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Field trip: Mexico, still on a tightrope.

Tuxtla Gutierrez, Chiapas, 01 May 2014

Mexico on a tight rope

Mexico on a tightrope









Last year, Mexico looked upbeat ( This time around optimism is more subdued. Despite an ambitious legislative agenda, economic growth has slowed down to a stall while state issues linked to the drug cartels and organized crime have grown to new disturbing levels.

Since his election in November 12, President Pena has deftly maneuvered in congress to pass constitutional changes (pacto por Mexico). His reform program is now hitting snags. Consensus on the supporting legislation (leyes secundarias) in the areas of energy, medias, telecoms and education is proving more elusive than as parties in congress are shifting back to their own pressing agendas. Overall the Pena administration has won kudos in international financial markets but proof of pudding will be set in the remainder of the year. The promise to citizens is that the modernization of legislation in key areas will eventually bring about economic growth through new foreign investments. No doubt this will happen, but the short term picture looks rather bleak.

GDP growth for 2013 ended at 1.3 %, compared to 4% in 2002. In January the annualized rate skidded to a crawling 0.3 %. Although these numbers reflect a general slowing down in emerging countries, the figures look disappointing. A drop in consumption, fixed investments and construction activities have turned out to be a drag on the economy. As a result the Peso has slipped by 10% in the last 12 months, from P/US$ 12.10 to about P/US$ 13.15 in 12. In light of this predicament, President Pena announced last 30 April a large infrastructure program amounting to 7.7 billion pesos.

What Mexico has gained in the area of economic legislation, is being tarnished by a general sense that the federal grip on national security is further slipping. Drug cartels and organized crime are expanding their influence as the number of victims is still growing much faster than the economy. Local experts are drawing parallels with the state of Russia in the late 1990s, when it was estimated that organized crime controlled or heavily influenced about 40% of private companies, 60% of state companies and between 50-85% of banks. The least that can be said about Mexico is that the judicial system looks decidedly shaky in many states, while corruption and impunity are widespread in most layers of governments. We have come to witness every year a large scale corruption case capturing headlines and the public sorrow for months: Last year the dishonoring case was Mexicana (airlines), whereas as this year Oceanografia (oil industry)is the guilty outfit, haunting Citibank-owned Banamex.

Kidnappings remain all too common, and too often unreported. Sadly, public lynching seems to have tentatively reappeared in Mexico, as has been the case in Argentina and Venezuela. Paramilitary security units have sprouted out in the more turbulent states, such as Michoacan. This will be the weather state worth watching for the next two years, as the federal government will officially and publically try to regain some form of control.

During my visit to Chiapas, medias were officially reporting that well above 1.5 million migrants from central America enter the country every year through the area of Tapachula, the southern border city. The biggest travel business in town is the bus trip to Tijuana, on the northern border with the USA. A non-stop grueling 72-hour road trip along the Pacific coast, that carries all the misery stories on board.

Gabriel Garcial Marquez, who passed away last 17 April, was celebrated in Mexico city by the same heads of states he so wistfully teased and criticized all his life. A native Columbian, he would have recognized this dissolution of the legal right in his adopted land.
But for the new generation in Mexico, where is the next Octavio Paz or Gabriel Marquez?

André Du Sault
MBA (LBS), MPA (Harvard)
Ref: El Economista, Processo, Contenido, El Heraldo

Posted in CFO & treasury, Country visits, Strategy & globalisation, World economy.

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