Keeping the economic picture bright is the job of Mexico’s finance minister Francisco Gil Díaz, a University of Chicago-trained economist who is one of the most respected members of President Vicente Fox’s cabinet.
Mr Gil Díaz is pleased with Mexico’s improving economic outlook. But he knows it could be better. GDP is forecast to grow from 1.3% in 2003 to about 3% this year. It is an improvement, but hardly robust. The turnaround is also almost entirely the result of better US industrial production, Mexico’s largest trading partner.
Mexico’s attempts to boost its economy without the help of its powerful northern neighbour have largely failed. To lessen the dependence on the US, Mexico is forging ahead with bi-lateral trade pacts. Officials also say that more trade with the rest of the world will help Mexico increase its competitiveness in the face of increasing competition from China.
Achievements
“Imagine if Mexico had not broken down trade barriers in the late 1980s, had not worked for the North American Free Trade Agreement,” said Mr Gil Díaz, speaking to a small group of reporters at the Inter-American Development Bank meeting in Lima in March. “We took advantage of opportunities, and the result was seeing our exports to the US rise in a way we never imagined. We’re keeping this in mind as we sign new trade pacts.”
Mexico currently leads Latin America in terms of trade pacts. In January it sealed yet another deal, this time with Japan. The accord will reduce tariffs between the two countries. On the Mexican side, agriculture should be a big winner from the accord. The treaty covers more than 300 agricultural items, which will allow Mexican farmers to compete with the US and Brazil when exporting key products such as pork and orange juice to the huge Japanese market.
The emphasis on trade deals is an attempt to make up for Mr Fox’s failure to pass key reforms at home. Initiatives to open up Mexico’s energy sector to private investors and to update the labour code remain stuck in Congress. Legislators also voted down, late last year, the government’s crucial federal tax initiative, which included a flat 10% value added tax (VAT) applied to all goods and services, including previously exempt medicines and food. The reform would have helped the government raise its income and depend less on potentially volatile oil income from the state-owned oil monopoly, Petróleos Mexicanos.
Fiscal reform
“The fiscal reform package could help us spend an additional 70bn pesos annually on education, health, public works and other government services,” Mr Gil Díaz said late last year, when legislators were mulling the reform. He added that the initiatives could also boost Mexico’s annual growth rate by as much as 2 percentage points.
With Mr Fox lacking a majority in Congress, and political jockeying already underway ahead of the 2006 presidential poll, the odds of Mr Fox signing any significant reforms before his term ends are decreasing all the time. The expansion of VAT to food and medicines proved unpopular, and if the government includes it in its next fiscal package it could sink it again.
“We’ve made a great effort to try to convince political parties, representatives from society and state governors of the importance of the reforms,” says Mr Gil Díaz. “Unfortunately, there are several political groups in place that are holding them back. We’ll just keep working on this, keep pushing it.”
