Mexico: Recent Developments, Structural Reforms, and Future Challenges

• Author: José Angel Gurría
• Position: Secretary of Finance and Public Credit of Mexico

In recent years, the Mexican government has implemented a series of economic reforms to strengthen the country's fundamentals and increase its ability to cope with external shocks. Because of the progress that has been made, the government is confident that Mexico will be able to leave recent crises behind and start the new millennium with a stable and growing economy.

During 1999, as a result of applying sound economic policies, Mexico achieved, and in some cases surpassed, the government's main macroeconomic targets (Tables 1 and 2). The economy grew 3.6 percent, exceeding the 3 percent rate anticipated at the beginning of the year, as both domestic and external demand for goods and services increased. Economic growth has led to the continuing creation of jobs and a sharp reduction in unemployment rates. During the first 11 months of 1999, the total number of workers registered by the Mexican Social Security Institute increased by more than 870,000, and the open unemployment rate fell to its lowest level since 1985.

[ SEE THE GRAPHIC AT THE ATTACHED RTF ]

Fiscal discipline continues to be the cornerstone of President Ernesto Zedillo's economic strategy. Prudent fiscal policy has contributed to the achievement of macroeconomic stability and increased domestic savings. Since it met the fiscal deficit target for 1999, equivalent to 1.25 percent of GDP, the government was able to lower the ratio of net public debt to GDP to 25.3 percent in 1999 from 27.9 percent at the end of 1998. Moreover, Mexico's public-debt-management policy has continued to be consistent with the strengthening of the economy. Market amortizations of the public sector's external debt for the last quarter of 1999 and the year 2000 as a whole amount to $2.3 billion.

[ SEE THE GRAPHIC AT THE ATTACHED RTF ]

Another important achievement in recent years has been the reduction in inflation. The consumer price index increased 12.32 percent in 1999, below the 13 percent target established at the beginning of the year. On the external side, non-oil exports have continued to show a positive trend, growing 15.0 percent in 1999. Additionally, the trade balance reflected the increase in international oil prices. In 1999, Mexico's current account deficit amounted to $13.0 billion, or 2.8 percent of GDP, and foreign direct investment reached $10.7 billion, or 76.6 percent of the current account deficit.

In addition, the flexible exchange rate regime has helped Mexico to absorb external shocks in an orderly manner and has shown less volatility than expected. Thus, during 1999, the peso appreciated 3.6 percent with respect to the U.S. dollar.

Economic strategy for 2000

During 2000, Mexico will continue to take a prudent policy stance in view of the possibility of a slowdown in the U.S. economy. The Mexican government has also taken steps to ensure that it can cope with external shocks and that upcoming national elections can take place in a stable economic environment.

The economic strategy for 2000 has been...