent criticism is that the government cannot even spend the money that has been budgeted. I've noted before that a little caution here might be worthwhile (there's no point in pouring it down the same sinkholes as the predecessors). [aside: Perhaps they're spending it on travel - already R$500m spent on travel and per diems by the government this year.]

Claudio Shikida over at Economia Everywhere tackles this theme, and raises an important question about Lula's objectives in undertaking his most recent visit to the Middle East. He proposes:

Mais vale um frango brasileiro exportado na Sэria do que uma eleiчуo democrсtica no paraэso de Assad: "o Brasil que exporta, alimentando a ditadura que nуo se importa" [English].

The quote is a lovely play on words with export/import and "importa" meaning "to matter". The Brazil that exports, feeding a dictatorship that doesn't matter.

He goes on to challenge the Lula agenda in the Middle East:

Coisas que devem incomodar muita gente:

1. Qual o custo e qual щ o benefэcio de se fazer um discurso na Liga ┴rabe sem pedir mais democracia no Oriente Mщdio?

2. Como a resposta politicamente correta - do ponto de vista do governo - р questуo anterior deve domar a lєgica para se compatibilizar com o discurso comum (e mais comum em 2002, durante a campanha eleitoral) de щtica na polэtica?

Meu palpite: o cсlculo econЇmico dos diplomatas estс correto. Vale mais um frango exportado do que um opositor livre na Lэbia...para o governo brasileiro. Revoltante? Talvez. Mas hс sempre aquele argumento de que dar mercados gera maior retorno do que dar democracia, pelo menos no curto prazo. Serс este dilema algo empiricamente testсvel? [English].

His conclusion: business as usual. The short-term gain of exporting is worth more to Brazil than the political gain of increased democracy in the region. And this may be true, but it's a challenge to the ethical stance that Lula maintained in opposition.

Part of the Bolivian government's new gas & oil plan was finally unveiled today. And, yes, it's pretty much the same as what Goni's plan proposed. After international gas & oil exports pronounced the obvious — that Bolivia can't afford to industrialize its gas reserves (something that's very capital and technology intensive, two things which Bolivia lacks) and that it's internal market wouldn't justify the cost (since there are so few Bolivians) and let's not forget that few companies are interested in investing in such a high-risk market (since the October uprising raised the threat of nationalization) — the government pronounced that the export of gas was, after all, the most viable alternative. Now Mesa's government announced that the taxes on gas & oil companies will go up from 18% to a reasonable 26% (not the 50% demanded by some). So, essentially, the so-called guerra del gas produced no significant results, beyond crushing the fragile tourist industry and raising the risk for international investment.

Meanwhile, the erradication of coca in the Chapare (and now also Yungas) continues, w/ Mesa slowly taking a firmer stance against the rising death toll among the police & military. Likewise, the war against corruption still shows no significant results. And parliament's still mired, unable to vote for a new Defensor del Pueblo. Plus, no one has any idea what the "referendum on gas" will ever look like (debates on question wording continue) or if it'll ever be more than just a public rubber stamp. However, thanks to Venezuela's Hugo Chavez (who may soon be out of power), nationalist rhetoric against Chile continues (which always gives Bolivians something exterior to focus on). All this while the exchange rate slowly creeps up to Bs. 7.78 to the $US (when I arrived, it was Bs. 7.71).

So. As the holiday season quickly approaches, Bolivian politics has gone back to the same old, same old. Perhaps this gives credence to Quispe's anger that this is "la misma chola con otra pollera". But. When a country's bankrupt, it really doesn't have many options, does it?

Yesterday it was announced that here in Brazil, two large supermarket chains, Pуo de Aч·car (currently Brazil's largest) and Sendas, the largest in Rio de Janeiro state, where Pуo is not very well-established yet, are planning a merger. The details were fuzzy, but it looks like some kind of a share swap and joint operation will be taking place.

Pуo de Aч·car (which is the trading name of its parent, Companhia Brasileira de Distribuiчуo, a public company traded in New York [quote]) currently has 446 stores in Brazil; family-held Sendas has 79. Combined operations will give the new company 525 stores, more than twice as many as their nearest competitor (French Carrefour, which, however, has about similar turnover to Pуo at present).

Enter Wal-mart. At present, Wal-Mart has a toe in the door here, with 22 shops and R$1.75bn in turnover (Pуo R$10.8bn, Sendas R$2.52bn). But Wal-Mart is considered front-runner in acquiring No. 3 retailer Bompreчo from troubled Dutch group Ahold. CBD would like to have Bompreчo, but the market considers it too much of a debt burden on CBD for them to buy the chain outright from Ahold, who need the cash. Wal-Mart presumably doesn't have the same liquidity issues. Buying Bompreчo would give Wal-Mart 138 stores and over R$5bn in turnover.

There's a very interesting piece on BBC Brasil today about "little Pуo, little Sendas and big Wal-Mart". The author, Lucas Mendes, points out some facts about Wal-Mart in Mexico:

A gigante americana entrou no Mщxico hс doze anos. Hoje tem mais de 600 pontos de vendas e emprega 101 mil pessoas, mais do que qualquer outra empresa no paэs. Fatura mais do que toda a ind·stria de turismo.

Suas vendas representam 2% do PIB mexicano, 30% das vendas de todos os supermercados e 6% das vendas no varejo. Ela nуo sufoca sє a concorrъncia mexicana. Nos Estados Unidos, os n·meros sуo semelhantes. [English]

He then asks the key question:

Serс que o que щ bom para o Mщxico serс bom para o Brasil ou, no Rio, o pуozinho e a sendinhas vуo bater no walzуo? [English]

Lucas points out that the Mexicans and Americans are happy with Wal-Mart, but to me it rather begs the question as to exactly how good this is for Mexico. For now, it looks like Pуo/Sendas may be one move ahead of Wal-Mart. Myself, I am surprised that Wal-Mart is moving so slowly (it may be that they are just having trouble growing themselves quickly in Brazil, but that hasn't stopped Wal-Mart before).

[Full disclosure: I am a CBD shareholder]
Where credit is due: the sales / stores figures came from O Globo 8 December 2003

This The Economist's article posted at Bonobo Land by Edward is a remarkably good one, but it can bear a few extra notes (an article, as a poem, is never finished, just abandoned):

As Edward noted, a decisive source of fiscal income has been the taxes on agricultural exports, chiefly among them soy products, of which China is a big consumer. Although income from internal demand is rising, next year's expected slowing down of Chinese growth will certainly impact negatively on Argentina, as it will impact all commodity exporters.

The Economist is right pointing out that a big factor in Argentina's rebound has been the output gap left by the collapse of a few years ago. It's one of my reasons to be somewhat bearish about Argentina in the middle term; the "1998's GDP in 2005" figure is sobering. That output gap, on the other hand, gives the Kirchner administration some breathing room to negotiate with creditors, as the country can still grow for a while without resorting to the capital markets.

Unemployment, too, is part of the output gap, but I should remark that, unlike India and China, Argentina is a country just coming out of a collapse, not rising from a previous lower level. A good part of Argentina's poor were middle class but a few year's ago, and are understandably trying to go back to their previous status. Societal expectations being different, the kind of low wage-driven capture of outsourcing possibilities might never be a workable option for the country on any big scale.

It's also important to note that even in the best of cases, the average Argentine is not overly warm any more to foreign capitals. The image of banks bailing out of the country as quickly as they could -in some cases deliberately hollowing out their Argentine branches- leaving middle-class and old people without their life savings, is not one that will pass away from the Argentine political psyche any time soon. So there's an image problem for capitals there, although not an insurmountable one.

Overall, The Economist's implicit assessment of President Kirchner as a ruthless and pragmatic political operator working out of a base of strong internal support seems correct. If he can manage the three outstanding threats to his political control -keeping the unemployed piqueteros in line, preventing the security issue from exploding, and maintaining his political alliance with former President and Buenos Aires' de facto caudillo Eduardo Duhalde- then he will have a chance to work on the most difficult of Argentina's problems: finding a path for growth that can work in the long term.

Protesters Tell a Different Tale of Free Trade
Published on Thursday, November 20, 2003 by the Los Angeles Times
Activists gathered in Miami to counter treaty negotiations by 34 nations warn that Latin American workers face growing misery.

by John-Thor Dahlburg

MIAMI - From Mexican sweatshops and peasant farms in the Amazon to Spanish-speaking neighborhoods of the United States, protesters have come here to warn that plans for hemisphere-wide free trade would lead to greater misery and suffering in Latino communities.

"I can tell you that if Mexican workers aren't already slaves of the multinational corporations, we're 99.9% there," said Israel Monroy of the Coalition for Justice in the Maquiladoras, a group dedicated to the special factories created in Mexico to assemble export goods.

"Family farmers everywhere, from north to south, not just Brazil, are living in crisis," said Maria de Fatima, a representative of Brazil's Landless Rural Workers Movement, which seeks agrarian reform. "As we import cheap, poor-quality foodstuffs, the multinational companies that invade our countries open the doors for the bankruptcy of thousands of farmers. During the past six years, 2.4 million farmers were expelled from the land."

In stark counterpoint to the official negotiations in Miami this week among the United States and 33 other countries on creating a Free Trade Area of the Americas, a project President Bush has embraced as a "great vision," a motley collection of activists, academics and private citizens has assembled on the other side of the police barricades to describe the painful costs of foreign investment and trade liberalization on the people of Latin America. ...

-Venezuela's Electoral Board (CNE) decided by a vote of three to two, that Venezuelans abroad will not be able to participe in the petition drive to ask for a recall referendum for Hugo Chavez' mandate. The Board said that there was not enough time to set the petition drive abroad with sufficient supervision, leaving many wondering what good are the country's Embassies and Consulates abroad.

-Separately, the CNE approved regulation severely limiting advertising for the petition drives as well as any broadcast of any unofficial results past the third day of the petition drives. there will be two petition drives. Staring tomorrow and for the next four days, pro-Chavez supporters will attempt to gather sigantures to recall the oppositions Deputies in the National Assembly. On Nov. 28th. the opposition will attempt to obtain the 2.4 million signatures required to have a recall referendum on Chavez' mandate.

-The Venezuelan Ministry of Finnace succesfully placed US$ 1 billion of a bond with 2018 maturity and 7% coupon. The issue was sold at par in local currency but it is dollar denominated, thus the effective yield will be around 11.6% once it starts trading. (It was trading already today in the informal "when and if" market at 67% for an implicit exchange rate of Bs. 2388 per US$)

-MSCI announced that it will no longer be using the official exchange rate in its Venezuela index. Starting next week, it will use the rate obtained from te arbitrage between the stock of the country's largest telephone company CANTV traded locally and that traded in the US. The arbitrage gives a rate of roughly Bs. 2600 per US$ versus the official rate of Bs. 1600 per US$.

-Venezuela, a baseball-centric country, was excited this week with the victories in the qualifying round for the World Cup of its team against Colombia (in Colombia) and Bolivia (in Venezuela). Venezuela has never even come close to qualifying for the Cup.

The Venezuelan Central Bank (BCV) reported that the Venezuelan economy shrank by 7.1% in the third quarter 2003. For the year the Venezuelan economy has shrank by a total of 14.7%. Quarter to quarter there was a slight improvement from -9.4% in the second quarter. The report by the central bank indicates that the oil sector shrank by 9% during the quarter, while the non-oil economy shrank by 6%, demonstrating that PDVSAтАЩs activities are not up to full speed as the Government claims. In fact, the report by the BCV explicitly states that the oil public sector shrank by 12.2% with respect to the same quarter in 2002, but private sector oil activities increased by 30.2% through the strategic associations. Thus, it is the private oil sector that has actually saved the day in terms of oil production. In the private sector, manufacturing continued stalled at -9.9% for the quarter, while constriction (up 33.9 %) and commerce (up 10.0 %) did show some signs of revival.

As we anticipated yesterday, the Congress has approved the extension of the Economic Emergency Law until December 2004. Besides fixing the ground rules for the painful post-convertibility transition (which played havoc with the banking system and savings), the law gives President Kirchner powers to renegotiate the contracts of the privatized utility companies. I don't think they are feeling very serene right now, after the government rescinded yesterday Grupo Macri's contract to run the postal service (it's expected to find another buyer for the concession in 180 days).

Economic emergency aside, the macro news are in fact quite good. The government announced a primary budget surplus of 8.118 millions of pesos, well above the goals accorded with the IMF, while year-to-year GDP growth measured in September was 9.4%.

In more anecdotal news, Argentina and Colombia's soccer teams tied 1-1 in a match leading to the next World Cup.

Also, an interesting observation by a friend of mine who lives near villas La Cava and Fuerte Apache: The roads around them tend to be in a much better condition than elsewhere. The reason? People from neighbooring zones know better than to drive there, so traffic is lighter.

I imagine that this was, more or less, the gist of the trade talks:

(Outside the negotiation room people chant: "We don't want free trade! We don't want free trade!" Inside, the delegates from Brazil and the US are sitting stiffly in front of each other, while the rest of the delegates look at them.)

US: Those people outside are being silly. We want free trade.
Brazil: We certainly do. Trade is part of the way to prosperity.
US: The thing is, you've got to start pushing harder to protect Intellectual Property rights, and give our companies more chances to bid for state contracts.
Brazil: No problem. After you stop subsidizing your farmers.
US: Sorry, can't. Politics.
Brazil: Ditto.

(Both delegates relax. A companionable silence sets for a while between them.)

US: We knew that this would happen, didn't we?
Brazil: Yeah. It could have been worse.
US: I know. Thanks for not bailing out like last time.
Brazil: Don't mention it. We can't keep walking out of these things. Brazil needs more trade, you know? Anyway, do we sign the dummy accord now or wait until Friday?
US: Let's do that now and go back to our homes. See you around in Geneva?
Brazil: Most likely. Good luck with the Chinese and the Europeans, though. They are not a happy bunch.
US: I know, I know. But what can I do? It's (all delegates together, with a semi-amused, semi-exasperated rolling of their eyes) Politics, we know!


If you don't buy this version of the talks, just meditate on the following quote from Robert Zoellick, the U.S. Trade Representative: "Economies are different in the early 2000s than they were in the 1990s. We each have our own politics to deal with."

Understatement, so it seems, is still the heart of diplomacy.