Bulletin 403 - Friday, January 9, 2009

• -- Slim will create 30,000 employments; he will destine investments in real-estate developments
• -- Automotive sector, principal beneficiary of federal support
• -- GM extends unemployment in Ramos Arizpe's plant for one month
• -- Calderon announces anti-crisis plan
• -- Boeing Mexico closed 2008 with 662 orders for commercial planes

EDITORIAL

A MEXICAN'S VIEWPOINT: Mexico 2009 - Year of challenges and difficulties

Mexico, as the rest of the world, is receiving and suffering direct impact from the world economic crisis. Only last September growth forecasts for 2008 was cut-down even further, from 2.8% to 2.4% and, even worse, it will be hardly met.

Economic deceleration in the United States, which I would call a recession, even if American authorities are reluctant to accept it and/or acknowledge it, will have a direct and massive impact on our economy, which is still highly dependent on the US, accounting for a little over 76% of our trade.

Economic growth forecasted for 2009 shows great challenges and realities for our country. According to an economist - whom I could listen to in an Economic Forum I recently attended -, economic growth could reach 1.7% in an optimistic outlook and in the pessimistic end it could be zero percent growth. Both scenarios are discouraging and represent great challenges for our country. This has also an impact on Mexican Peso/US Dollar rate of exchange, which is rather uncertain now. During recent markets upheavals, when Mexican Peso went from $10.30 for US$1 to almost $14 Pesos for one US Dollar in a couple of days, US Dollars reserves in Mexico dropped almost 20%.

Mexican economy still has certain dependence on exports and therefore, on demand abroad; also, domestic consumption will go down. In addition, some key sectors in Mexico which could represent significant currency income remain practically closed, (not de jure but de facto) before international competition, such as telecommunications, and others have completely closed, such as hydrocarbons. Therefore, growth in Mexico has been rather low (between 4% and 5%) when compared to other countries such as China, India, Brazil and, of course, Korea. Mexico has great challenges ahead, just to mention one, during Mexico's stabilizing growth, i.e. from 1946 to 1970, per capita income in Mexico was similar to that of Korea and even Spain, and today we have an average of half the per capita income in those two countries. Mexico has the challenge to have a stabilizing period that helps increase living standards and reduce the huge differences in income and therefore in patrimony which unfortunately exists in Mexico in our days.

It is no secret for anybody that there are several different Mexicos in one sole country, on the one side we have northern Mexico, which has found a place among international markets, being more aggressive and with higher competitiveness in every area: economic, social, academic, among others; only four states in northern Mexico contribute with 60% of exports. Inside this same Mexico we have the Republic's central region, which has not developed its full competitiveness capacity. And last, there is unfortunately a southern Mexico which has been practically excluded from growth by the rest of the country in the last few years. According to competitiveness data, 16 states in the Mexican Republic contribute with 1% of exports, most of them located in southern Mexico.

Precisely due to its geographical location, Mexico is very susceptible to ups and downs in the US economy, and in spite of the efforts made for markets diversification, through public policies such as our extensive network of free trade agreements (the country with the largest number of tree trade agreements in the world), we still are not only the less diversified country in the Earth, but we are also highly dependent on the United States, and therefore the consequences I mention. Remittances forwarded by Mexicans in the USA will go down, and it is the second source of foreign currency in Mexico.

In Mexico we need to exploit our capacities, and take advantage of the competitive strengths we have, to neutralize as much as possible the impact of this world crisis which has not reached rock bottom yet and will most likely do in 2009.

A feasible beginning, which may be immediately enforced, is identifying market niches and activities, reducing little by little informal economy, which accounts for almost two thirds of domestic economy, through public policies that really "invite" this sector not only to enter into the formal economy, but also legalize their income with a good system for tax collection, made easier and simpler by the Ministry of the Treasury. This is, make tax payment friendlier. I must say that this does not mean at all taxes should be increased, quite the opposite, it means reducing them as an invitation to pay. Measures and taxes such as Flat Rate Tax only represent heavier loads for taxpayers and wear down efforts to find a way to "find the loophole" in this type of taxes. As a matter of fact, I have strongly opposed to this kind of taxes that only discourage tax payment and even worse abates Mexico's competitiveness and delays even more its growth, which is already quite low.

At the State of Nuevo Leon, where yours sincerely works, change was made from a manufacturing economy to a knowledge-based economy, grounded on employment with a larger value added; there has also been an increase in services purveyance and advantage has been taken of being the State with the highest academic level and therefore the highest education in Mexico. This will help in this economic crisis turning point, even if I could not say right now to what degree it will help under current circumstances. Nor could I say this is a preventive measure, because this policy was implemented at the beginning of the current Administration 2003-2009; however it is ad hoc to current situation.

To sum-up, Mexico will live difficult times in 2009; however, this is a good moment to take measures considering current circumstances and take the steps required not only to help neutralize and/or reduce the effects of the global crisis; these measures will be required, whether there is a crisis or not, because Mexico needs them as a country. The difference is that this time we are being forced to take these measures due to the current economic crisis all over the world. As a recommendation, I think Mexico must transmit a more positive perception of our domestic affairs, especially those which represent the largest challenges, such as safety, disparity between income of the rich and the poor, i.e. larger growth not only by medium class, but a higher purchasing power, as well as a legal framework which really provides and transmits juridical safety to both domestic employment generators and foreign investors, not to forget fighting corruption, drug-related-terrorism and a very important issue I mentioned above, bringing informal markets to legal grounds, through public policies that invite economically active population to do so.

By: Samuel Peña Guzman (samuel.pena@nuevoleon.gob.mx)

(*) THE AUTHOR IS ATTORNEY AT LAW GRADUATED FROM TEC DE MONTERREY -ITESM-, WITH A MASTER'S DEGREE IN INTERNATIONAL LAW (LL.M) FROM AMERICAN UNIVERSITY, WASHINGTON COLLEGE OF LAW AND A MASTER'S DEGREE IN PUBLIC ADMINISTRATION (MPA) FROM THE GEORGE WASHINGTON UNIVERSITY. HE HAS BEEN INTERNATIONAL LAW PROFESSOR IN NUEVO LEON'S PUBLIC UNIVERSITY, UNIVERSIDAD AUTONOMA DE NUEVO LEON -UANL. HE IS CURRENTLY HEAD OF FOREIGN INVESTMENT OFFICE FOR THE STATE OF NUEVO LEON GOVERNMENT, HE IS MEMBER OF THE MEXICAN COUNCIL FOR INTERNATIONAL AFFAIRS, CONSEJO MEXICANO DE ASUNTOS INTERNACIONALES (COMEXI). OPINIONS EXPRESSED HEREIN ARE THE AUTHOR'S EXCLUSIVELY AND DO NOT REPRESENT THOSE OF THE INSTITUTIONS TO WHICH THE AUTHOR IS LINKED.