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Lloyd Mexico Economic Report - October 2000

Table of Contents

THE STATE OF THE NATION
UPGRADING OIL REFINERIES
MORE HYDRO-POWER

THE STATE OF THE NATION

Outgoing President Ernesto Zedillo delivered his sixth and final State Of The Nation Address on September 1, before a new Congress, in which no single party holds a majority. Of the 500 seats in the Chamber of Deputies, the PRI (Institutional Revolutionary Party) holds 211 seats, the PAN occupies 207 seats, the PRD (Party of the Democratic Revolution) 51, the Green Party (allied with PAN) 16 and the Labor Party 7, with the remaining 8 seats held by three minor parties. The President's address focussed on his administration's achievements over the past six years in diverse fields, especially in furthering the democratic process and in resolving economic difficulties. Here, in the form of quotes, with emphasis on economic matters, is a summary of the President's speech:

  1. The Importance of the Market Economy
    "I believe that the unrestricted political freedom of citizens... is an essential prerequisite for the development of peoples and nations. By the same token, I see economic freedom as the most powerful means of increasing employment, incomes, well-being, and wealth among peoples. I see the market economy as a very powerful means for any nation to achieve progress".
  2. Development and Challenges
    "Development is a very broad and comprehensive concept, but it must necessarily come through economic growth... Thus, we have emphasized the establishment of the conditions required for sustained growth of the national economy... In undertaking that task, however, this administration was to face its first challenge, that of dealing with one of the most severe financial crises ever witnessed in our country's history. An enormous and growing deficit in the current account of the balance of payments financed with very short-term capital inflows..., maturing debt in excess of 41 billion dollars..., an inflexible exchange rate policy that lacked an appropriate fiscal or financial basis... (and) an economy growing very slowly despite the unprecedented availability of external savings... were some of the factors that explain that grave situation (in December 1994) of economic emergency... We were actually in jeopardy of... experiencing an economic contraction lasting not just one but several years."
  3. Successful Counter-Measures "The crisis severely damaged people's living standards in 1995, yet I am certain that the damage would have been much greater and longer lasting had we not adopted the decisions we did... I appealed to the firm character of the vast majority of the Mexican people, and maintained that if counter-measures were fully implemented, the emergency would be overcome relatively quickly and that after the unavoidable initial economic contraction, we would enter a phase of sustained growth".
  4. The National Development Plan "Today we can state that the objective has been met thanks to the work, discipline and determination of all Mexicans. 1995 saw a 6.2% decline in the gross domestic product, an extremely high inflation rate of 52% and an unemployment rate that reached 7.6% of the economically active population".
  5. "But as a result of the measures adopted and thanks to the will and effort of the Mexican people, since 1996 the economy has experienced sustained growth. In the May 1995 National Development Plan, I proposed a strategy to reach an average growth rate of the gross domestic product in excess of 5% for the 1996-2006 period. Data from previous years, in addition to those corresponding to the first half of this year, enable us to say that the goal will be reached in a satisfactory manner".

  1. Inflation reduced
    "And the same is true of the goal for reducing inflation. We proposed reaching the end of this year with a maximum inflation rate of 10% annually. Since last April, cumulative annual inflation has been less than 10%".
  2. Employment Increased
    "Because of its social impact, the most encouraging result of economic policy has been employment, which has grown systematically over the past five years. In consequence, the open unemployment rate stood at 2% in July 2000 and averaged 2.2% over the first seven months of this year. Both of these rates are the lowest ever recorded since these statistics have been kept. Real wages, which had deteriorated seriously..., began to recover in several sectors in 1997 and in an even greater number beginning in 1998".
  3. "In the process of achieving these goals, the Mexican economy has had to overcome other difficulties that originated abroad, such as the financial turbulence in Asia and in various emerging nations from 1997 to 1999, as well as the plunge in oil prices in 1998... The sustained expansion of the economy of our main trading partner over the past several years has been a factor that has favored the performance of the Mexican economy".

  1. Smooth Transition of Power
    "Today, I reiterate my fullest conviction that the Mexican economy will not experience upsets or setbacks as a result of the change in government officials. Our economy is endowed with the appropriate conditions to continue growing in the years to come".
  2. Free Trade and Export Power
    "The economic growth our country has achieved since 1996 has been firmly supported by fiscal and monetary discipline, as well as by the structural change that has occurred in various productive sectors, which has improved their competitiveness. As a result, Mexico has become a legitimate worldwide export power. This year the country will be placing products valued at over 160 billion dollars in world markets. Over the past few years the export sector has been one of the most efficient engines for job growth and one in which wages have recovered at the fastest pace. This is why, among many other reasons, we have implemented a strategy of diplomatic and economic negotiation with other countries unprecedented in its intensity and diversity...

    Mexico is now a stronger, more respected and better known country the world over. Today, Mexico has free trade agreements with 27 other nations. Given the range and economic importance of our trading partners, we can say that no other country in the world has a similar network of agreements affording their products advantageous access to so many national markets. Opening Mexico to world trade and investment flows has supported our economic growth, and this has in turn been a very important, albeit not the only, means to confront the fundamental challenge of the country's development..."

  3. Social Policy and Decentralization
    "Surmounting deficiencies involves more than economic growth alone. It requires... effective social policies and as many resources as possible to finance them... Federal social spending has been greater than ever before in our history, not only in absolute terms and per inhabitant, but also as a share of total federal spending and the gross domestic product".
  4. "To make social policy more effective, the powers and resources of the state and municipal governments have been decentralized to an unprecedented extent. For every peso of direct spending by the centralized Public Administration today, the states and municipalities spend 1.50 pesos, while in 1994, they spent less than one. Since health is the first requisite for human development, it has received very special attention, which is reflected in the significant progress made. Over the past five years federal spending on health care has increased by more than 40% in real terms. The number of physicians and nurses increased by almost 40%... The Mexican Social Security Institute's... long-term viability was assured and one of the most ambitious investment programs in its history is under way to upgrade the quality of its services".

  1. Education
    "The percentage of federal resources devoted to education is the highest in our history, both as a share of total spending and as a share of the gross domestic product... School enrollment in the national educational system reached almost 30 million students, with almost 90% of them in public schools. The number of schools rose to 220,000, and one of every seven has been built during this six-year administration. Nearly one-sixth of the total number of teachers - 1.5 million - joined the educational system during this administration... Opportunities and options for higher education have increased appreciably thanks to the creation of 106 new public institutions at that level... The subsidy to higher education has grown 32% in real terms since 1995. Enrollment in higher education now stands at more than two million students. The total resources allocated to science and technology during this six-year term grew by nearly 45% in real terms, although this amount is still far from being sufficient..."
  2. Agriculture
    "It is unfortunate that we have had very adverse weather conditions and the lowest world prices for basic products in many years. Nevertheless, agricultural and forestry production has grown in each year of this administration. This trend had not been seen for more than a quarter of a century".
  3. Political Reform
    "On January 17, 1995, my administration and the national political parties signed a National Political Agreement, through which we set ourselves to work toward definitive political reform. After lengthy and complex negotiations, for the first time in our history we reached a complete consensus, making it possible for Congress to unanimously approve the desired amendment to the Constitution's electoral provisions... The amendment granted total autonomy both to the Federal Electoral Institute, which is responsible for organizing elections, and to the Federal Judiciary's Electoral Tribunal, which is responsible for the administration of electoral justice".
  4. "Mexico has completed its journey toward democracy. After a long process that included crucial struggles by our people in the 19th and 20th centuries, today's Mexicans now have all the ingredients of a modern democracy: individual guarantees, civil liberties, a multi-party system, free and fair elections, pluralism, and now, as a result of the determination of our citizens, the alternation of parties in power..."

  1. The Future
    "Never let it be forgotten that this home of ours, this homeland, Mexico, not only has a great past, but also promises a great future..."

UPGRADING OIL REFINERIES

Petroleos Mexicanos (Pemex), the world's fifth-largest oil company, is putting the final touches to a massive 1.6-billion- dollar upgrade of its Cadereyta plant, near Monterrey. The plant's gasoline-producing capacity will be almost doubled to 108,000 barrels per day (b/d). Together with on-going or projected upgrades at five other Pemex plants, including those at Tula, Salamanca and Ciudad Madero, the reconfiguration of Cadereyta will reduce Mexico's dependance on imported fuel by as much as 175,000 b/d. Pemex is also reported to be considering constructing a new refinery, somewhere in the south of the country. When complete, this would enable Mexico to be virtually self-sufficient in gasoline, even taking into account an estimated annual increase in demand of about 4.5%. At present, Pemex's limited refining capacity means that a high percentage of Mexican crude, especially that of heavy Maya grade, has to be sent abroad for refining, even though the refined products are then shipped back for domestic consu mption.

MORE HYDRO-POWER

The largest hydro-electric power scheme in the country, Chicoasén, located on the Grijalva river in the state of Chiapas, is to have its current 1,500-megawatt capacity expanded by 900 megawatts. The increased capacity is an integral part of the Federal Electricity Commission's plan to ensure an adequate emergency operating reserve. Several new thermo-electric power plants, burning oil and gas, are also under construction. More than 65% of all power generated in Mexico comes from thermo- electric stations, with hydro-electric power plants supplying a further 27%. The Laguna Verde nuclear power station contributes 4% and several small geothermal and wind-power projects are responsible for about 2%.

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

© 2000 Operadora de Fondos Lloyd, S.A.
© 2000 Allen W. Lloyd, S.A. de C.V.

Published or Updated on: July 20, 2000
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