The year 2000 will go down in Mexican history books as the watershed year, which resulted in a numbe...
The year 2000 will go down in Mexican history books as the watershed year, which resulted in a number of important precedents being set.
The political renewal, signalled by the election of Vincente Fox, the candidate of the opposition PAN party. This is ground-breaking, as the PRI had governed for over 70 years.
The economic renewal, since this was the first change of president which did not usher in an economic crisis.
The award of that sought-after certificate of achievement, investment grade, by Moody's credit rating agency. The proof that double-digit inflation is not structural and that the Banco Central of Mexico is behaving more like a textbook central bank.
Corporate Nafta, regardless of the geographical location of headquarters is undoubtedly treating Mexico not as a simple outsourcing location, but rather as part of the integrated strategy for the Nafta markets. This involves increased movement of goods, know-how and value added components between the member countries, which benefits Mexico enormously.
The final chapter in the restructuring of the Mexican banking sector was completed, with the recapitalisation of Bancomer and Serfin by Spanish banks BBVA and BSCH, respectively.
Today, Mexico is on line for an upgrade to investment grade from Standard & Poor's, is enjoying growth of over 4%, in a virtuous circle of decreasing inflation (7% estimated for 2001) and lower real interest rates. Spanish is already the second language of the US and is set to overtake English as the country's most-spoken language within a generation. The futures of these countries are inevitably intertwined.
Ostensibly, there are still enormous challenges ahead. Medium-term, education is still an issue for the majority of the population. Shorter-term, the political classes are embarked on a wholesale restructure of national politics. This will be an arduous task, not least because the new PAN government lacks the depth of individuals of the necessary calibre and experience to become the public sector middle managers, who are going to be charged with the implementation of new policies. To some extent, this shortfall is being addressed in a novel way by Fox. He has retained top firms of headhunters to find adequately prepared people from industry to fill the gaps in his team. The handover to the new administration is due at the year end and there remains the risk of the 2001 budget approval process not going through smoothly.
Another issue is oil, which is really a mixed blessing for Mexico. High oil prices are good, because they buy time for the administration, by providing windfalls for the exchequer. However, the country must learn to wean itself off this dependence on oil, by boosting other exports. Intermediate goods exports are up but not by enough. Further, windfalls are notoriously tempting to any government in any part of the world. The human reaction is to spend it.
Kim Catechis is head of global emerging markets at Scottish Widows Investment Partnership
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