MercoPress. South Atlantic News Agency

Mexico's bright and dark sides of the economy

Last year was a record year for Mexico in macroeconomic fundamentals according to the Mexican Central Bank: the lowest inflation and public debt in four decades and the highest income ever from oil and remittances from Mexicans overseas.

Inflation in 2005 was 3.3%, slightly above the 3% target and the lowest since 1968, while remittances reached 20.1 billion US dollars.

Public debt was also at a record low of 67.365 billion US dollars, (8.2% of GDP) which can be covered with the Central Bank's international reserves that now stand at 70 billion. Interest payments in 2005 reached 2 billion US dollars and the Mexican government is considering advancing debt payments.

The federal budget also marked another record with a deficit of 700 million US dollars, equivalent to 0.009% of GDP.

All these numbers are constantly drummed by the current administration of President Vicente Fox whose six year term is up next December, with elections scheduled for July.

However on the dark side, the Mexican economy expanded 3% in 2005 and 4.4% in 2004, insufficient to generate the needed one million jobs annually and investments essential to keep the country competitive vis-à-vis the Asian countries.

"Two essential factors combined in 2005, on the one Mexican industry is showing competitiveness erosion and on the other, industry in United States underwent a strong restructuring, none of which benefited the country", said a report from Bancomer, one of the country's leading commercial banks. This in spite the fact that direct foreign investment during 2005 kept growing reaching 17.5 billion, up from 16 billion US dollars in 2004.

Critics also point out that the Mexican economy in the last five years expanded at an annual rate of 2%, quite far from the 7% promised by president Fox on taking office. The Fox administration argues that Congressional resistance to structural reform bills needed to boost the economy is the main reason behind the low average.

Nevertheless oil resources were generous with Mexico and its government owned monopoly. Pemex last year exported 28.3 billion US dollars in hydrocarbons, 25% above 2004, plus generating ten billion US dollars in extraordinary revenue for the Mexican treasury since the budget was calculated on a lower average price for the country's crude.

But Pemex also has a standing debt in bonds equivalent to 90 billion US dollars which is higher that the public debt.