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Lloyd Mexico Economic Report October 2005

Table of Contents

State of the Nation Report
The Fight Against Poverty
The Mexican Economic Cycle
Employment
Inflation
Banking System Credits
Exchange Rate Policy
International Reserves
Country Risk
Sound Fiscal And Monetary Policies
Increase In Savings
Capital Flows And Foreign Direct Investment
Exports And Trade Agreements
Infrastructure For Economic Development
Improvements To Telephone System
E-Services
Regulatory Simplification

State of the Nation Report

On September 1, President Vicente Fox Quesada delivered his fifth Informe, or State of the Nation report, since taking office. It was his final Informe prior to the Presidential elections next year.

His spoken address focused on the nation's economic stability and democratic progress, as well as the challenges ahead. In his refreshingly frank address, President Fox admitted that, despite considerable economic progress, growth has not been sufficient to fully satisfy the basic needs of the population.

The following quotes, with an emphasis on economic matters, come from his formal written submission to Congress:


The Fight Against Poverty

According to the results of the Technical Committee for Poverty Assessment, based on the National Survey of Household Incomes and Expenditures 2004, between 2000 and 2004, the number of Mexicans in the food poverty category fell from 24.2% to 17.3%, which means that 5.6 million people left this category.

For its part, the first report on Mexico's progress towards the U.N. Millennium Development Goals, presented on April 20, 2005, showed that the percentage of the population living on incomes of less than a dollar a day (adjusted for purchasing power parity) fell from 10.8% to 4.1% between 1989 and 2002.

Despite these trends, the Mexican government acknowledges that this does not mean that poverty is close to being eradicated; in addition, important inequalities exist in some regions, states and localities of the country, as well as among certain population groups.

According to the Human Development Report 2004, compiled by the United Nations Development Program, Mexico occupies the 53rd position among 177 nations, with a Human Development Index (based on life expectancy, education and income levels) of 0.802, two places better than the last report, and is one of the group of countries that has a high level of human development.


The Mexican Economic Cycle

During 2004 and the first quarter of 2005, the components of internal demand that contributed most to economic growth were consumption and private investment... The recovery of external demand was noteworthy during 2004, and the improvement in foreign trade continued in the first quarter of 2005.


Employment

Between January and August 15, 2005, the number of workers affiliated to the Mexican Social Security Institute (IMSS) increased by 373,817 (3%), bringing the total of affiliated workers to 12,883,243.


Inflation

During the first seven months of 2005, the National Consumer Price Index rose 1.19%, bringing the rate of annual inflation to 4.47%.


Banking System Credits

In the second quarter of 2005, excluding re-structuring programs, consumer credit continued to display growing dynamism registering an annual change in real terms of 44.2%, followed by credits for housing with a rise of 44.9%; similarly the commercial portfolio rose by 14%, continuing the positive tendency recorded in recent quarters.

These results reflect the confidence of banking institutions and of credit holders in the strength of the regulatory system and the stability of macroeconomic indicators.


Exchange Rate Policy

During the first eight months of 2005, the tendency for the value of the peso to appreciate has been maintained, despite several short periods of time during which the trend was reversed. On August 23, 2005, the spot exchange rate was 10.84 pesos to the dollar, an appreciation of 2.82% above the figure at the end of 2004.


International Reserves

The solidity of the fundamentals of the Mexican economy has contributed to the strengthening of the country's net international reserves in the last four years, during which time they have reached successive historic highs. Net international reserves... totaled 59.175 billion dollars on August 19, 2005. This figure is...25.620 billion dollars higher than the figure reported for the end of the year 2000.


Country Risk

Two of the three principal international ratings agencies raised their ratings of long term Mexican debt in foreign currency... The improvement in ratings reflects the solidity of the foreign debt indicators, the accumulation of foreign reserves and the depth of domestic financial markets.

This has led to a significant reduction in the differential between the returns of Mexico's sovereign bonds and those of the U.S. Treasury in the last four years. On March 8, 2005, this fell to a historic low of 144 basis points.


Sound Fiscal And Monetary Policies

From the start of the current administration the need was identified to closely coordinate political and fiscal policies, with the objective of maintaining a stable economic environment and of assisting sustained economic growth. This has led to a fall in interest rates and in inflation, allowing the public sector deficit to be reduced.


Increase In Savings

The strengthening of internal sources of financing has been one of the fundamental premises of the National Financing Program for Development 2002-2006, to assist the development of productive activities in the country and reduce dependency on external savings... At the end of 2004, the total savings in the economy represented 21.7% of GDP, the highest value of the last four years.


Capital Flows And Foreign Direct Investment

In the first half of 2005, the financial flows entering the country totaled 21.29 billion dollars, 5.63 billion dollars more than for the same period a year earlier... Foreign direct investment (FDI) accounted for 35.1% of this total... By country of origin, the U.S. had a 75.8% share of FDI, followed by Spain (10.8%), the Netherlands (2.8%), Canada (2.6%), with the remaining 8% coming from other nations... The country also attracted 3.0 billion dollars through the money markets and 856 million dollars through stock market operations.


Exports And Trade Agreements

During the first half of 2005, total exports reached 100.6 billion dollars, 11% higher than the same period a year earlier... Non-petroleum exports were worth 86.4 billion dollars and petroleum-related exports 14.2 billion dollars, levels 8.2% and 32.2% higher respectively compared to the same period in 2004.

With the start of the Mexico-Japan Economic Association Accord, from April 1, 2005, Mexico expanded its secure and preferential access to 43 nations of America, Europe and Asia, opening up great potential for national producers. The Mexico-Japan Accord, together with the 11 current free trade agreements, allows access to a potential market of more than one billion consumers.


Infrastructure For Economic Development

By the end of 2004, public and private sector investments in energy, water, communications and transportation reached 29.0 billion dollars, 28.2% higher in real terms than investment in 2003. For 2005, the estimated investments will reach 31.6 billion dollars, 9.3% more in real terms than a year earlier. As a proportion of GDP, these investments are 3.9% in 2004 and 4.2% in 2005.


Improvements To Telephone System

Fixed line telephone density has shown a favorable trend, increasing from 17.1 lines per 100 inhabitants in 2004 to 17.9 lines in July 2005, and an anticipated 18.6 lines by the end of the year... By then, 59% of homes will have telephone service.

In July 2005 there were 43 million cell phone users, 26.8% more than for the same month a year earlier... the density of cell phones rose from 36.3 phones per 100 inhabitants in 2004 to 39.9 in July 2005; density is expected to reach 42.5 by year-end.

It is estimated that the total telephone density of the nation will have risen from 53.4 phones per 100 inhabitants in 2004 to 61.1 phones by the end of 2005.


E-Services

In June 2005, citizens had access to 1,225 government on-line procedures and services... In the period January to June 2005, an average of more than 20,000 visitors a day accessed the Citizens Portal www.gob.mx, a figure 42.8% higher than for the same period a year earlier.

The Global e-Government Readiness Report 2004, published by the United Nations in December 2004, places our country in 30th position of the 191 countries evaluated. In addition, it placed us in 11th place for sophistication and maturity of government on-line services, in 6th place for e-participation and recognized that Mexico is one of the ten nations that has made the most effective and rapid progress in its e-Government strategies.


Regulatory Simplification

Poor administrative regulations hindered the efficient working of the markets and raised the cost of doing business in the country... In response to this, the establishment of the System for the Rapid Opening of Businesses (SARE) was accelerated at the municipal level... 63 municipalities, 25 of which joined between January and July 2005, now have this system.

Thanks to SARE it is possible to offer residents of any state a single window at which to submit all the paperwork needed to open a business, with a maximum response time of two days. The 63 municipalities concentrate 35% of the national population and 36% of national production in commerce, services and industry.





The text of this report was not submitted to any Federal Mexican Authorities or approved by them prior to publication. In preparing it, we have done our own research, using sources we believe to be reliable. However, we do not guarantee its accuracy. Neither the information contained herein nor the opinions expressed, constitute a solicitation by us of the purchase of any security.

Mirrored with permission from Lloyd S.A. de C.V.
See their Page on Mexico Connect.

2005 Operadora de Fondos Lloyd, S.A.
© 2005 Allen W. Lloyd, S.A. de C.V.

Published or Updated on: July 20, 2006
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