Global financial and economic crisis How does Mexico face it?

Ambassador Sandra Fuentes-BerainMexican Studies Center, Antwerp University

March 12th, 2012

The most serious international financial crisis since 1929

Three-Pillar Plan: 1. Counter-cyclical policies to avoid

a drop in global demand2. Agenda of reforms on financial

supervision and regulation3. Commitment to avoid economic

protectionism

Lessons:• Effective mechanisms to

articulate a global response to the crisis; restore confidence in markets and avoid a deeper recession.

• Decision making reflected the changes in the power structure and in the relative weight of emerging markets.

• In fact, the G8 became obsolete.2

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USA

USA

GDP

GDP per capita

Inflation

Interest Rate

Exports

Imports

Trade balance

Public deficit

1987

200

1,900

159

120

28

19

7.2

16.1

2010

$ 1,035

$ 9,123

4.4

4.5

$ 299

$ 302

-3.0

2.8

billions of US dollars

% of GDP

US dollars

Annual %

Annual %

billions of US dollars

billions of US dollars

billions of US dollars

4

5

6

• Structural Economic Reforms since 80’s

• Transformed from a protectionist to an open economy

• All this together positioned Mexico in the global scenario

• A key player in the WTO, G20 and APEC

• OECD member since 1994 (first Latin American country)

• Interest rates have registered historically low levels (4.3%)

• Inflation remains low and stable (3.8%)

• The external accounts are in order

• International reserves stand at high levels (USD$148Bn)

• Access to international capital markets

• Fiscal discipline has been preserved

• A sound financial system, rated 150 in terms of stability (WEF 2010)

• Mexico retains Investment-Grade Rating

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• 14th largest economy in the world (IMF)

• 11th Purchasing Power Parity, bigger than Spain, Canada or Korea

• Mexico´s economy = Argentina + Colombia + Venezuela + Chile

• Total trade: $600 billion USD, 10th largest in the world

• Export: $299 billion (10th largest, manufacturing 62% of the exports of LA countries. Mexico exports more than all of Latin America together)

• Import: $302 billion USD (10th largest, 38% of LA countries)

• 12 Free Trade Agreements with 44 countries (Americas, Europe and Japan), with market access for 1 billion consumers, 66% of world’s imports, 75% of world GDP and 28 Bilateral Investment Treaties

• The export activities contribute with 25% of the GDP8

• Mexico is among the top five emerging economies in terms of Foreign Direct Investment (FDI) inflows

• 66% of the GDP is generated in the service sector and 19% in the manufacturing

• Mexico is one of the world’s ten largest producers of vehicles and a key player in the aerospace industry

• Middle-income country with a population of 113 millions

• Income per capita among the top five in Latin America ($9,123 dollars in 2010), even larger than some EU Member States such as Bulgaria and Romania

• Average age of the population 26 (2010); 39% aged 19 years or under

• Young and increasingly better educated labor force able to produce higher value added goods

• 15th largest country in terms of territory (equals to France, Spain, Germany, Italy and UK together)

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“In the stock market, Mexico maintains its place as first option in Latin America”JP Morgan Oct/09

“You can do business here [Mexico] in a stable macroeconomic environment”World Bank country director Axel van Trotsenburg Apr/09

“Mexico offers a unique set of advantages that constitute a privileged “sweet spot” in the globalization landscape”Boston Consulting Group

“Despite improved fundamentals Mexico is being hit by the financial turmoil and world economic downturn”OECD Economic Survey of Mexico 2009

“Mexican economy will grow 4.3 percent in 2010”Goldman Sachs Jun/09

“At global level, the rating reflects in an appropriate way the economic strength and the financial solidityof Mexico in connection with other countries that possess similar rating”Moody’s Sep/09

“Of the other countries we look at, only Mexico and perhaps Korea have the potential to rival the BRICs economies that we excluded initially because we view them as already more developed”Goldman Sachs

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“Mexico is affected severely by the global recession, like many other OECD countries, withnegative economic, budgetary and social consequences. Although the banking sector hasso far weathered the financial crisis rather well, manufacturing industries are beingseverely affected by the downturn of global demand, particularly in high-value addedindustries.”OECD Economic Survey of Mexico 2009

“A major asset for Mexico in Latin America is its strategic geographic position at the boundary with the US. Mexico is a significant political, economic and cultural player in Latin America and its role in global issues is expected to grow with time. Its economy is fully integrated in the NAFTA and the voices of its rich culture are heard throughout Latin America.”COMMISSION OF THE EUROPEAN COMMUNITIESTowards an EU-Mexico Strategic Partnership

“Mexico has pursued sound policies, maintained macroeconomic stabilityand substantially reduced vulnerabilities. It has achieved a high level of credibility in theinstitutional framework supporting macro policy formulation, and has a sustained trackrecord of implementing very strong policies”IMF Consultation—Staff Report Feb/09

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“Directors endorsed the planned 2009 fiscal stimulus, which should, along with increased development bank intermediation, provide timely support to economic activity. They observed that the counter-cyclical spending increases would protect employment and support low-income families, increase competitiveness of small-and medium-sized businesses, and augment infrastructure. Such measures were partly financed in effect by the authorities’ prudent price hedging of oil sold by PEMEX.”IMF Executive Board Assessment Feb/09

“Mexico has made substantial progress over the past decade in strengthening its economic framework and enhancing resilience.”IMF Consultation—Staff Report Feb/09

“Mexico entered the recent downturn with much stronger macroeconomic and financial fundamentals than they had in previous financial crises. This included lower liability dollarization, lower fiscal and private debt, and a better aggregate balance sheet for the financial services sector.”WEF Financial Development Report 2009

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• By 2013, 63% of Mexico’s industrial tariff lines will

have no duties, with the average industrial tariff rate

lowered from 10.4% to 4.3%

• Just as the EU, Mexico’s economy depends on

open markets for its exports

• Mexico rejects any form of protectionist being used

as excuses by some countries to cushion negative

impacts caused by the worldwide economic

downturn

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• Mexico’s network of FTAs is one of the largest in the world

• Preferential access to 1,060 million potential consumers, 2/3 of world’s imports, 3/4 of world GDP

FTA G2

FTA

Peru

2012

14

Free Trade Free Trade AgreementsAgreements

1212

North North AmericaAmerica

Central AmericaCentral America

South AmericaSouth America

Economic Economic Complementarity Complementarity AgreementsAgreements

EuropeEurope

66

Bilateral Investment AgreementsBilateral Investment Agreements 2424

Korea and JapanKorea and Japan

AustraliaAustralia

Mexican Mission to the EU15

16

GreeceItaly

France

Spain

Portugal

UK

Iceland

Holland

Denmark

Norway Sweden

Finland

Austria

6 ACE’s6 ACE’s24 BIT’s

Canada

US

Cuba

Honduras

Nicaragua

Costa RicaGuatemala

El Salvador

Colombia

PeruPeru

Chile

ArgentinaArgentina

Uruguay

BrazilBrazil

MercosurMercosur

(Automobile Agreement)(Automobile Agreement)

Israel

Republic of Korea

Luxemburg

Belgium

Ireland

LiechtensteinSwitzerland

AustraliaJapan

Panama

Estonia

Letonia

Lithuania

Poland

Slovac Rep.

Hungary

Slovenia

Czech Rep.

MaltaCypress

Germany

Rumania

Bulgary

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India

12 FTAs with 44 countries

EcuadorEcuador

Market access for 1 billion consumers, 2/3 of world’s imports and ¾ of world GDP

TijuanaPopulation: 750,000Key Industries: beverages, processed foods, metalworking, radio and television manufacture, electrical machinery

HermosilloPopulation: 600,000Key Industries: automotive, meat, cement and derivatives, electrical machinery

CuliacánPopulation: 600,000Key Industries: food processing, cereal milling, sugar, beverages, edible oils and fats

AguascalientesPopulation: 500,000Key Industries: electronics, automotive, dairy, textiles, carpets

LeónPopulation: 1 millionKey Industries: refining, footwear, leather and tanning, bakery goods, beverages

Mexico CityPopulation: 20 millionKey Industries: retail, financial services, food, automotive, plastic products, paper and cellulose, chemical derivatives, basic chemicals

PueblaPopulation: 1.5 millionKey Industries: automotive, textiles, iron and steel, bottled water, chemicals, meat processing

VeracruzPopulation: 450,000Key Industries: petrochemicals, refining, basic chemicals, iron and steel, sugar, beef, processed foods, tourism, transportation services (maritime)

Ciudad JuárezPopulation: 800,000Key Industries: electrical machinery, transport equipment, meat, electronics, dairy products

MéridaPopulation: 600,000Key Industries: beverages, edible oils and fats, processed foods, cement and derivatives, plastic products

ChihuahuaPopulation: 650,000Key Industries: electrical machinery, automotive, meat, electronics, dairy products, timber

TorreónPopulation: 880,000Key Industries: automotive, bricks, clay, refractory, general machinery, cement and derivatives

TolucaPopulation:

850,000Key Industries:

automotive, plastics, paper and cellulose, chemical derivatives, basic chemicals

MonterreyPopulation: 3 millionKey Industries: oil refining, iron and steel, electrical machinery, glass and derivatives, breweries, meat products, cement, banking

San Luis PotosíPopulation: 670,000Key Industries: iron and steel, non-ferrous metallurgy, tobacco products, electrical machinery, automotive, livestock

QuerétaroPopulation: 460,000Key Industries: automotive, paper and cellulose, synthetic fibers, general machinery, electrical machinery, processed foods, dairy products

Tampico-Madero-AltamiraPopulation: 340,000Key Industries: chemical, industrial machinery, electronic & electrical equipment, oil and refinery, agriculture, cattle, fishing

Source: SE-NAFTA.

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GuadalajaraPopulation: 4 millionKey Industries: high-technology, edible oils and fats, plastic products, chemicals, dairy products, processed foods, textiles, footwear

190 companies, 27,000+ Workforce

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CANCÚN

Vitelcom

EDO. MÉXICO

Ericsson Alcatel Pantech⌘ AMP⌘ Sony⌘ Scientific Atlanta Olimpia

QUERÉTARO

Clarion⌘Siemens

Audio & video Home Appliance• Computer Telecommmunications Automotive CEM Foto & impresion⌘ Others

AGUASCALIENTES

White Westinghouse⌘ Texas Inst. Xerox Siemens Flextronics Volex

GUADALAJARA

• IBM• HP Nec Lucent Technologies Kodak Siemens MTI Electronics Solectron Méx. Flextronics Jabil Circuit SCI Sanmina ECMM Benchmark

⌘ Technicolor⌘ Universal Scientific⌘ Motorola⌘ Cumex

TIJUANA

SanyoSonyHitachiMatsushitaJVCSamsungPionnerMitsubishiSharpDeltaIchiaMerry TechWistronDisplay Orion⌘Amphenol⌘ADI Systems⌘Philips⌘Kyocera⌘Rectificadores Intern.⌘Vigobyte⌘Bourns⌘Bose⌘Skyworks⌘PanasonicKodak Delphi

MEXICALI

Sony MitsubishiLGThomson King Cord Mex BenQ

SONORA

AlcatelMotorolaVolex⌘ Molex⌘ AMP⌘ Amphenol

JUÁREZ

ToshibaPhilipsThomsonKenwoodAsusKeytronicsTatungLite on Enlight⌘Elamex⌘PlexusECMMElcoteq Delphi

CHIHUAHUA

FoxconnHoneywell⌘ Altec Jabil SMTC

TORREÓN

⌘ Thomson

REYNOSA

PhilipsSonyJabilCelestica Nokia Lucent Technologies Fujitsu Condura Delnosa Delco Matsushita Delphi Keytronics Tyco

CUERNAVACA

Nec

MONTERREY

Pionner Kodak SCI – Sanmina Celestica

• Elcoteq AFL Nippon Denso Axa Yazaki

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FORD(Cars)

(MOTORES & UV)

NISSAN(Cars & Motors)

GM (UV)

DAIMLERCHRYSLER (CAMIONES) V.W.(AUTOS & MOTORES)

HONDA

FORD (MOTORS)

NISSAN(AUTOS & UV)

NAYARIT

G.M.(AUTOS & UV)

G.M. (MOTORES)

DAIMLERCHRYSLER (AUTOS & UV)

BMW (AUTOS)

FORD(CARS & UV)

DINA(TRUCKS)

VOLVOTrucks)

KENWORTH (Trucks)

SCANIA(TRUCKS)

INTERNATIONAL (Trucks)

G.M.(CARS)

GM (PRUEBAS)

DAIMLERCHRYSLER (BUSES)

Final assemblyplants in Mexico

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Competitiveness

Trade Policy & Market Access

Macroeconomic Stability

Job Training, Education, Science & Technology Development

Fiscal Policy Support Research & Development Programs

Development of Suppliers

Regulatory Environment

Infrastructure Development (Including Technology Parks) 21

MEXICAN PRESIDENCY

OF THE G20

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• New modus operandi of international cooperation: multilateral, informal coordination among developed and emerging countries

• Deficit in international governance: Economic borders are dissolved, while, in politics, nation-states are maintained

• G7 loses space in favor of emerging powers with more weight, demographics and regional leadership

• Innovative mechanisms of cooperation for a globalized and more interdependent world

Brazil, China, India, Mexico and South Africa: essential partners

Formalization of the G20: more variation in global economic power.

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G5

G8 1975 1976 1998 + 1977

24

85 % Global GDP

(FMI)

Context: Asian crisis 1998-1999. Importance of emerging economies and systemically relevant countries becomes evident.

1999: Dialogue between Central Banks and Finance Ministers to maintain macroeconomic cooperation and address global imbalances.

Agenda: including policies for financial and economic stability, prevention of abuse in the financial system, growth policies, crisis management

G8 +

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WASHINGTON, D.C.

NOVEMBER 14-15 2008LONDON APRIL 2

2009

PITTSBURGH SEPTEMBER 24-

25 2009 TORONTOJUNE 26-27 2010

SEOULNOVEMBER 11-12

2010

26CANNES

NOVEMBER 3-4 2011

LOS CABOSJUNE 18-19 2012

TO ECONOMIC AND FINANCIAL GOVERNANCE • Economic stimulus packages adopted in 2008

• Improvements in international macroeconomic coordination and financial regulation

• Financial institutional reform (such as the IMF and World Bank)

• Bank sector reforms (FSB)

• Financial security networks

• Strengthening the structure and governance of the international monetary system

TO GLOBAL GOVERNANCE

• More faithful reflection of current international economy

• Fosters globalization

• Contributes to a recovery of trust in multilateralism

• Complements United Nations’ and Breton Woods Institutions’ capacity for action 27

Actions promoted by G20 are directly related to the improvement of living conditions of all citizens in areas such as:

• Employment and social security

• Mitigating the effects of food price volatility

• Reducing risks in the financial system and promoting conditions that allow banks to provide credit

• Fight against corruption

• Protection of savings

• Support to regional development banks for social programs, etc.

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• Economic stabilization and structural reform for growth and employment

• Strengthening financial systems and financial inclusion for economic growth

• Improving the international financial architecture in a globally interconnected economy

• Promotion of food security and addressing the issue of commodity price volatility

• Fostering sustainable development, including an agenda on infrastructure, energy efficiency, green growth and financing to fight climate change

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• Facilitating the construction of agreements around global economic and financial problems that have consequences for our economy and levels of welfare

• Reaffirm our presence in the design and construction of a new, more just and representative structure of international financial governance

• Interest in promoting more equitable and sustainable development both nationally and globally

• Strengthening the bilateral relationship with global and regional powers, a key part of Mexico’s foreign policy strategy

• Strengthening communication and coordination amongst international groups on issues of common interest

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THANK YOU

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