No positive expectations for 2009: Mexico must now think of Structural Reforms?

No positive expectations for 2009: Mexico must think and structural reforms? Buenos Aires, Argentina March 6, 2008 in Mexico there is pessimism about the effectiveness of economic stimulus plan to offset the strong negative impact of the crisis. Even government officials, among which stands out Finance Minister Agustin Carstens, is not optimistic about the results of that plan. Is that the crisis is too big or Mexico has structural problems that prevent proper cushion the effects of the crisis? Probably both arguments are valid. The observed structural problems that have affected the Mexican economy, its growth potential, which is most evident in this context of crisis. Beyond the real causes, the Mexican economy continues to deteriorate sharply. The recession in the United States has collapsed the demand for goods manufactured in Mexico, impacted significantly on remittances a country receives and has caused the return of large numbers of Mexicans returning to the country to occupy a place among the unemployed. Since no growth scenario should be considered as a positive scenario. In this sense, the Banxico expected this year an economic contraction of between 0.8% and 1.8%.

The Mexican government projects that it will contract by 1%. The labor market suffers and the outlook is that the suffering will be even higher in coming months. In January, the unemployment rate reached 5% of the economically active population (PEA), its highest level in the last 12 years. Last Wednesday, the president of Mexico, Felipe Calderon, announced further anti-crisis measures amounting to around U.S. $ 6,600 million to be implemented through the Institute of Security and Social Services for State Employees and will consist of direct and indirect investments. Canst these additional measures? No, of course not. They will have minimal positive impact on the Mexican economy.

The problems in the economy made the Banxico relax its monetary policy in a decision which, although was supported by the weakening of inflationary pressures, has strengthened the exchange rate and its volatility decline, which has raised inflation risks. To counter these risks, Banxico is making great efforts in the exchange market, and since October 2008, has been making significant sales of foreign exchange to support the Mexican peso. To date, the entity already has sold more than U.S. $ 19,000 billion in international reserves. However, the Mexican peso continues to weaken and the dollar has already surpassed the barrier of $ 15. That 2009 will be a very difficult year for Mexico, is something that can not be avoided. However, quite rightly Mexican Finance Minister Agustin Carstens believed that this time of crisis for Mexico is also a time of opportunity. Is that the crisis has exposed the many weaknesses of the Mexican economy. Mexico's economy needs structural reforms to grow and this time of crisis is conducive to perform them. Carstens himself confirmed that the federal government has been in contact with Congress to make structural reforms to transform the economy, increase potential growth and create enough jobs. Mexico needs to reform, but: What reforms are needed in Mexico? To the Organization for Economic Cooperation and Development (OECD) report issued last Tuesday, the main focus of action proposed is education because the educational level of the population is low (the country received the lowest scores between those who belong to the OECD in evaluations conducted by the organization).

OECD raises strengthen technical and vocational education. The OECD also raised other sectors that require structural reforms. These include telecommunications sector requires greater competition. Mexico should also aim to strengthen the power sector. The report by the OECD, also said the following with respect to Mexico: "You need the removal of restrictions on investment of public works, increasing labor mobility (which implies a loosening in the labor market) and make arrangements to share risks and benefits with other companies, in order to access the technology needed to increase production (reduction of restrictions on foreign direct investment is implied here). " Carstens coincides with the vision of the OECD, but also necessary for the growth of Mexico, increasing the capacity to achieve savings and improve efficiency of the banking system. Maybe something that has not been mentioned among the necessary reforms to Mexico is the need to reduce dependence on the Mexican economy to U.S. influence. Mexico must work to increase trade ties outside to reduce the relative importance of the U.S. economy on it. The need for reforms in the Mexican economy is already raised.

It remains to know whether the government of Felipe Calderon is willing to do it and, if so, what have breadth and depth. This possibility makes me pose the following question: Is Mexico to begin a process of sweeping reforms to strengthen its economy and create great investment opportunities?