A leading source for news and analysis about Mexico and the U.S.-Mexican border.

July 2011

Former finance ministers see bright economic future
for Mexico — if Congress finally passes economic reforms

Pedro Aspe, Francisco Gil speak in Tijuana

Two former Mexican finance ministers came to Tijuana this month and both said Mexico has a bright future — if Mexico's Congress can finally enact meaningful financial reforms. One of the ministers said that as a result of demographic change, Mexican families have the opportunity to save and invest money as never before.

Francisco Gil, finance minister under President Vicente Fox (2000-2006), spoke July 20 to COPARMEX Tijuana (The Mexican Employers Association), while Pedro Aspe, finance minister under President Carlos Salinas de Gortari (1988-1994), spoke earlier this month to a binational mayors conference.

Mexico to experience 'demographic bonus',
Pedro Aspe says

pedro aspe mugMexico is on the cusp of a "demographic bonus" that could see Mexican families produce a surplus of money that helps the economy reach unprecedented heights, former Finance Minister Pedro Aspe says.

He said the fertility rate has fallen such that the number of children per household has dropped from 2.4 in 1990 to 1.7 in 2010.

This, plus the fact that both fathers and mothers generally work, means that many Mexican families are going to have "a surplus never seen before in the history of Mexico," Aspe said. He said that on average, 1.9 adults in two-parent households work.

He said this surplus and other factors could help cause Mexico's middle class to grow at an enormous speed.

Aspe also said that if Mexico makes the right structural changes, it can grow 7% annually for a number of years. That is the rate at which President Vicente Fox promised in the 2000 presidential campaign, but the highest growth Fox got in his six-year term was 4.77% in 2006. Last year's rate was 5.4% and this year it may be around 5%.

Aspe spoke recently at a binational conference of mayors in Tijuana. His consulting company, Prodigo, is receiving 23 million pesos (U.S. $2 million) for helping the city of Tijuana renegotiate its debt, Tijuana finance director Rufo Ibarra Batista recently told Zeta newspaper. (Some have complained that the refinancing actually caused the debt to grow and could cause the city greater liability in the future if interest rates rise precipitously.)

Among the positive factors Aspe cited for Mexico's economy:
• Its strong foreign currency reserves, currently around $133 billion.
• Mexico's export growth.
• Mexico's relatively low inflation.
• Good management from the central bank.
• Migration "is going to collapse" and Mexicans are going to use their expertise in Mexico: He said migration had fallen in half from 500,000 to 250,000 a year.

Aspe said Mexico's demographic transition is in place and that it appears that Mexico is not going to grow beyond about 140 million people, which he said it would reach in about 25 years. Its population is about 113 million now. He said life expectancy has grown about four years and the infant mortality rate has decreased by more than half in two decades.

He said negatives for the Mexican economy are:
• The "anemic" U.S. economic recovery and world economic problems.
• Violence in Mexico
• Strong capital inflows could affect the exchange rate and interest rates.
• The lack of economic reforms

He said that while competition from China has been hard on the Mexican economy in the last decade, Mexican has developed some comparative advantages.

He said one is that China's inflation is more than double Mexico's. Mexican inflation was 4.2% in 2010 and may be 3.6% this year.

He said transportation costs to the U.S. market are much lower, showing a slide saying the cost of transporting a container from Monterrey to Chicago is $3,000, while the cost of shipping one from Shanghai to Chicago is more than $5,000.

As an example of what economic reforms could do for Mexico, he cited Chile, which he said had made a significant dent in reducing poverty. He said that the morning of the day he spoke in Tijuana, he had attended a breakfast with Chilean President Sebastián Piñera, who was visiting Mexico City. He said when he asked whether Chile was experiencing any problems, the president said the country's growth rate was more than 8.5% and that Piñera said he wanted to drop that to 7.5%, presumably to avoid overheating the economy.

Chile, he said, was ending its second generation of reforms and starting its third. "That's why Chile is at 7.5 to 8% growth" and Mexico is not, Aspe said. He showed a slide that said that if structural changes are not made, Mexico won't be able to go beyond 5% annual growth.

Aspe turned 61 a day before he gave the talk in Tijuana.

Ciudad Juarez, Mexico to keep growing, Francisco Gil says

francisco gil mugFormer Finance Minister Francisco Gil pointed out that despite all the security problems in Ciudad Juárez, investment in maquiladoras continues to grow there, and said Juárez's trade with Texas grew 47% last year. The U.S. Bureau of Transportation Statistics said Texas-Mexico surface trade was up 33% last year to $114.5 billion. California surface trade with Mexico was $47.6 billion.

Gil said many companies are coming from South Korea and Taiwan. For example, Taiwanese electronics maker Foxconn, which makes makes iPhones, Dell computers and other products, opened a maquiladora last summer. The new maquiladoras in Juarez also include an Electrolux plant that opened this year, replacing one closed in Iowa in 2009.

Gil said lower transportation costs because of Mexico's proximity to the United States, Mexico's relatively low labor costs and the much-lower natural gas prices in northern Mexico than in Asia are giving Mexico a comparative advantage. Still, analysts say Juarez still is not back to where it was before the global recession began.

Gil, 67, said that despite that despite all the difficulties facing the Mexican economy, there were many other reasons to be optimistic.

He said Mexico is very competitive, is becoming an world industrial export center and has a lot of potential, but needs profound economic reforms to do well in the long-term.

He said foreign investment in the automotive sector shows some of Mexico's potential. Fiat in February announced a $550 million investment to produce Fiat 500s at its Chrysler plant in Toluca for the U.S. and Latin American markets and wants to increase production. Volkswagen invested $400 million at its huge complex in Puebla for the 2012 Beetle, the only place it is being built. The Beetle started coming off the assembly line this month and will be sold in Mexico and all over the world. Gil said Volvo may invest in Mexico, too: Chinese investors who bought Volvo are considering opening a plant in Durango. He said the aerospace industry is making strides in Queretaro.

Gil, now the regional chairman of the Spanish telecommunications company Telefónica for Mexico and Central America, said he has shocked his social-media conscious daughter by recently by becoming a user of Twitter. He said it is helping him in his business.

He gave a pitch for businesses to track their vehicles with devices by using a wireless telephone data stream, and said one company using Telefónica to keep watch over where its vehicles go told him it had not suffered an assault for the last two and a half years. He said the phone service complements GPS coverage, which he said can go out under bridges and in buildings, whereas phone coverage often extends to those places. (Of course, cell phone coverage can have its own problems.)

He said energy reforms are badly needed. He likened Mexico's investment laws regarding energy to those of North Korea.

He said Mexico would do well to pass the reform package he proposed during the Fox administration.

juan maneul hernandez nieblaHe said he was glad to hear that Coparmex Tijuana President Juan Manuel Hernández Niebla (right) was pushing for economic reforms.

Both Aspe and Gil joined the Institutional Revolutionary Party around 1980. Gil worked under Aspe in the Salinas administration and also served in the central bank in the Zedillo administration before joining the Mexican telecommunications company Avantel in 2000.