Deindustrialitation and financing
in Mexico
Alicia Puyana Mutis
• Debt crsis, international, context and deregulation
• The debt crisis and the opening of LA economies: Rising international inflation, and
interest rates, decreasing commodity prices. Insolvency or illiquidity?
• The embedding o f the Washington Consensus credo: “deregulation, privatization and
stabilization”.
• Key features: Labour market liberalization plus: Fiscal discipline: low taxation and cero
deficit. Structural reforms not enough structural
• Mexican reforms:
• Trade liberalization
path
Joinnig the GATT in 1986, signing “Pacto de
Solidaridad Económica” in 1987 and NAFTA in 1994.
• Trade and fiscal
surplus to pay public
and private.
Public or private external debt; FDI or portfolio
investment; placements in foreign securities
markets; repatriation of capital; or increase in the
volume of exports
• Capital liberalization
Changes on FDI law in early 80´s, gradual
elimination of credit controls and restrictions on the
financial sector, deregulation of the market,
openness to foreign investment and banking
privatization in 1991-92.
Effects of trade liberalization in Mexico: the external coefficient has grown, but…
Faster growth of imports than exporsts. All
countries reinforcing a ricardian trade model:
Commodity and maquila exports. Country
differences.
Deterioration of the terms of trade, price instability
and real exchange rate appretition. High increase
in import propensity : Mexico 4.5%
Fall of real return on investment s in tradable
goods and feeble private sector interest in
investing.
Limited diversification productive estructure, deagriculturization and de-industrialitation .
ECONOMIC
INSTABILITY
AND WEAK
GROWTH
IN THE
LONG
TERM
Own elaboration based on WDI (2015).
América Latina: Tasa de Crecimiento Anual del PIB y de las Exportaciones
de Bienes y Servicios de y el Caribe. 1961-2011
Effects of liberalization of capital markets in Mexico
Privatization or extranjeriation and extreme
concentration?
Capital inflows lead to an overvaluation of the real
exchange rate.
Financial sector Changing preferences: Credit flows to
housing and consumer sector.
Short term speculative gains around international
differentials in interest rates. No financing to
productive sectors.
Exchange rate and interest rates volatility tends to
prioritize the 'rentier' to 'productive activities
ECONOMIC
INSTABILITY
AND WEAK
GROWTH
IN THE
LONG
TERM
Own elaboration based on WDI (2015).
LUCAS PARADOX (1990): contrary to what annunced, capital flows South-North
Confirming the Lucas paradox…
• And when it flows to developing countries it does not goes to the fastest growing
sectors (Puyana and Romero, 2010).
• From 1980 to 2013, capital flows,
FDI, expanded but mainly to
developed countries (63%)
• China and USA were the main
receivers of FDI in 2013, 13.8% and
12.9%, respectively, while Mexico
capture only 2.6% (UNCTAD).
Own elaboration based on UNCTAD (2014).
Banking sistem and development financing
The main function of Central Bank: controlling prices.
Own elaboration based on Banxico (2015).
Commercial banks: lending rates by loan portfolio type.
Source: Levy (2014)
Own elaboration based on Banxico (2015).
Own elaboration based on Presidencia de la República (2014).
Fiscal policy: fiscal discipline
Private investmenthas not fully compensated public expenditure reduction
replaced public investment.
Own elaboration based on WDI (2015).
Own elaboration based on Centro de Estudios de las Finanzas Públicas, Cámara de Diputados (2015).
Source: Romero (2014).
• Fall in total Investment/Worker.
• Fall in public investment per worker.
• Labour productivity stagnated
Mexican labour productivity as % of USA productivity. 1950-2013
Mexico: Index of minimum and medium real wages. 1980-2013
Year 2000 = 0
1980
1990
2000
2010
2013
Minimum Real wage Medium Real wages
312
114
145
89
100
100
97
113
99
114
Conclusions
• Mexico and other Latin American economies are in a premature
deindustrialization process, constraining growth.
• Investment does not flow to the productive sector because there are
not profitability conditions. Finance capital rentier and its prominence
on the real economy have consolidated.
• Mexican economy performance has been poor because of this
separation between financial sector and real sector
CONCLUSIONS
• It is not possible to conclude that Mexico has fully and sustainable
recovered from 2007-08• Neither has it recover the rates fo growth registered in 1945-1982.
• Other Latin American countries have done better but not very much
better
• Instability is a constant menace, low empoyment and low labor
incomes