Comments on Restoring Mexico s International Reputation, by Roberto Newell, at Woodrow Wilson May 31, 2011 Carlos Hurtado* * General Manager, Southern Cone Countries, Inter American Development Bank The views expressed in this presentation are strictly personal and do not necessarily represent those of the IADB
1. Economic policy makers can focus their energy in economic matters and they should 2. Difficult to conciliate that the country is no longer perceived as key business prospect and the huge profits 3. What happens after NAFTA: growth of services sector in developed (and some of the emerging) world
Mexican exports to the U.S. market have not declined as could have been expected Share in Non Oil US Imports 3
Trade is more diversified 4
4. Brazilian economy is less open to trade and it is highly regulated 5. The existence of a big and very low productivity informal economy jeopardize the so called demographic bonus, it may actually become a demographic nightmare for public finances 6. It is true that Mexico is not lagging behind in education within LAC, But the whole region is well behind Asian emerging economies 7. That is, in education and productivity
75% 70% 65% THE NEW GLOBAL ECONOMIC ORDER: POLICY CHALLENGES FOR LATIN AMERICA Beyond Macro Management: Latin America and the Caribbean has a unique opportunity to address long standing challenges that have historically 68% 66% hampered the region vis à vis the rest of the world. We highlight three: Productivity (Region s Total Factor Productivity relative to USA s) Brazilian Cluster Education (PISA score probability density function, average test in science, mathematics and reading) Integration and International Trade 25 20 (Share of World Trade) East Asia 60% 55% 52% Share (%) 15 10 50% 45% Mexican Cluster 49% 5 LAC 40% 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 0 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 Own calculations based on Inter American Development Bank. 2010. The Age of Productivity: Transforming Economies from the Bottom Up. Rethink productive and international trade strategies, strengthening links with fast growing emerging markets (this is particularly relevant for the Mexican cluster)
PRODUCTIVIDAD Productividad Relativa (Productividad total de los factores en relación a EEUU) Incrementos en la Productividad (Variación de la PTF Relativa, 1970 2007) 75% 70% 72% LAC 6 China 262% 66% 65% EA 4 23% 60% CAC 6 India 22% 55% 50% PTF Relativa (%) 1970 2007 LAC 6 66 52 52% LAC 6 22% CAC 6 65 47 45% EA 4 43 43 India 33 40 China 12 45 47% CAC 6 27% 40% 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 30% 20% 10% 0% 10% 20% 30% 40% 50% Cálculos propios basados en Inter American Development Bank. 2010. The Age of Productivity: Transforming Economies from the Bottom Up. CAC 6 es el promedio simple de Costa Rica, El Salvador, Honduras, Nicaragua, Panamá y República Dominicana. Estas economías representan el 88% del PBI de América Central EA 4 está comprendido por Filipinas, Indonesia, Malasia y Tailandia. LAC 6 es el promedio simple de Argentina, Brasil, Chile, Colombia, Perú y Venezuela.
8. The sustainability in the medium term of public finances is not assured. Something has to be done 26.4%
High public spending dependant on oil revenues Monthly Oil Production (thousands of barrels per day) Oil price (dollars per barrel) Source: Sener. Source: Sener and U.S. Energy Information Administration. 9
9. A very good and important conclusion: the balance of the last 20 years of development and growth is largely positive 10. More FDI goes to BRICS, is there a volume effect? 11. Expectations on the Mexican economy have improved significantly
Expected growth for 2011 and 2012 in Mexico does not compare badly Antigua and Barbuda Argentina The Bahamas Barbados Belize Bolivia Brazil Chile Colombia Costa Rica Dominica Dominican Republic Ecuador El Salvador Grenada Guatemala Guyana Haiti Honduras Jamaica Mexico Nicaragua Panama Paraguay Peru St. Kitts and Nevis St. Lucia St. Vincent and the Suriname Trinidad and Tobago Uruguay Venezuela 15.0 13.0 11.0 9.0 7.0 5.0 3.0 1.0-1.0-3.0-5.0 2010 2011 2012 11
Private sector s expectations Source: Private Sector Analysts' Survey, Banxico
11. It is true that the political debate is destructive, what is behind the attitudes of the parties? Leadership issues? Structural flaws? 12. The media has been subject to fashion in the past regarding countries 13. Firing the Brand Manager : A combination of complaisance, certain comfort with mediocrity and the Mexican exceptionalism
Challenges. Need of economic reform Fiscal: to increase non oil tax revenues broaden the base, eliminate special regimes, reduce rates Property taxes Payroll burden and social security issues Budget: to enhance accountability and transparency of public expenditure, particularly at sub federal levels to control spending (health and others), prone to become permanent (similar to entitlements) Fiscal sustainability 14
Challenges. Need of economic reform Energy: to facilitate investment in the oil sector and in power generation Competition Telecommunications Other Judicial More NAFTA activity: services Education Healthcare Transportation Rule of Law Not everything requires Congress approval 15
Challenges. Need of economic reform Incentives in Congress today create little opportunity for economic reform Reform of the State Re election of Senators and Representatives (Diputados) More parliamentary powers and practice Fiscal coordination Cultural reform Elites do not trust average Mexicans Productivity of entrepreneurs Expectations of success Middle classes: meritocracy v.s. rentism Terminate Mexican exceptionalism 16