MEXICAN ECONOMIC LIBERALIZATION THE PROJECT AND THE REALITIES Alicia Puyana Mutis FLACSO M xico Presented at the workshop Modern Markets and Traditional Politics A workshop to explore the economics and politics of the last ten fifteen years in Latin America Latin American Centre Oxford University Oxford June 4th 5th 2007 2 MEXICAN ECONOMIC REFORMS THE PROJECT THE REALITIES Draft only for discussion Not to be quoted Alicia Puyana Mutis 1 FLACSO M xico I Introduction For two reasons Mexico is an excellent case to analyse the strengths and weakness of the actual economic model Mexico was an early and radical reformer after been a strong corporativist one party state By signing almost fifteen years ago the North American Free Trade Agreement NAFTA Mexico constitutes the life experiment of the probable outcomes of the USA policy of Competitive Liberalization The debt crises put a dramatic end to the ailing industrialization model and opened the doors to the long protracted reforms Mexico was demanding for years Starting in December 1982 with Miguel De La Madrid s administration Mexico abandoned the model adopted since 1940 in favour of economic liberalization Today the Mexican is one of the most liberal of the medium sized economies in the world Import tariffs were reduced and the movement of goods services and capital is practically free 2 The economic role of the government was reduced by selling off a large proportion of public enterprises deregulating many aspects of the economy such as transportation telecommunications banks financial institutions and practically all productive state enterprises except Petr leos Mexicanos PEMEX and the Comisi n Federal de Electricidad CFE and severely reducing government investments The process also included opening up the country to foreign capital flows Different institutions were put in place to regulate the market and prevent monopolistic behaviour Comisi n Federal de Competencia CFC Comisi n Federal de Telecomunicaciones de Telecomunicaciones COFETEL Comisi n Nacional Bancaria y de Valores CNBV and the Comisi n Reguladora de Energ a CRE The Central Bank el Banco de Mexico was granted full autonomy with only one major task to prevent inflation Monetary policy therefore has been conducted with that aim To mitigate the fall in incomes and to promote the agricultural sector the government implemented phocalized poverty programmes PROCAMPO y OPORTUNIDAES 1 Carlos Elizondo read an earlier draft and made very useful comments I thank him for that Nevertheless all errors are my own responsibility 2 Ocampo et al 2000 2 3 Their impacts in terms of poverty alleviation are positive but not enough to improve the highly unequal distribution of income The objectives of the reforms were manifold First to reverse the loss of competitiveness in international markets and regain export dynamism and larger shares of world trade Second to speed up growth and reduce unemployment mitigate poverty and income concentration Finally to sustain macroeconomic stability conducive to higher rates of capital formation Nevertheless the ultimate goal of economic policies are growth and improved living conditions for the population obtained through more and better employment necessitating permanent productivity increases Lower inflation rates fiscal discipline balanced external accounts and faster exports important as they are serve only as means Tools to induce growth and development should not become the only indicators of the success of the economic policies Any given country engages in negotiating trade agreements multilateral or bilateral or regional economic integration treaties when is convinced that neither universal free trade nor protectionism will help to overcome the obstacles to its economic growth and advance towards the more developed economies To speed up growth and shorten distances between member countries more advanced participating countries should grant preferential treatment to the less developed partners In multilateral negotiations as well as in regional integration preferential treatment conceptually creates mechanisms of convergence and stabilizes the agreements The workshop has to analyse the political and economic events of the last ten fifteen years behind the lack of economic growth and the prevalence of poverty and income concentration There is growing concern that poor economic growth has a negative effect on political stability and makes it difficult if not impossible to structure a new social contract Some analysts have studied the political and institutional topics of the workshop arguing that the problems that limited the scope of the reforms and their results are to be found on the existence of a dense net of interests linking de facto 3 and de jury powers Those interests reduced the margin of the reforms and today they hold back the growth effects of the liberalization of the economy His paper explains the economic constraints to construct a new social pact and gives clues to overcome the hurdles 3 I has to be remained that the facto does not mean outside the law TELMEX monopoly was legally constituted so is the teacher s trade union 3 4 I will concentrate on the elements of the economic model behind the disappointing economic results of the reforms the North American Free Agreement NAFTA included I will propose which economic factors and economic policies are retarding growth and generating the explosion of the informal sector the stagnation of the tradable sectors in the generation of GDP and employment all that conducive to the concentration in a few hands of wealth financial and industrial capital production and exports All these factors are leading to an increasingly unequal distribution of income with a growing share of capital and the corresponding fall of labour Macroeconomic stability is maintained by unending adjustment based on monetary contraction relatively high interest rates and overvaluation We have to consider whether institutional reforms the elimination of monopolistic practices by efficient regulation and the modernization of the powerful trade unions positive as they are would lead to the reversal of the macroeconomic policies affecting growth and employment Will they for instance allow substituting the inflation targeting policy of the Banco de M xico with the obligation to harmonized stability with growth and employment targets Will the institutional reforms help to overcome the stagnation of tradable sectors and to
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