Mexican Economy

.. co. The reality is that the post-NAFTA surge in imports from Mexico has resulted in an $8.6 billion trade deficit with Mexico for just the first six months of 1995. By adding the Mexican trade deficit numbers to the current deficit with Canada, the overall U.S. NAFTA trade deficit for the first six months of 1995 alone is $16.7 billion.

Using the Department of Commerce trade data in the formula used by NAFTA proponents used to predict job gains, the real accumulated NAFTA trade deficit would translate into over three hundred thousand U.S. jobs lost. A number of companies that specifically promised to create new jobs actually laid workers off because of the agreement. Allied Signal, General Electric, Mattel, Proctor and Gamble, Scott Paper and Zenith all made specific promises to create jobs, and all have laid off workers because of NAFTA as certified by the U.S. Department of Labor’s special NAFTA unemployment assistance program (NAFTA TAA).

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As of mid-August 1995, the U.S. Department of Labor has certified 38,148 workers as having lost their jobs to NAFTA. A total of 68,482 U.S. workers have filed to receive NAFTA-related unemployment assistance through the NAFTA-TAA program. Despite the job losses, trade officials said NAFTA remains a net gainer for U.S. workers. Increased exports to Mexico and Canada will support some 3 million U.S.

jobs this year, up some 500,000 from two years ago, according to the U.S. Trade Representative’s office. (Briones) III. Recent Events A. The Chiapas Uprising and the Zapatistas On January 1, 1994, a group of Native Americans called the Zapatista National Liberation Army (EZLN) captured four towns in the southern Mexican state of Chiapas and demanded reforms from the Salinas government for better treatment for poor Indians there.

They chose to begin their rebellion to coincide with the implementation of NAFTA because they consider it a “death sentence.” They demand bilingual and intercultural education in their indigenous language as well as in Spanish. They want titles and protection of the lands where they live. Finally, they say that the governments should ratify the International Labor Office’s (ILO) resolution 169 on the promotion and protection of the rights of indigenous people. The group is named for Emiliano Zapata, a 19th-century Mexican revolutionary leader and agrarian reformer. The EZLN has organized itself among some of the most dispossessed people of the world.

Its’ soldiers are drawn from the forests, mountains and small towns of the region, both from the indigenous Mayan population, and from immigrants from Central and Northern Mexico. The EZLN soldiers have been subsistence cultivators and landless wage-laborers. They have grown and marketed their own export crops and have worked on the plantations and ranches of others. A very few are intellectuals drawn to the area over a decade ago by their ideals and hopes. The EZLN understands how NAFTA opens Mexico to U.S.

exports and imports, and how the most threatening of these is corn, the basic food crop of the indigenous population and an important source of cash income. Already they are suffering from low prices for coffee, another cash crop, due to government’s elimination of financial support for that production. They also know that export development means ecological destruction, especially deforestation. (Marcos) Although Mexican troops quickly retook most of the territory held by the rebels and a cease-fire was called soon afterward, the rebel group generated momentum for political reform in Mexico. A government negotiating team, headed by former Mexico City mayor Manuel Camacho Solis, met with rebel leaders and offered them a 34-point proposed agreement that included promises of political changes, new social programs, land reform, and better standards of living. However, the group rejected the plan in June. Subcommandante Marcos is the enigmatic spokesperson and highest army commander of the Zapatista National Liberation Army.

He is known for his well-written press releases filled with wit and sarcasm. He is always masked in public, and often smokes a pipe. The government claims to have “identified” Marcos as Rafael Sebastian Guillen Vicente, but Marcos and the EZLN have denied this. Major Ana Mari’a was the commander of the operation for taking the municipal palace of San Cristo’bal for the Zapatista National Liberation Army (EZLN). She was 25 years old when she joined the Zapatista Army and saw almost the whole process of how it moved forward.

She was one of the first women who was part of the ranks of the Army and has risen to hold the highest rank of any woman in the EZLN. (Gabriel) This revolt affects the current exchange rate due to the uncertainty surrounding this uprising. Many valuable resources can be found in the Chiapas region, such as timber, coffee and oil. Many foreign industries have reduced or canceled work in the region for fear of being caught between the EZLN and government troops. There is much more fighting taking place than most American newspapers report.

With businesses reducing their spending in Mexico, the inflow of U.S. dollars is reduced which increases the demand for the dollar in Mexico. This causes the dollar to strengthen against the peso. B. The Colosio Assassination On March 23, 1994, during the Mexican presidential campaign, the PRI’s candidate Donaldo Luis Colosio Murrieta, was assassinated while campaigning in Tijuana, Baja California.

Unnamed U.S. intelligence officials have stated that former Mexican police commander Fernando de la Sota Rodalleguez, charged in connection with the assassination, was a paid informant for the U.S. Central Intelligence Agency in Mexico City from 1990 to 1992. De la Sota began his police career in 1973 working for Mexico’s Federal Security Directorate, and by 1992 he had become investigations department commander for the federal attorney general’s office. He was fired that year on suspicion of taking bribes from alleged drug lord Rafael Aguilar Guajardo and the CIA dropped him soon after. De la Sota was working as the head of the private security team for Colosio on the day of the assassination. Federal investigators arrested De la Sota in February of this year on charges of giving false and conflicting testimony about the assassination. Despite his 20 years’ experience in police work, De la Sota claimed that the gunshots set off a diabetic attack which kept him from seeing what was happening.

He was released on Feb. 28 on a $7,000 bond. At the time of his arrest, Mexican officials indicated off the record that De la Sota was closely connected to the assassination. Currently two men are under arrest for the murder: Mario Aburto Martinez, a factory worker who allegedly shot Colosio in the head from the right side, and Othon Cortes Vazquez, who is charged with shooting the candidate in the abdomen from the left side. Cortes Vazquez and De la Sota knew each other. Cortes Vazquez worked for various PRI officials as a driver and messenger, and on the day of the murder he was driving for Gen.

Domiro Roberto Garcia Reyes, who was in charge of the official security for Colosio. One of the videotapes held by the attorney general’s office reportedly shows De la Sota and another member of the private security team, Hector Javier Hernandez Thomassiny, guarding Colosio’s left side. Cortes Vazquez suddenly “replaced” the two experienced bodyguards just before he and Aburto shot the candidate, according to people who saw the tape. As soon as Colosio fell, De la Sota and Hernandez Thomassiny allegedly seized Aburto and let Cortes Vazquez escape. The uprising in Chiapas and the murder of presidential candidate Luis Donaldo Colosio are two examples of how Mexico’s social and civic institutions are crumbling under the pressure of drug-related lawlessness and corruption, factors that are making Mexico a very dangerous place even for members of the ruling elite. Indeed, the same environment of lawlessness and impunity that has allowed Mexico’s ruling party, known as the PRI, to govern for over 65 years is now aiding the expansion of the influence of the narcotics trade.

Federico Reyes Heroles, editor of the monthly magazine Este Pais, says bluntly that the killing was a deliberate hit by Mexico’s powerful drug lords. News reports in the days following the killing included numerous off-the-record comments by government officials confirming the suspicion that the killing was a hit organized and paid for by drug traffickers. Another prominent Mexico City editor, speaking off-the record, says that the Mexican politicians are being killed off because of a power struggle related to money and drugs, not over questions such as democracy and human rights. Beyond the death of Colosio, however, another explanation exists: the need to maintain the appearance of “fighting drugs” to satisfy Washington. Eduardo Valle, former aide to Interior Minister Jorge Carpizo, has given the Mexican government documents and testimony allegedly linking government officials and drug traffickers to the assassination of presidential candidate Colosio. The former official, who is known as “the owl”, worked as a senior official directing Mexico’s anti-drug efforts. He says that Colosio was murdered by members of the Grupo del Gulfo cocaine cartel, with the involvement of Colosio campaign officials close to Communications and Transportation Minister Emilio Gamboa.

Included with the documents provided by Valle during testimony given at the Mexican consulate in Washington was a DEA report about telephone calls last December by cartel members to the offices of the presidency. (Whalen, p.2-4) Assassinations affect exchange rates due to the uncertainty that is caused. Many investors flee from the market if there is a risk of losing their investments. Without these investments, the economy begins to tumble downward due to increased unemployment and a lower demand for goods. This may cause the dollar to strengthen as the people move away from the uncertain peso. V.

Devaluation of the Peso Due to the weaken peso, caused by constant printing of money and high inflation, Mexican investors took close to $11 billion dollars out of Mexico in a few days in December 1994. The political turmoil from regional insurrection to a string of assassinations and disrupted elections help cause the collapse of the peso, requiring a $20 billion bailout from the U.S. Treasury. The International Monetary Fund has pledged another $17.8 billion, while the central banks of other industrialized nations, acting through the Bank of International Settlements, are obligated for an additional $10 billion. (Banda) VI.

Advantages/Disadvantages of Importing/Exporting Goods A Houston company exporting to Mexico will find some difficulty selling its goods in a country were the peso is weak against the U.S. dollar. The Mexican businesses will be forced to buy only the necessities due to the unfavorable exchange rate. However, on the positive side, if the Mexican businesses expect that the peso will devalue further, it may decide to purchase big ticket items now in hopes of beating any further devaluation. A Mexican company whose primary business is exporting Mexican made products to the U.S. will enjoy the weak peso, strong dollar economy.

Imports from Mexico into the U.S. has resulted in an $8.6 billion trade deficit with Mexico for the first six months of 1995. While the Mexican company is paying for its labor and overhead with weakened pesos, it is receiving a stronger U.S. dollar for its goods. The company can request payment in the stronger U.S.

dollar and invest them into various financial instruments until the peso can rebound or is needed to continue operations. VII. Opinion The signs are growing ever stronger that Mexico’s determined adherence to its economic austerity program is setting the stage for a remarkably solid and sustainable recovery from the recent financial crisis. The country’s Bolsa stock index has rebounded more than 60 percent from its February low, the peso has stabilized, compared to what it has done in the past, and Mexico’s recent $500 million bond offering was oversubscribed by $1.3 billion. Mexico is making clear progress in improving its debt structure, and strong export growth is producing a dramatic correction in Mexico’s current account imbalance.

Mexico has a balanced federal budget and a largely privatized economy. The North American Free Trade Agreement and Mexico’s other trade pacts are continuing to play a significant role in creating new opportunities for Mexican businesses. A number of U.S. companies have chosen to create co-production partnerships with Mexican firms over geographically more remote partners in Asia because of Mexico’s proximity, modern infrastructure and industrious workforce. NAFTA is playing a key role in encouraging such partnerships.

By reducing North American trade barriers, NAFTA is enabling firms which might otherwise manufacture in Asia to work with Mexican partners instead. The growth of business partnerships, along with Mexico’s ongoing economic, legal, judicial and political reforms helps to explain Mexico’s ability to attract long-term investment. However, the peso is currently in a tailspin against the dollar due mostly to currency speculators. If the Mexican government can stay with its current plans and programs with minor adjustment, the peso should rebound. The bottom line from Mexico is that its continued commitment to open markets and economic integration is paying off and will be reflected in the overall strengthening of the Mexican peso against the U.S.

dollar in the long run. REFERENCES Banda, M., (1995, September 5). Economic, Political Crisis Shadows Zedillo’s First National Address. Associated Press, Internet (WWW), Briones, J., (1995, September 4). NAFTA’s Broken Promises. Public Citizen Publication, p.10. Dean, D., (1995, September 20).

Mexico Doing Right Things to Turn Itself Around. Houston Chronicle, Sec. A, p.29. Gabriel, S., Mount Holyoke College. Internet (WWW), Newsgroup: soc.culture.mexican. Marcos, Subcomandante Insurgente, (1995, August 30). Sub.

Marcos Communique to the National Conference for Peace. La Jornada, Internet (WWW), Newsgroup: soc.culture.mexican. Microsoft Encarta, “Mexico”, Copyright (c) 1994 Microsoft Corporation. Whalen, Christopher (1995, September 13). Assassins In Mexico, The Mexico Report.

A newsletter on Mexico that provides litigation management, cross-border due diligence and communications strategy with respect to Mexico and other emerging markets.