I spent last week in Mexico on a mission, in my capacity as President of IFSC Ireland, to promote closer economic links between Ireland and Mexico.
I met the Governor of the Mexican Central Bank, Agustin Carstens, the Mayor of Mexico city, Miguel Angel Mancera, the Governor of the state of Jalisco, Jorge Aristoteles Sandoval, the Governor of the State of Nayarit, Roberto Sandoval , the Mayor of Guadalajara, Ramiro Hernandez Garcia and a wide cross section of business interests .I also had the honour of addressing the Congress of the state of Jalisco and the city Council of Zapopan, and of visiting the Mexican Stock Exchange.
Mexico suffered a grave financial crisis in 1994/5. There was a property bubble and a threat of a banking collapse, averted by an intervention by President Clinton. The crisis led to an 18% loss in Mexican GDP.
Since then, Mexico undertook substantial structural reform, including passing a Fiscal Responsibility Law (similar to the Fiscal Compact recently adopted by the euro zone) seven years ago, which places constitutional limits on deficits.
Thanks to all the measures taken, Mexico now
- has a Debt/GDP ratio of only 36% (as against an average ratio of around 90% in the euro zone). As a result Mexico can now borrow on better terms than the United States
- has unemployment down to around 4.5%(as against 11.7% in the euro zone) and
- has an economic growth rate of 3.5 % . Mexico is winning back business from China because Chinese wage rates are being made uncompetitive by labour shortages, and transport costs to market are less from Mexico than China.
- is educating more engineers annually than the United States. A very large proportion of Mexico’s population are still in the education system, and that means it has big growth potential in a few years time
All this is heartening news for countries like Ireland, Portugal, Greece and Spain, who are also emerging from major financial crises. They can look at the example of Mexico’s recovery from financial crisis.
Mexico still has important challenges to overcome.
- The full potential of its substantial oil and gas resources is not being exploited because it is under the control of an inefficient state monopoly. This will be changed this year.
- It’s Judicial system is in need of reform
- Its formal labour market is rigid, and more than half its working population is in the informal or black economy, which deprives participants of access to credit, training and career prospects. Social security reform is under way to tackle this problem.
- There is insufficient accountability for results in its education sector. This is linked to power of the Teachers trade union
- Water shortages are an increasing problem for household and for agriculture. This is an area where Irelands Green IFSC may be able to help in mobilizing international finance for infrastructural investments.
Mexico has benefitted from opening up its market to competition and is looking forward to greater transatlantic trade and investment arising from the recent announcements of Presidents Obama and Barroso. Export and investment oriented European countries, like Ireland, need to look to opportunities in countries like Mexico .