The Mexican Economy Is Still Strutting Its Stuff

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."

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