Mexico: Reforms pending

Escrito el 21 marzo 2008 por en América Latina

If the mexican economy is to be moved towards an even greater and more sustainable road of growth, new efforts are required in the area of reforms to increase the competitiveness of the economy, as well as better legislation to deregulate the economy and increase productivity and economic growth. What options does the Mexican government have?

1. We must not forget that public and private monopolies control the country’s main production sectors: oil (PEMEX), telecommunications (Telmex), postal services, natural gas, electricity (CFE), Banamex and Bancomer (together, they hold more than 40% of deposits and credits) and, in the retail sector, Wal–Mart’s share is higher than 50%. There is also a need for great improvement in the transport sector: shipping freight, roads, airports and railway.

2. The labour reform, which needs to increase the creation of employment to avoid intense emigration.

3. The fight against drug trafficking. Seeking to eradicate the drug business, mafias, consumption and trafficking is a nigh-impossible task. But it must be attempted by reducing the vast political power and weapons of the drug barons, recovering the territory controlled by organised crime for the state.

4. Do away with corruption in the public administration, since it generates a lack of trust in investors and makes the productive apparatus inefficient. In 2007, Mexico was still considered by Transparency International as very corrupt. On a ranking from 0 to 10 (where zero is a country considered extremely corrupt and 10 is a country considered extremely transparent), Mexico has been given a score of 3.5, a very long way from Chile (7), which is considered as the most transparent country in Latin America, although slightly better than Argentina (2.8). The basic problem is that it is very difficult to ask civil society to accept an increase in taxes when there is corruption, in other words, when the use given to the taxes that are collected is not clear. Or when it is known that those in power take possession of income that is not for their personal enjoyment.

Economic freedom

Despite this bad score in corruption, Mexico obtained good results on the economic freedom indexes. Accordingly, in the latest edition of the report that has just been published by The Heritage Foundation (2008 Index of Economic Freedom), of the 157 countries considered in the study, Chile, in eighth place in the world, is the Latin American economy with the highest level of economic freedom. Mexico holds second place in Latin America (position 44). It is followed by Costa Rica (position 49), Panama (50), Peru (55), Brazil (102), Argentina (108), Ecuador (106) and Bolivia (123). In position 148, Venezuela is, after Cuba, the country with the lowest level of economic freedom in Latin America. This index is important because the greater the economic freedom, the lower the risk of corruption. Many others consider that corruption in some countries in Latin America is on the increase, which does not go by unnoticed by foreign analysts when they classify the risk of a country or recommend an investment. A higher level of freedom of expression and democracy and a more effective role played by the state in the economy reduce the possibilities of corruption. The countries in which coimas are necessary at various levels have a lower level of economic freedom and the cost of investing or working in the country is higher.

The Doing Business 2008 report, the fifth of the annual series published by the World Bank, contains information about the business framework for 178 countries in the world. The study establishes a ranking of the countries for 10 indicators (time and cost of complying with the requirements laid down by the government for the incorporation of an enterprise, facilities for hiring and firing workers, facilities for obtaining credit, level of taxation, market freedom, etc.). The Latin American country with the best classification is Chile, 33rd in the world, followed by Mexico (44) and Peru (58). Argentina occupies a relatively poor position, 109th, but the countries of Latin America that have embraced populism are in an even worse position: Ecuador (128), Bolivia (140) and Venezuela (172). The results show that in countries where procedures for doing business have been simplified, more new enterprises are created and, in short, there is greater entrepreneurial initiative.

This explains why Mexico needs to implement the above reforms in order to favour the necessary national and foreign investment and obtain higher economic growth to recover from its present critical situation.


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