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NAFTA for the Americas

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Mexico's Integration to the World Economy


LAST RESORT. Economist, 10/29/94, Vol. 333 Issue 7887, p90, 2p, 1 cartoon

Mexico, although having lots of potential, was probably the most under achieved country in the modem world for the last 15 years. Mexico has had many opportunities to grow and thrive, hardly any of which were taken advantage of. For example, the North American Free Trade Agreement was one of many missed opportunities for them. Their inability to expand on their own left them following the rest of the world, frantically struggling just to survive.

We chose this article because it best showed the financial and commercial position Mexico has been in for nearly 15 years. As well as open our yes to some of the possibilities still open for them. Mexicans have never been economic leaders, but with the sudden surge in technology, they had fallen further behind, and appeared to have no sign of recovery in sight. But recently they have gotten a new president, and there is no where to go but up for them.

In 1994, the United States announced a Free Trade Agreement that opened the U.S. to trade, banks and industry with several countries, including Mexico. A potentially great opportunity for Mexico was bitterly missed because of their inadequate banking systems. So, with hopes to enable Mexico to conduct trade with the U.S., Pedro Aspe (Mexico's finance minister) gave permission to 52 foreign banks, brokerage houses, and financial firms to do business in Mexico. The hope was that this would improve their credit, enabling them to finally do business with the U.S. But, as it was, this saving grace attempt may not have been as ingenious as first thought. Because the Mexican banking systems were not ready for the sudden leap to large, foreign transactions, they could not adapt. So, took quite some time before they were ready for what was thought of as their greatest opportunity. But, they have finally begun to recover and step into the economic world.

The central issue of this article is Mexico's recovering economy. It is a great example of how Mexico was a step behind the rest of the world. Although at times they showed lots of potential, they never seemed to have it quite right. They simply didn't have the capabilities, such as education and resources to stand tall with the rest of the economic world. But, they do show some good signs of late.

The most prevalent underlying issue in this article is Mexico's inadequate education system. Even with the right financial resources and international connections, Mexico doesn't have the educated workers it would take to run the many banks and brokerages needed to sustain a strong economic status. This was probably their biggest weakness during the introduction of the 52 foreign banks and brokerages. Although 52 companies were granted pen-nission to do banking business in Mexico, Mexico was not ready to provide the personnel required to support this expansion. Lacking the necessary skill to expand banking defeated the purpose of them opening their markets to foreign banks.

This article directly relates to Mexico and their economic affiliations with the U.S. Although based 6 years ago, this article was one of many great examples of how Mexico's economy has been having some trouble. It is up to them now, under the rule of president Salinas de Gortari to take advantages of recent developments, such as the Free Trade

Agreement, and prove that they can withstand in today's economic world. They have yet to overcome self-imposed restraints and separate themselves from their third-world status, but our hopes are high, and they have quite a bit going for them at the moment.


  1. What would be the down side of introducing large foreign brokerages, and banks to Mexico not necessarily solve their credit problem immediately?
  2. What would you say is Mexico's greatest weakness in their struggling economy, and what would you do to fix the problem?
  3. Do you think the Free Trade Agreement will end up helping Mexico, or will they struggle just the same?
  4. How do you think NAFTA's Free Trade Agreement will affect Mexico and its economy in the future?
  5. Why do you think it took so long for Mexico to take advantage of the Free Trade Agreement?


Supporting URIL'S:

NAFTA for the Americas.

Mexico's Integration to the World Economy.



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Current Event

LAST RESORT. Economist, 10/29/94, Vol. 333 Issue 7887, p90, 2p, 1 cartoon

HOLIDAY-MAKERS in sunny Cancun in mid-October must have been perplexed. As they frolicked in the Caribbean waters, legions of noticeably pale men and rather fewer women descended upon their resort. Though the suits were absent, there was no mistaking the annual bankers' convention. Location apart, this year's gathering was unusually festive; Pedro Aspe, Mexico's finance minister, used the occasion to grant formal permission to 52 foreign banks, brokerage houses and other financial firms to enter Mexico. Officials gushed that thousands of jobs and over $5 billion of new credit would enter the market as a result.

Mexico's economy certainly needs extra cash. A credit crunch is squeezing business. High interest rates and recession have devastated many small and medium-sized firms just when the market opening brought on by the North American Free-Trade Agreement has left them vulnerable to foreign competitors. Banks, which lent heavily to such firms after financial-sector privatisation several years ago, are feeling the pinch; their non-performing loans have risen to more than 10% of their total lending.

Foreign banks are unlikely to provide much relief in the form of new loans to these small and middling firms, however. Instead they will chase after Mexico's blue-chip companies. No matter, argue optimists: once foreigners are present in force, local banks, unhappy with diminishing margins on blue-chip business, will turn to smaller firms or perhaps consumer-credit operations. Perhaps. But given their recent bad experiences with smaller fry, it seems more likely that domestic banks will fight fiercely to keep the bigger fish, no doubt exploiting the old boys' network for which Mexican business is famous.

Foreign banks are unlikely to help ordinary punters much, either; most of them intend to shun retail banking. True, Mexico is under-banked compared with developed nations. But few Mexicans have deposit accounts, for example (a quarter of the proportion of Americans with such accounts). Even fewer need fancier services. And the costs of building a retail-branch network are daunting. Even Citibank, which has been the only foreign bank allowed to operate fully until this recent change of heart, intends to build its retail presence slowly using telephone banking, a novel concept in Mexico. Julio de Quesada, head of the firm's Mexican operations, says that Citibank is also likely to announce an alliance with a regional Mexican bank with a bigger branch network within a few months. He forecasts a wave of such alliances as newcomers try to acquire local know-how and weaker local banks try to stave off bankruptcy.

Enlisting local partners would also be a way for foreigners to cut costs. Even banks which stick to corporate clients face years of expensive investment. Such is the demand for local talent that old financial hands reckon that salaries are among the highest in the world. But following recent financial scandals involving Grupo Financiero Havre and Grupo Finan-ciero Union-Cremi (whose boss, Carlos Cabal, ran off with perhaps $700m in September), foreigners are nervous of teaming up with unknown quantities.

Such scandals have helped highlight the riskiness for foreigners of operating in Mexico's modernising--but still quirky and, at times, anachronistic--financial markets. A further good example is the refusal of financial authorities to permit an open market in derivatives (options and so forth). Foreigners have been clamouring for such instruments to help hedge against currency risk. Mexico's central bank, whose governor recently insisted that "the necessary skill does not exist in Mexico to unleash [the banks] to trade in any and all derivatives", has moved at a snail's pace. Only two weeks ago did officials grudgingly announce that all banks--the newcomers included--would be permitted to offer peso-denominated interest-rate forward contracts.

Taken on its own, the move will have little impact; but most analysts agree that more liberalisation will follow. Perhaps the greatest impact foreign banks can have now that they are permitted in the country will be to push Mexico's reluctant central bank into speedier reforms.


Copyright of The Economist is the property of Economist Newspaper, NA, Inc. and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. Source: Economist, 10/29/94, Vol. 333 Issue 7887, p90, 2p, 1 cartoon.

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Seid, Richard. DON'T BE FOOLED BY MEXICO'S QUICK PAYMENT. Christian Science Monitor, 02/03/97, Vol. 89 Issue 47, p19


When President Clinton praised Mexican President Ernesto Zedillo for the recent timely payback of the 1995 multibillion-dollar bailout, no mention was made that Mexico simply borrowed from Peter to pay Paul. Mexico issued private bonds - again using its petroleum as collateral -to pay its debt to the US. No productive elements of the Mexican economy were involved. This is just another example of Mexican governmental expertise at papering over its weaknesses with false confidence -lulling Uncle Sam into feeling good about his southern neighbor.

No one should be fooled. The roots of Mexico's political ills have to be extracted or the country's problems will never be solved. The technical recovery of the Mexican economy might continue for a while, but the cyclical relapses with no discernible long-term progress will remain a discouraging constant. A grossly uneven distribution of wealth, social instability, and a lack of justice - all seem endemic to a governmental system that lacks a democratic tradition.

Historically, Mexico has always had to cope with authoritarianism. For 300 years there was harsh colonialism and autocratic royal rule that never was benevolent. The Spanish colonies were for plunder, to be used and abused at the pleasure of Madrid. There was a distinct lack of self-government. Self-reliance was discouraged and, in fact, servility was the order of the day. The same class-conscious, undemocratic attitude remains. Consider the denigrating expressions that remain in the Mexican Spanish lexicon. These vestiges include responses such as mande and para sirvirle, which in the vernacular might be translated "what do you want?" but literally mean "order me" and "to serve you."

By contrast, the American colonies, which were settled, not conquered, were mostly self-governed, and they refused to knuckle under to British high- handedness. The Revolutionary War was won 40 years before the Spaniards left Mexico.

The Catholic Church, too, was an antidemocratic influence in Mexico until its excesses were curbed by the reforms of the 1850s and the mid-1920s.

Burdened by educational systems that have seldom emphasized independent or critical thinking, democracy had a tough time getting off the ground in Mexico. The foundations haven't been well-constructed. There has been little "of, by, or for the people."

Nor has the entrenched Mexican oligarchy ever made a real attempt to integrate the indigenous or the poor into their tightly knit, so-called democracy. The "unwashed" have been kept out by a variety of means, but mainly by keeping them uninformed and materially dependent on economic and political bosses.

So, although the Mexican Constitution looks good on paper, it has rarely worked as intended. Presidentialism has overwhelmed checks and balances.

In 1929, six years after Mussolini consolidated the main sectors of Italian society into fascism, Mexican leader Plutarco Elias Calles used Mussolini's organization as a model. A saving grace might seem the strict observance of the one six-year term of each president from Lazaro Cardenas (1934-1940) to the present. New idealism comes to power at set intervals, but each administration has been suspected of plundering the country as its term ends. It has been said that Mexico has had a succession of six-year dictatorships.

One of the biggest deceptions to date has been the legislature. With the long tradition of an all-powerful executive, and no reelection for any public office, Congress has been relegated to rubber stamping presidential initiatives. There is a chance that the Institutional Revolutionary Party (PRI) monopoly will end with this July's congressional elections, but few are betting on it. With all the money the PRI will be pouring into the campaign, with all its savvy with television spots coupled with the complete inexperience of the opposition in this vital area, many believe that the PRI will win the seats needed to retain its majority.

Also, the Mexican presidential system courts the danger of a demagogue coming to power. When there is a direct election of the chief executive by largely uneducated voters, they easily might be influenced by someone who offers them the moon but has no chance, or intention, of delivering it.

Indirect election through a parliamentary system is considered safer. Having members of the majority in a parliament choose an executive leader from among themselves seems more judicious than having a popular vote with just the three main parties' single candidates, as now mandated. A new constitutional convention to examine fresh options appears necessary. Of course, it won't happen under the PRI.

The US seems satisfied with the present Mexican tinkering, which has been limited to weak electoral reforms. It shouldn't be-there's too much at stake.


By Richard Seid

Richard Seid, an American living in Mexico, writes on Mexican politics and society.

Copyright of Christian Science Monitor is the property of Christian Science Publishing Society and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. Source: Christian Science Monitor, 02/03/97, Vol. 89 Issue 47, p19.

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