Long-Term Growth Seen for Mexican Economy

Setting aside the undeniable effect of the U.S. economic slowdown on Mexico as short-term, economists and government officials meeting here Monday offered an overwhelmingly positive assessment of the country’s future.

The end to 71 years of one-party rule, sweeping reforms proposed by President Vicente Fox and recently crafted trade pacts with Europe and the rest of Latin America have positioned Mexico for unprecedented long-term growth, officials gathered for Mexico’s regional meeting of the World Economic Forum said.

“Mexico has reached the point where many of the world’s developed economies took off,” said Walter R. Mead, senior fellow of U.S. foreign policy at New York’s Council on Foreign Relations and an expert on Latin America. “Fox’s vision is the kind of vision that can make that happen.”

Still, the export boom that followed in the wake of the North American Free Trade Agreement relies overwhelmingly on a healthy U.S. economy. Recent economic models show that for every 1% reduction in gross domestic product in the U.S., Mexico feels an equal effect, said C. Fred Bergsten, director of the Institute for International Economics in Washington.

The U.S. slowdown has already taken a toll that will probably deepen through at least the first half of the year, said Bergsten and others. The effect has been especially great in Mexico’s auto industry, which has laid off several thousand workers because Americans are buying fewer of the vehicles made here.

As government officials and international economists gathered for the meeting in one of Cancun’s posh hotels, hundreds of protesters, dubbed globalifobicos in the Mexican press, tried their best to voice their opposition to free-trade philosophies. But the protests were nothing compared with disturbances like those that rocked free-trade forums in Seattle and Prague, Czech Republic.

The World Economic Forum, known for its annual meeting in Davos, Switzerland, bringing together presidents and titans of industry, is holding a two-day meeting on Mexico’s economic and political outlook following Fox’s election last year.

The consensus was that the reforms proposed by Fox are more important in the long term than Mexico’s dependence on trade with the U.S. Fox is to speak at the closing session today.

Chief among a host of Fox proposals to be taken up by Mexican legislators in coming weeks is tax reform, which could increase the government’s tax intake from the current 11% of GDP, extraordinarily low for a developing country and only half that of Russia, said David de Ferranti, World Bank vice president for Latin America and the Caribbean.

Other proposals to combat corruption, improve government accountability, open the energy sector to competition and overhaul the banking and pension systems are also in motion.

And a broad trade agreement with the European Union has strategically placed Mexico at the nexus of anticipated heightened economic activity worldwide.

The pact makes Mexico the only country to have negotiated trade agreements with the world’s two largest markets. Mexico has also crafted deals with a host of other Northern European and Latin American countries.

Diversification of Mexico’s trading partners is seen as key to its future stability. The pact with the EU is expected to attract not only European but Canadian and U.S. investment as well, as Mexico assumes the role of middleman to favorable trade between the continents, said Manuel Marin Gonzalez, spokesman of external affairs for the Congress of Spain.

Still, Mexico must address the huge gap between its relatively prosperous northern regions and the poverty-stricken south and between larger companies, which can readily get credit, and small businesses, which cannot.

The Fox government, through a range of programs that include the extension of credit to small businesses and the inclusion of southern Mexico in a Central American economic development zone, has begun to do so, said Luis Ernesto Derbez, Mexico’s secretary for the economy.

“Mexico has set an example by deepening its democratic institutions and pursuing serious economic reforms,” Mead said. “These are things that can allow globalization to transform the lives of ordinary people.”

Meanwhile, on the streets, as many as 1,000 police maintained order while protesters conducted an alternative forum in the town of Cancun--miles from the hotel strip--and attempted to march toward the meeting site Monday.

“We’re for the globalization of human rights but against the kind they’re promoting here,” said Barbara Pohlenz, 22, spokeswoman for a coalition of student groups. “They divide the territory of the world as if it were their property, and they don’t care if they destroy it.”