Mexico’s economic performance has been running below its potential. The country has been plagued with weak administrative governance and corruption pervading all levels of society. Enforcement of legal rules has been poor, the justice system mistrusted, slow and inefficient. Around 57% of the county’s workers work in the informal sector. As a consequence, Mexico’s GDP per capita is less than half of its North American partners, Canada and the United States.
In the past, economic decision making in Mexico revolved around the relationships established with those controlling political power. In a break with tradition, President Enrique Pena Nieto has steered through a program of structural reforms affecting labor, education, competition policy, the financial sector, telecommunications and energy. The reforms are an attempt to set market rules and empower regulators to enforce them. Pressure from citizen groups helped place the reform issue on the political agenda. The trend is seen as the beginning of the strengthening of Mexican law.
Mexico gets high marks for its effort. It is rated as the top reformer among the Organization for Economic Cooperation and Development’s 34 member nations. Economists estimate the reforms could add 1% to the country’s annual GDP growth for the next 10 years. About 750,000 Americans now live in Mexico which is also the world’s largest producer of silver. The prospects for Arizona’s exporters are looking up. Arizona’s exports to Mexico totaled $8.6 billion in 2014, increasing from $7.0 billion in 2013. Arizona ranked fourth among the exporting states, behind Texas, California and Michigan.
President Pena Nieto’s administration is also pushing anti-corruption measures. Having been passed by the Mexican Congress, they are awaiting approval by the Mexican states. When implemented, investigative organizations will have more authority and independence. Audits will occur more often and at the state level. The anti-corruption push comes at a time when Mexico’s oil industry is opening to foreign investment. With billions of dollars of involved, the new rules should help reduce risk and bring more transparency to the contracting process.
Despite the move toward reform, scandals continue to unsettle Mexican society. Local politicians connected with drug cartels were responsible for the deaths of 43 students at a teachers’ college. Pena Nieto’s wife and the country’s finance minister were discovered to have gotten extremely good housing deals from a large government contractor. A $3.7 billion contract to Chinese and Mexican firms for a high-speed train project was canceled after allegations of unfairness emerged.
Last year, over 65,000 unaccompanied minors were detained after crossing the U.S.-Mexican border into the United States. The majority came from the violent Central American countries to Mexico’s south, Guatemala, El Salvador and Honduras. In a shift away from the focus on law enforcement, the Obama administration wants to spend $1 billion to help alleviate the causes of migration from Central America.
The Central American migrants come north to escape the violence and poor economic conditions in countries having some of the world’s highest murder rates. About 25% of the young people in the three countries neither work nor attend school. The governments of Guatemala, El Salvador and Honduras have jointly agreed on a plan to create jobs, improve education and public safety. They want to strengthen regional infrastructure and reduce energy costs by negotiating a pipeline deal with Mexico for the delivery of natural gas.
In the past, the United Sates has mostly ignored Central American economic development issues, emphasizing the halting of drug-trafficking. Under the new approach, the U.S., Mexico and international donors will work with Central American governments to address some of the worst impediments to economic growth.