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Macroeconomics: Mexico

Mexico is an industrial-agrarian country. Extraction and processing of oil and gas, as well as mercury and silver, occupies a leading position. The country has large oil refineries and chemical plants, enterprises of ferrous and nonferrous metallurgy, mechanical engineering, textiles and clothing, food processing, construction materials. The main crop is corn. Wheat, rice, sorghum, sugar cane, coffee and cotton are cultivated as well. Commercial fishing is well developed along the coast of California and the Gulf of Mexico. Tourism is actively developing. Mexico exports petroleum products, cars, engines, electrical appliances, household electronics, fresh and canned fruit and vegetables, coffee, fish, cotton, and fertilizers. The country imports machinery and transport equipment, steel, iron, telecommunications equipment, and chemicals. The main trading partners are the USA, Canada, Brazil, Japan and the EU countries (Moreno-Brid & Ros, 2009).

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The economy of modern Mexico rests on four pillars: oil, heavy industry, agriculture and services. Mexico occupies the fourth place in oil production (over 50% of raw materials are produced in the shelves of the Gulf of Campeche, and the rest in Tabasco and Chiapas) and the fifth place in terms of proven deposits. The country exports most of the extracted raw materials; the remaining resources cover domestic demands. The fact that oil exports generate about two thirds of total export earnings makes the economy of Mexico oil-dependent: its growth rate, the number of jobsites, and financial policy of the country are directly related to world commodity prices. However, at current rates of production, proven oil reserves would last only for about 8-9 years. In order to deal with this issue Mexican government is taking steps to reform tax and financial systems of the country, and the largest oil producer PeMex has already committed itself to reducing the volume of raw materials (Moreno-Brid & Valdivia, 2005).

Mexico occupies the first place among the countries of Latin America and closes the top ten of the world’s rankings of the total capacity of refineries and petrochemical plants, which are located along the Gulf Coast and in the vicinity of large cities (Mexico City, Salamanca) (Philip & Enríquez, 1988). The value of the production comes from synthetic fibers and chemical fertilizers. The country is the world’s leading producer of silver and one of the leading producers of fluorspar. It is among the five leading countries in the production of antimony, copper, mercury, sulfur, zinc and cadmium. In addition, it mines gold, molybdenum, and tungsten. There are deposits of uranium ore as well. There are the largest cement plants in Mexico. Machine building (textile equipment, manufacture of diesel engines, railroad cars) and automobile industry (passenger and commercial vehicles, buses) have a significant place in the economy of Mexico.

Despite the fact that various industries provide two fifths of GDP, there are not many large enterprises – the main production accrues to small and medium enterprises, which are links of a production chain. Although Mexico’s GDP has increased in more than 1.5 times in the last ten years, it is still far behind the income per capita of developed countries (Randall, 2006). Foreign trade is one of the main sources of foreign exchange.

A characteristic feature of the foreign trade is a chronic excess of imports over exports. Exports grew by 29.8% to $ 298.1 billion in 2010, while in 2011 this value constituted $ 349.6 billion. In 2010, imports increased by 28.7% and exceeded $ 301.5 billion, and in 2011, its size was $ 350.9 billion, thus introducing an increase of 16.4% compared with a previous year. The structure of imports indicates that Mexico buys mainly machinery, raw materials for industry, and food and consumer goods. Besides the US, the largest importers of Mexican products are Spain, Japan, Germany, and Brazil. Mexico increasingly resorts to external borrowings, while export revenues do not cover financial obligations. Government hopes to make a quick jump in economic development, and to cope with unemployment. Mexico’s external debt amounts to $ 158, 3 billion. Payments on public debts absorb 70% of oil revenues. Such a financial situation leads to repeated devaluations of peso. According to the Central Bank of Mexico, it is expected that inflation will fall to 4% by the end of the year, and then continue to decline up to 3% of the level in 2013 (Villareal, 2011).

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There are almost 38 million people of working age in Mexico; 5% of them do not work and 35% work part-time. According to some calculations, the number of people who migrated in search of work in the 1990s constituted roughly 14 million. In Mexico, there are few foreign workers. About 22% of the working population are employed in agriculture, 19% – in industry, 13% – in trade, 7% – in construction, and the rest – in the service sector. The service sector and trade accounts possess more than half of Mexico’s GDP; one of the main sites is owned by tourism, which employs about 30% of the working population. The country is the largest tourists’ destination in Latin America. In particular, 11.5 million tourists visited the country only during the first half of 2008 (nearly 5% more than in 2007). This brought $7.338 billion to the country (Crandall, Paz & Roett, 2005).

Mexico is among twenty most attractive countries for foreign direct investment (FDI), which increased from $17.7 billion in 2010 to $19.4 billion in 2011. As for the distribution of FDI, the industry received 53.6%, the services – 46.3%, and agriculture only 0.1%. The sources of FDI in Mexico are the United States – 55%, Spain – 15%, the Netherlands – 6.7%, Sweden – 6.3%, Canada – 3.4%, Japan – 3.4%, other countries – 10.2% (Villareal, 2011).

The main reason of the financial difficulties of the Mexican state-owned banks is their subordination to the governor. Such dependence has allowed state governments to get loans from state banks, many of which will not be returned. Unlike private banks, state banks have a low level of capitalization and profitability. Despite the last financial crisis, foreign banks increase their presence in Mexico. In early 2003, there were 20 foreign banks and 75 representative offices in Mexico. Mexico, which suffered from budget deficits in the early 1990s, joined Japan and Switzerland and entered the top three countries that had a budget with a surplus (Moreno-Brid & Ros, 2009).

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