The Mexican Economy Is Still Strutting Its StuffGene Koretz
The U.S. and Canadian recoveries may be fading, but the two nations' trading partner to the south is gaining strength. Aided by a surge in foreign investment attracted by the Salinas government's stabilization program and liberalized investment rules (and the pending North American free-trade pact) Mexico's growth will approach 5% this year, compared with 3.9% in 1990. The government's achievements are impressive. Inflation has already been slashed from nearly 160% in 1987 to about 20% in the 12 months ended in September. The combination of tax reform, spending cuts, and privatization of government enterprises has transformed the government's deficit, which equalled a huge 16% of gross domestic product in 1987, into a fiscal surplus of $3.2 billion in the first half of this year.
About the only cloud on the horizon is a sharp widening of Mexico's trade deficit, with imports up nearly 40% over their year-earlier level. Economists at Manufacturers Hanover Trust Co. note, however, that Mexico's exports of manufactured goods have also climbed by 19%. And with its foreign reserves up by $11 billion since early last year, they say, Mexico's trade and current-account deficits still seem "quite manageable."