Mexico Mexico Country Profile Country Formal Name: United Mexican States (Estados Unidos Mexicans). Short Form: Mexico. Term for Citizen(s): Mexican(s). Capital: Mexico City (called Meexico or Ciudad de Meexico in country). Date of Independence: September 16, 1810 (from Spain). National Holidays: May 5, commemorating the victory over the French at the Battle of Puebla; September 16, Independence Day. Mexico Geography Size: 1,972,550 square kilometers–third largest nation in Latin America (after Brazil and Argentina).
Topography: Various massive mountain ranges including Sierra Madre Occidental in west, Sierra Madre Oriental in east, Cordillera Neovolcaanica in center, and Sierra Madre del Sur in south; lowlands largely along coasts and in Yucatan Peninsula. Interior of country high plateau. Frequent seismic activity. Drainage: Few navigable rivers. Most rivers short and run from mountain ranges to coast. Climate: Great variations owing to considerable north-south extension and variations in altitude.
Most of the country has two seasons: wet (June-September) and dry (October-April). Generally low rainfall in interior and north. Abundant rainfall along east coast, in south, and in Yucatan Peninsula. Society Population: Estimated population of 94.8 million persons in mid-1996. Annual rate of growth 1.96 percent.
Language: Spanish official language, spoken by nearly all. About 8 percent of population speaks an indigenous language; most of these people speak Spanish as second language. Knowledge of English increasing rapidly, especially among business people, the middle class, returned emigrants, and the young. Ethnic Groups: Predominantly mestizo society (60 percent); 30 percent indigenous; 9 percent European; 1 percent other. Education and Literacy: Secretariat of Public Education has overall responsibility for all levels of education system. Compulsory education to age sixteen; public education free. Government distributes free textbooks and workbooks to all primary schools. Official literacy rate in 1990 was 88 percent. Health and Welfare: Health care personnel and facilities generally concentrated in urban areas; care in rural areas confined to understaffed clinics operated mostly by medical graduate students.
Life expectancy in 1996 estimated at seventy-three years. Infant mortality twenty-six per 1,000 live births. Leading causes of death infections, parasitic diseases, and respiratory and circulatory system failures. Religion: About 90 percent of population Roman Catholic, according to 1990 census. Protestants (about 6 percent) ranked second.
Number of Protestants has increased dramatically since 1960s, especially in southern states. Mexico Economy Overview: From a colonial economy based largely on mining, especially silver, in the twentieth century, the economy has diversified to include strong agriculture, petroleum, and industry sectors. Strong growth from 1940-80 interrupted by series of economic crises, caused in part by massive overborrowing. 1980s marked by inflation and lowering standard of living. Austerity measures and introduction of free-market policies led to a period of growth from 1990-94. Membership in North American Free Trade Agreement (NAFTA) in 1993 led to hopes of continued economic growth.
However, growing trade deficit and overvalued exchange rate in 1994 financed by sale of short-term bonds and foreign- exchange reserves. Series of political shocks and devaluation of new peso in late 1994 caused investor panic. Inflation soared, and massive foreign intervention was required to stabilize situation. Although overall economy remains fundamentally strong, lack of confidence makes short-term prospects for strong growth unlikely. Gross Domestic Product (GDP): Estimated at US$370 billion in 1994; approximately US$4,100 per capita. Currency and Exchange Rate: Relatively stable throughout most of twentieth century, the peso (Mex$) began to depreciate rapidly during economic crisis of 1980s.
In January 1993, peso replaced by new peso (NMex$) at rate of NMex$1 = Mex$1,000. Exchange rate in January 1993, US$1 = NMex$3.1; rate in April 1997, US$1 = NMex$7.9. Agriculture: Contributed 8.1 percent of GDP in 1994. Main crops for domestic consumption corn, beans, wheat, and rice. Leading agricultural exports coffee, cotton, vegetables, fruit, livestock, and tobacco. Industry: Mining, manufacturing, and construction contributed 28 percent of GDP in 1994.
Industrialization increased rapidly after 1940. By 1990 large and diversified industrial base located largely in industrial triangle of Mexico City, Monterrey, and Guadalajara. Most industrial goods produced, including automobiles, consumer goods, steel, and petrochemicals. World’s sixth largest producer of petroleum and major producer of nonfuel minerals. Energy: More than 120 billion kilowatt-hours produced in 1993, about 75 percent from thermal (mostly oil-burning) plants, 20 percent from hydroelectric, and the rest from nuclear or geothermal plants. One nuclear plant with two reactors at Laguna Verde in Veracruz State.
Huge petroleum deposits discovered in Gulf of Mexico in 1970s. In 1995 sixth-largest producer of oil and had eighth-largest proven reserves. Exports: US$60.8 billion in 1994. Manufactured exports include processed food products, textiles, chemicals, machinery, and steel. Other important export items are metals and minerals, livestock, fish, and agricultural products.
Major exports to United States are petroleum, automotive engines, silver, shrimp, coffee, and winter vegetables. Imports: US$79.4 billion in 1994. Main imports are metal-working machines, steel-mill products, agricultural machines, chemicals, and capital goods. Leading imports from United States include motor vehicle parts, automatic data processing parts, aircraft repair parts, car parts for assembly, and paper and paperboard. Debt: Massive foreign debt. Buoyed by discovery of large petroleum reserves, government borrowed heavily in 1970s.
When severe recession hit in 1982, government declared moratorium on debt payments, precipitating international economic crisis. Austerity measures and renegotiation of the debt eased crisis, but in 1995 debt stood at US$158.2 billion. Balance of Payments: Large trade deficits from 1989 to 1993 pushed current account deeply into deficit. Dramatic improvement in trade balance in 1994 and 1995, however, nearly eliminated deficit. Heavy international borrowing allowed international reserves to rise to US$15.7 billion at end of 1995. Mexico Transportation and Telecommunications Roads: Extensive system of roads linking all areas.
More than 240,000 kilometers of roads, of which 85,000 paved (more than 3,100 kilometers expressway). Heaviest concentration in central Mexico. Many roads in poor condition as result of lack of maintenance and heavy truck traffic. Railroads: More than 20,000 kilometers. Standard gauge, largely government-owned.
System concentrated in north and central areas. Numerous connections to United States railroads; system largely used for freight and in need of modernization. Extensive, heavily used subway system in Mexico City; smaller subway in Guadalajara. Ports: No good natural harbors. On east coast, Veracruz is principal port for cargo; Tampico, Coatzacoalcos, and Progreso handle petroleum.
Guaymas, Mazatlaan, and Manzanillo are principal ports on Pacific. Air Transport: Adequate system of airlines and airports. More than 1,500 airstrips in 1994, of which 202 had permanent-surface runways. Principal international airport in Mexico City; other international airports in Monterrey, Guadalajara, Meerida, and Cancuun. Aeeromexico is main domestic airline. Telecommunications: Highly developed system undergoing expansion and privatization. Long-distance telephone calls go via mix of microwave and domestic satellite links with 120 ground stations.
International calls via five satellite ground stations and microwave links to United States. Demand still exceeds supply for new telephones in homes, but situation improving. More than 600 mediumwave amplitude modulation (AM) stations, privately owned. Twenty-two shortwave AM stations. Almost 300 television stations, most organized into two national networks.
Government and Politics Government: Constitution of 1917 in force in 1997. Formally a federal republic, although federal government dominates governments of thirty-one states and Federal District. Central government power concentrated in president, who directs activities of numerous agencies and state-owned business enterprises. Bicameral legislature (128-member Senate and 500-member Chamber of Deputies) relatively weak. Federal judiciary headed by Supreme Court of Justice. State governments headed by elected governors; all states have unicameral legislatures; state courts subordinate to federal courts.
Federal District governed by mayor (regente) indirectly elected by legislative body of the Federal District beginning in 1996; more than 2,000 local governments headed by elected municipal presidents and municipal councils. Politics: Authoritarian system governed by president, who cannot be reelected to another six-year term. Major political organization Institutional Revolutionary Party (Partido Revolucionario Institucional–PRI), which incorporates peasant groups, labor unions, and many middle-class organizations within its ranks. Many opposition parties have had limited electoral success; largest is the conservative Party of National Action (Partido de Accioon Nacional–PAN). Direct elections at regular intervals; rule of no reelection applies to most offices. Election by majority vote, except for 200 seats in Chamber of Deputies reserved for opposition parties chosen by proportional representation.
Extensive participation by interest groups and labor unions in government and PRI affairs. Foreign Relations: Major attention devoted to United States. Trade and immigration along shared border subjects of continuing negotiations. Foreign policy traditionally based on international law; nonintervention the major principle. Widely active in hemispheric affairs, including good relations with Cuba.
International Agreements and Memberships: Party to Inter-American Treaty of Reciprocal Assistance (Rio Treaty). Membership in international organizations includes Organization of American States and its specialized agencies, United Nations and its specialized agencies, Latin American Alliance for Economic Development, and Latin American Economic System. Joined NAFTA in 1993. Mexico National Security Armed Forces: Total strength in 1996 about 175,000 active-duty personnel. Army, 130,000; air force, 8,000; and navy (including naval aviation and marines), 37,000.
Approximately 60,000 conscripts, selected by lottery. Reserve force of 300,000. Women serving in armed forces have same legal rights and duties as men but in practice not eligible to serve in combat positions, be admitted to service academies, or be promoted beyond rank equivalent of major general in United States armed forces. Military Units: Two government ministries responsible for national defense: Secretariat of National Defense and Secretariat of the Navy. Country divided into nine military regions with thirty-six military zones. Each military zone usually assigned at least two infantry battalions composed of some 300 troops each; some zones also assigned cavalry regiments (now motorized) or one of three artillery battalions. Personnel assigned to air force also within command structure of Secretariat of National Defense, distributed among air base installations throughout country. Principal air base, Military Air Base Number 1, located at Santa Luciia in state of Meexico.
Personnel under command of Secretariat of the Navy assigned to one of seventeen naval installations located in each coastal state. Equipment: Under modernization program begun in 1970s, armed forces began to replace aging World War II-vintage equipment. Attention also given to development of domestic military industry. Mexican navy benefited significantly in terms of new vessels–most domestically built. Plans for additional acquisitions from abroad constrained by country’s economic problems. Police: Various federal, state, and local police provide internal security.
Senior law enforcement organization is Federal Judicial Police, controlled by attorney general, with nationwide jurisdiction. More than 3,000 members in 1996. Each state and the Federal District has its own force, as do most municipalities. Low pay and corruption remain serious problems at all levels. Protection and Transit Directorate–known as “Traffic Police”–major Mexico City police force; in 1996 employed some 29,000 personnel.
The Economy FROM THE 1940s UNTIL THE MID-1970s, the Mexican economy enjoyed strong growth averaging more than 6 percent, single-digit inflation, and relatively low external indebtedness. These conditions all began to change during the 1970s. Expansionary government policies generated higher inflation and severe external payments problems while failing to produce sustained growth. Government spending outpaced revenues, generating steep budget deficits and increased external indebtedness. Low real interest rates also discouraged domestic saving. A brief financial and economic crisis in 1976 signaled the need to address the economy’s fundamental problems, but subsequent petroleum discoveries reduced incentives for reform and postponed the inevitable day of reckoning. The government expanded its debt-financed spending in the late 1970s in anticipation of continued low interest rates and high oil revenue.
It also maintained a highly overvalued peso (for value of the peso–see Glossary), aggravating balance of payments problems, undermining private-sector confidence, and encouraging capital flight. External conditions turned sharply against Mexico in the early 1980s, producing a deep recession that forced a fundamental change in the country’s decades-old development strategy. Higher interest rates and falling oil prices combined with rising inflation, massive capital flight, and an unserviceable foreign debt to provoke an economic collapse. Lacking access to international capital markets, the government of Miguel de la Madrid Hurtado (1982-88) had to generate huge nonoil trade surpluses to restore macroeconomic balance. Import volume fell sharply at the expense of fixed investment and consumption. As a result of the government’s stringent economic stabilization program, the fiscal deficit was eliminated, international reserves rebuilt, and export growth restored, but at the cost of lower real wages and extensive unemployment.
Economic output remained flat between 1983 and 1988, and inflation remained high, reaching more than 140 percent in 1987. Real exchange-rate depreciation boosted the country’s debt-to-gross domestic product (GDP–see Glossary) ratio by almost 30 percentage points between 1982 and 1987. To control persistently high inflation and restore growth and international competitiveness, the government pursued a major policy reorientation in the late 1980s. It reduced state involvement in economic production and regulation and integrated Mexico more fully into the world economy. An anti-inflation plan was introduced in late 1987 under which the government, the private sector, and organized labor agreed to limit wage and price increases.
In 1989 the government reached agreement with its external creditors on extensive debt restructuring and reduction. In an effort to restore self-sustaining growth, the administration of Carlos Salinas de Gortari (1988-94) boosted investment as a share of GDP. It also accelerated the privatization of state-owned productive enterprises, both to raise state revenue and to promote economic restructuring and modernization. The government eased foreign investment regulations, stabilized the currency, deregulated the prices of most goods, and enacted extensive trade liberalization measures, including the reduction or elimination of import barriers and the pursuit of free-trade agreements with Mexico’s trading partners, especially the United States. The Salinas government allowed the currency to become increasingly overvalued during 1994, despite mounting trade and current account deficits resulting from trade liberalization and economic growth. It kept real interest rates high to ensure sufficient inflows of foreign (mainly short-term portfolio) investment to cover the current account deficit. During 1994 the government treasury issued a large number of dollar-denominated bonds (tesebonos ) to reinforce its capital position.
By the end of 1994, the almost total disappearance of Mexico’s international reserves made the government’s exchange-rate policy no longer tenable. The new administration of President Ernesto Zedillo Ponce de Leon was forced in December 1994 to devalue the new peso (for value of the new peso–see Glossary), despite promises to the contrary. The government’s mismanaged new peso devaluation cost the currency nearly half of its value and the government much of its credibility and popular support. Inflation and interest rates rose sharply in subsequent weeks, throwing millions of Mexicans out of work and putting many consumer goods beyond the reach of the middle class, to say nothing of the impoverished majority. Public and private investment plummeted, and Mexico entered its worst economic recession since the 1930s.
By early 1996, however, the economy had begun to recover, as capital inflows increased and most productive sectors registered positive growth rates. Mexico Industry Manufacturing In the early 1950s, the manufacturing sector eclipsed agriculture as the largest contributor to Mexico’s overall GDP. Largely because of extensive import substitution, manufacturing output expanded rapidly from the 1950s through the 1970s to satisfy rising domestic demand. The value added by manufacturing rose from 20 percent of GDP in 1960 to 24 percent in 1970, and again to 25 percent by 1980. Manufacturing output grew at an annual average of 9 percent during the 1960s, and by a slightly lower annual rate of 7 percent in the 1970s. This forty-year trend of manufacturing growth abruptly stopped and then reversed itself during the early 1980s.
Sharp reductions in both exports and internal demand caused manufacturing output to fall by 10 percent between 1981 and 1983. After recovering briefly in 1985, manufacturing output fell again by 6 percent the following year. Production of consumer durables suffered especially, with the domestic electrical goods and consumer electronics goods sectors losing between 20 percent and 25 percent of their markets during the mid-1980s. Government industrial policies began to favor manufactured goods destined for the export market, in particular machinery and electrical equipment, automobiles and auto parts, basic chemicals, and food products (especially canned vegetables and fruit). In the late 1980s, the manufacturing sector began to recover.
In 1988 manufacturing output grew by a modest 4 percent. After expanding a robust 7 percent in 1989, manufacturing output steadily slowed; it grew by only 2 percent in 1992, as a result of weak export growth and falling domestic demand. After contracting by 2 percent in 1993, manufacturing output expanded by 4 percent in 1994. The most dynamic manufacturing subsectors in 1994 were metal products, machinery, and equipment (9 percent growth), followed by basic metals industries (9 percent growth). In 1994 the manufacturing sector accounted for 20 percent of the country’s total GDP and employed about 20 percent of all Mexican workers.
Mexico’s export base for manufactured goods is narrow, with three subsectors (vehicles, chemicals, and machinery and equipment) accounting for more than two-thirds of non-maquiladora foreign earnings. The value of Mexico’s imports of manufactured goods rose sharply following trade liberalization, from US$11 billion in 1987 to US$48 billion in 1992 (US$62 billion including maquiladora imports). Increased foreign competition has seriously threatened many Mexican manufacturing enterprises, almost all of which are small and medium-sized companies employing fewer than 250 workers. In 1991 Mexico had 137,200 manufacturing enterprises, some 90 percent of which employed no more than twenty workers. The principal industrial centers of Mexico include the Mexico City metropolitan area (which includes the Federal District), Monterrey, and Guadalajara. In the early 1990s, the capital area alone accounted for about half of the country’s manufacturing activity, nearly half of all manufacturing employment, and almost one-third of all manufacturing enterprises.
About one-third of formal-sector workers in the capital area were engaged in manufacturing. Manufacturers have been drawn to greater Mexico City because of its large and highly skilled work force, large consumer market, low distribution costs and proximity to government decision makers and the nation’s communications system. In the early 1990s, the chemical, textile, and food processing industries accounted for half of all manufacturing activity in the Federal District, and metal fabrication accounted for another one-quarter. Heavy industry (including paper mills, electrical machinery plants, and basic chemical and cement enterprises) tended to locate in the suburbs of Mexico City, where planning and environmental restrictions were less rigorous. By the late 1980s, more than two-thirds of all foreign investment in Mexico was concentrated in maquiladora zones near the United States border.
In 1965 the government began to encourage the establishment of maquiladora plants in border areas to take advantage of a United States customs regulation that limited the duty on imported goods assembled abroad from United States components to the value added in the manufacturing process. The maquiladora zones offered foreign investors both proximity to the United States market and low labor costs. Most maquiladora plants were established in or near the twelve main cities along Mexico’s northern border. Some of these enterprises had counterpart plants just across the United States border, while others drew components from the United States interior or from other countries for assembly in Mexico and then reexport. The maquiladora sector grew nearly 30 percent annually between 1988 and 1993.
By the latter year, more than 2,000 maquiladora businesses were in operation, employing 505,000 workers. These plants generated US$4.8 billion in value added during 1992. Their main activities included the assembly of automobiles, electrical goods, electronics, furniture, chemicals, and textiles. To increase their purchase of domestic materials, the Mexican government decided in December 1989 to exempt local sales to maquiladoras from the value-added tax and to let these enterprises sell up to half of their output on the domestic market. Nevertheless, almost all in-bond products have been exported to the United States.
In 1994 food processing, beverages, and tobacco products constituted the leading manufacturing sector in terms of value, accounting for about 26 percent of total manufacturing output and employing 17 percent of manufacturing workers. Food, beverage, and tobacco output expanded by an annual average of 3 percent between 1990 and 1994, largely as a result of export growth. In 1994 it expanded by less than 1 percent. In the early 1980s, well over 50 percent of Mexico’s productive units were involved in food processing, and Mexico’s beer industry was the world’s eighth largest. Metal products, machinery, and transportation equipment accounted for 24 percent of manufacturing GNP in 1994. The automobile subsector was among the most dynamic manufacturing sectors in the early 1990s and led among manufacturing exporters.
Mexico’s automobile manufacturers were led by Volkswagen, General Motors (GM), Ford, Nissan, and Chrysler. Ford expanded production by 33 percent during 1991, Chrysler by 17 percent, and GM by 10 percent. Volkswagen controlled 25 to 30 percent of the domestic automobile market, and Nissan another 15 to 20 percent. Mexican automobile exports earned US$6.1 billion in 1992, not counting maquiladora production, which earned an additional US$1.3 billion. Export revenue from passenger vehicle sales rose by 21 percent in 1993 and by 22 percent in 1994, while domestic sales fell by some 14 percent in 1993 and rose by less than 1 percent in 1994. In 1983 the government encouraged the automobile industry to shift from import substitution to export production.
It lowered national content requirements for exporters and required assemblers to balance imports of auto parts with an equivalent value of automobile exports. In 1990 the government eliminated restrictions on the number of production lines that automobile producers could maintain and allowed producers …