Mexico's new democracy and the economy

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Mexico’s new democracy and the economy

mexican PesoMexico’s economic and the political history of Mexico, like most of Latin America, has included: socialism, capitalism, and fascism. In the 1930’s Mexico was swept away with socialist popularism, the state expropriated the nation’s natural resources and initiated a huge peasant, land reform movement called Ejidos. The 1940’s and 50’s reflected a fascist style of dictatorial leadership that provoked the student rebellions of the 60’s and 70’s. The organizers of Mexico’s current indigenous rights movement were the student radicals who survived those decades of rebellion.

The 80’s and 90’s ushered in the new age of democracy, privatization of the economy and a global market focus. This same historical shift towards globalization has been extremely successful for emerging Asian nations and Eastern Europe. Africa and Latin America, however, have not been as successful in adapting to “the new world order”. Argentina and Brazil are marked examples of failures.

In Mexico, the major political and social concern is that democracy and a free market economy has further centralized wealth. That economic gains have not improved the lives of the vast number of poor in Mexico. There is discontent (sp. Desencanto) in the land that the shift to democracy and free market principals serves the haves and not the have nots. There is no historical tradition, South of the border, that hard work can translate into economic equality. Despite the images and rhetoric used to “sell” democracy and capitalism, it is harder for Latinos to believe that such a system will work for Mexico’s underclass.

mx flagMexico took a big step in moving more from dictatorial rule to democracy. But perhaps the greater challenge is to put a bureaucracy in place that can manage this new democracy. Mexico, like the rest of Latin America, does not have democratic roots and institutions that are politburo legacies in the United States.

Latin Americans must develop these democratic systems to affectively achieve what their nations need and their citizens demand. Developing a functional democratic bureaucracy will prevent the return of dictatorial rule.

Will Mexico go the way of Brazil and a return to more socialist ideals? I don’t’ think so. But, as one Mexican pundit put it: “We have embraced democracy, now we must apply it.”

Mexico is faring better than the rest of Latin America: In 1993, the average per head of household earned $3,690 dollars. Over the next seven years, that number jumped nearly three fold to $9,966. This number hides still greater strength. In the 1995-1996 peso devaluation and recession, Mexican household incomes fell by over 50%, among the rich and poor alike. Therefore, it is not a tripling in seven years but a six-fold gain in four years. That is far above the inflation rate and represents real economic growth.

Last year, direct foreign investment in Mexico reached a record $24 billion – the highest in Latin America. Half of this came from the Citibank purchase of Banamex, but investment is consistent. Investors, disappointed in Argentina, Peru and Chile have moved much of that investment to Mexico. Mexico’s GDP is greater than Switzerland, Belgium, Sweden. or Denmark. In terms of purchasing power, Mexico is ahead of Canada, Spain, Australia, The Netherlands and Belgium.

In terms of world trade, Mexico’s weakness is still the dependence on her primary trading partner, the United States. Over 80% of exported goods are shipped to the States; but that is changing. In the past two years, Mexico has initiated open market pacts with Europe, Asia and the rest of Latin America. Economic changes and improved trade relations, since 1995, has advanced Mexico from the world’s 14th largest trading nation to number eight.

Skeptics cite the past: Often, when Mexico looked promising to foreign investment, the illusion was short lived. Serious peso devaluations were usually the cause for bursting the bubble. But Mexico, having adopted universal standards in accounting practices, has created fiscal transparency and a credible economic plan that has investors satisfied. The peso has enjoyed its longest history of stability. For the past eight years it has been consistently at a ratio of about ten to one with the dollar.

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