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Mexico Economy 1996
Mexico, under the guidance of new President Ernesto ZEDILLO, entered 1995 in
the midst of a severe financial crisis. Mexico's membership in the North
American Free Trade Agreement (NAFTA) with the United States and Canada, its
solid record of economic reforms, and its strong growth in the second and
third quarters of 1994 - at an annual rate of 3.8% and 4.5% respectively -
seemed to augur bright prospects for 1995. However, an overvalued exchange
rate and widening current account deficits created an imbalance that
ultimately proved unsustainable. To finance the trade gap, Mexico City had
become increasingly reliant on volatile portfolio investment. A series of
political shocks in 1994 - an uprising in the southern state of Chiapas, the
assassination of a presidential candidate, several high profile kidnappings,
the killing of a second high-level political figure, and renewed threats
from the Chiapas rebels - combined with rising international interest rates
and concerns of a devaluation to undermine investor confidence and prompt
massive outflows of capital. The dwindling of foreign exchange reserves,
which the central bank had been using to defend the currency, forced the new
administration to change the exchange rate policy and allow the currency to
float freely in the last days of 1994. The adjustment roiled Mexican
financial markets, leading to a 30% to 40% weakening of the peso relative to
the dollar. ZEDILLO announced an emergency economic program that included
federal budget cuts and plans for more privatizations, but it failed to
restore investor confidence quickly. While the devaluation is likely to help
Mexican exporters, whose products are now cheaper, it also raises the
specter of an inflationary spiral if domestic producers increase their
prices and workers demand wage hikes. Although strong economic fundamentals
bode well for Mexico's longer-term outlook, prospects for solid growth and
low inflation have deteriorated considerably, at least through 1995.
GDP - purchasing power parity - $728.7 billion (1994 est.)
-
National product real growth rate:
-
National product per capita:
-
Inflation rate (consumer prices):
$96.99 billion (1994 est.)
$96.51 billion (1994 est.), including capital expenditures of $NA (1994
est.)
$60.8 billion (f.o.b., 1994 est.), includes in-bond industries
crude oil, oil products, coffee, silver, engines, motor vehicles, cotton,
consumer electronics
US 82%, Japan 1.4%, EC 5% (1993 est.)
$79.4 billion (f.o.b., 1994 est.), includes in-bond industries
metal-working machines, steel mill products, agricultural machinery,
electrical equipment, car parts for assembly, repair parts for motor
vehicles, aircraft, and aircraft parts
US 74%, Japan 4.7%, EC 11% (1993 est.)
growth rate 4.5% (1994 est.)
food and beverages, tobacco, chemicals, iron and steel, petroleum, mining,
textiles, clothing, motor vehicles, consumer durables, tourism
accounts for 7% of GDP; large number of small farms at subsistence level;
major food crops - corn, wheat, rice, beans; cash crops - cotton, coffee,
fruit, tomatoes
illicit cultivation of opium poppy and cannabis continues in spite of
government eradication program; major supplier of heroin and marijuana to
the US market; continues as the primary transshipment country for US-bound
cocaine and marijuana from South America; increasingly involved in the
production and distribution of methamphetamine
US commitments, including Ex-Im (FY70-89), $3.1 billion; Western (non-US)
countries, ODA and OOF bilateral commitments (1970-89), $7.7 billion;
Communist countries (1970-89), $110 million
1 New Mexican peso (Mex$) = 100 centavos
market rate of Mexican pesos (Mex$) per US$1 - 6.736 (average in March
1995), 5.5133 (January 1995), 3.3751 (1994), 3.1156 (1993), 3,094.9 (1992),
3,018.4 (1991), 2,812.6 (1990)
the new peso replaced the old peso on 1 January 1993; 1 new peso = 1,000 old
pesos
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