Mexican Economy Hits Stride

The battle against organized crime brands most news flowing out of the United States about Mexico. But the tales of bloodshed and gun battles grabbing headlines overshadow another story: the positive outlook for Mexico’s economy. The Bank of Mexico on Wednesday boosted its forecasted 2011 growth rate to as high as 4.8 percent. Still, recent statements by some U.S. officials have stoked border-security fears.

Finance Secretary Ernesto Cordero, who traveled to New York this week to talk investment, told MarketWatch that Mexico has seen the world’s strongest growth in foreign direct investment after Singapore and that his country is adding 700,000 jobs per year. Moreover, new inflation figures “surprised on the downside”—as Roubini Global Economics put it—with inflation rates expecting to continue deceleration through the first quarter and projected to be as low as 3 percent for the year.

But during his visit, Cordero couldn’t avoid questions about security woes and how they might impact the Mexican economy. Over the past four years, roughly 35,000 lives have been claimed by violence connected to Mexico’s war on cartels. Cordero countered that the violence exists in focused areas of the country, adding that  Mexico overall is safer than cities such as Detroit and Miami—and that FDI figures prove investor confidence.

A World Bank report from late 2010 lends credence to this idea; Doing Business ranks Mexico as the best country in Latin America and the Caribbean in terms of ease of conducting business. A new background paper by Shannon O’Neil of the Council on Foreign Relations charts challenges that Mexico’s economy faces, such as monopolies, lagging infrastructure development, and obstacles to financing for small and medium-sized enterprises. But she also highlights antitrust reforms undertaken in recent years, as well the bright spot that is Mexico’s fast-growing middle class, noting that “this socioeconomic sector is the most likely to push for the changes necessary to truly open Mexico’s markets.” After Mexico saw its economy contract by 6.5 percent in 2009, it shows signs of a steady recovery thanks to growing internal demand, reports Financial Times beyondbrics blog. The post notes that Mexican industrial production grew by 4.9 percent in December compared to a year before, with construction growing by 4.2 percent over the same period.

Despite attempts to temper worries about cartel violence, recent actions and remarks by U.S. officials demonstrate how the fight against cartel crime can color bilateral ties. On Monday, U.S. Undersecretary of the Army Joseph Westphal called violence in Mexico a “form of insurgency,” adding: “This is about potentially the takeover of a government by individuals who are corrupt and have a different agenda, and that would be again right on our border.” Patricia Espinosa, Mexico’s foreign secretary, said his comments represented “outdated visions.”

Westphal apologized for and retracted his comments, but talk of stepping up border security continued this week. U.S. Congressman Connie Mack (R-FL) called for “a counterinsurgency operation” along the U.S.-Mexican border. Arizona Governor Jan Brewer announced Friday that she had filed suit against the federal government for falling short on border security. Homeland Security Secretary Janet Napolitano invited members of the U.S. Congress to make a spring trip to the border for a tour of enhanced security measures this week. She also pointed out that many U.S. cities near the border have low violent crime rates when compared to the national average, contradicting fears about spillover violence.

Learn more:

• Bank of Mexico’s quarterly report on inflation released February 9, 2011, including GDP growth forecasts.
• The Economist offers an interactive map of Mexican states that breaks down homicides tied to organized crime.
• Secretary Cordero joined AS/COA February 10 for a private luncheon.