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The international financial and economic crisis

Global financial and economic crisis How does Mexico face it? Ambassador Sandra Fuentes-Berain Mexican Studies Center, Antwerp University March 12 th , 2012. The international financial and economic crisis. The most serious international financial crisis since 1929. Three-Pillar Plan:

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The international financial and economic crisis

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  1. Global financial and economic crisis How does Mexico face it?Ambassador Sandra Fuentes-BerainMexican Studies Center, Antwerp UniversityMarch 12th, 2012

  2. The international financial and economic crisis The most serious international financial crisis since 1929 Three-Pillar Plan: • Counter-cyclical policies to avoid a drop in global demand • Agenda of reforms on financial supervision and regulation • Commitment to avoid economic protectionism Lessons: • Effective mechanisms to articulate a global response to the crisis; restore confidence in markets and avoid a deeper recession. • Decision making reflected the changes in the power structure and in the relative weight of emerging markets. • In fact, the G8 became obsolete.

  3. Economic indicators USA USA

  4. Mexico’s Evolution 1987 200 1,900 159 120 28 19 7.2 16.1 2010 $ 1,035 $ 9,123 4.4 4.5 $ 299 $ 302 -3.0 2.8 GDP GDP per capita Inflation Interest Rate Exports Imports Trade balance Public deficit billions of US dollars US dollars Annual % Annual % billions of US dollars billions of US dollars billions of US dollars % of GDP

  5. Mexico’ s internal “homework” • Structural Economic Reforms since 80’s • Transformed from a protectionist to an open economy • All this together positioned Mexico in the global scenario • A key player in the WTO, G20 and APEC • OECD member since 1994 (first Latin American country)

  6. Despite adverse external context, macroeconomic stability in Mexico was preserved • Interest rates have registered historically low levels (4.3%) • Inflation remains low and stable (3.8%) • The external accounts are in order • International reserves stand at high levels (USD$148Bn) • Access to international capital markets • Fiscal discipline has been preserved • A sound financial system, rated 150 in terms of stability (WEF 2010) • Mexico retains Investment-Grade Rating

  7. Mexico’s international position • 14th largest economy in the world (IMF) • 11th Purchasing Power Parity, bigger than Spain, Canada or Korea • Mexico´s economy = Argentina + Colombia + Venezuela + Chile • Total trade: $600 billion USD, 10th largest in the world • Export: $299 billion (10th largest, manufacturing 62% of the exports of LA countries. Mexico exports more than all of Latin America together) • Import: $302 billion USD (10th largest, 38% of LA countries) • 12 Free Trade Agreements with 44 countries (Americas, Europe and Japan), with market access for 1 billion consumers, 66% of world’s imports, 75% of world GDP and 28 Bilateral Investment Treaties • The export activities contribute with 25% of the GDP

  8. Mexico is among the top five emerging economies in terms of Foreign Direct Investment (FDI) inflows 66% of the GDP is generated in the service sector and 19% in the manufacturing Mexico is one of the world’s ten largest producers of vehicles and a key player in the aerospace industry Middle-income country with a population of 113 millions Income per capita among the top five in Latin America ($9,123 dollars in 2010), even larger than some EU Member States such as Bulgaria and Romania Average age of the population 26 (2010); 39% aged 19 years or under Young and increasingly better educated labor force able to produce higher value added goods 15th largest country in terms of territory (equals to France, Spain, Germany, Italy and UK together) 9

  9. What others say “In the stock market, Mexico maintains its place as first option in Latin America” JP Morgan Oct/09 “Despite improved fundamentals Mexico is being hit by the financial turmoil and world economic downturn” OECD Economic Survey of Mexico 2009 “You can do business here [Mexico] in a stable macroeconomic environment” World Bank country director Axel van Trotsenburg Apr/09 “At global level, the rating reflects in an appropriate way the economic strength and the financial solidity of Mexico in connection with other countries that possess similar rating” Moody’s Sep/09 “Mexico offers a unique set of advantages that constitute a privileged “sweet spot” in the globalization landscape” Boston Consulting Group “Of the other countries we look at, only Mexico and perhaps Korea have the potential to rival the BRICs economies that we excluded initially because we view them as already more developed” Goldman Sachs “Mexican economy will grow 4.3 percent in 2010” Goldman Sachs Jun/09

  10. What others say “A major asset for Mexico in Latin America is its strategic geographic position at the boundary with the US. Mexico is a significant political, economic and cultural player in Latin America and its role in global issues is expected to grow with time. Its economy is fully integrated in the NAFTA and the voices of its rich culture are heard throughout Latin America.” COMMISSION OF THE EUROPEAN COMMUNITIES Towards an EU-Mexico Strategic Partnership “Mexico has pursued sound policies, maintained macroeconomic stability and substantially reduced vulnerabilities. It has achieved a high level of credibility in the institutional framework supporting macro policy formulation, and has a sustained track record of implementing very strong policies” IMF Consultation—Staff Report Feb/09 “Mexico is affected severely by the global recession, like many other OECD countries, with negative economic, budgetary and social consequences. Although the banking sector has so far weathered the financial crisis rather well, manufacturing industries are being severely affected by the downturn of global demand, particularly in high-value added industries.” OECD Economic Survey of Mexico 2009

  11. What others say “Directors endorsed the planned 2009 fiscal stimulus, which should, along with increased development bank intermediation, provide timely support to economic activity. They observed that the counter-cyclical spending increases would protect employment and support low-income families, increase competitiveness of small-and medium-sized businesses, and augment infrastructure. Such measures were partly financed in effect by the authorities’ prudent price hedging of oil sold by PEMEX.” IMF Executive Board Assessment Feb/09 “Mexico has made substantial progress over the past decade in strengthening its economic framework and enhancing resilience.” IMF Consultation—Staff Report Feb/09 “Mexico entered the recent downturn with much stronger macroeconomic and financial fundamentals than they had in previous financial crises. This included lower liability dollarization, lower fiscal and private debt, and a better aggregate balance sheet for the financial services sector.” WEF Financial Development Report 2009 12

  12. International trade in Mexico’s strategy • By 2013, 63% of Mexico’s industrial tariff lines will have no duties, with the average industrial tariff rate lowered from 10.4% to 4.3% • Just as the EU, Mexico’s economy depends on open markets for its exports • Mexico rejects any form of protectionist being used as excuses by some countries to cushion negative impacts caused by the worldwide economic downturn

  13. FTA G2 Transformation responds to a strategy • Mexico’s network of FTAs is one of the largest in the world • Preferential access to 1,060 million potential consumers, 2/3 of world’s imports, 3/4 of world GDP FTA Peru 2012 14

  14. FTA and BIA network Europe North America Korea and Japan 6 12 Economic Complementarity Agreements Free Trade Agreements Central America Australia 24 Bilateral Investment Agreements South America 15 Mexican Mission to the EU

  15. México is among world’s most open economies Market access for 1 billion consumers, 2/3 of world’s imports and ¾ of world GDP Norway Sweden Iceland Denmark Finland Canada 12 FTAs with 44 countries Estonia Germany Letonia Holland US Lithuania 6 ACE’s UK Poland 24 BIT’s Ireland Czech Rep. Cuba Slovac Rep. Belgium Hungary Luxemburg Honduras Liechtenstein Switzerland Nicaragua Slovenia Guatemala Rumania Costa Rica Portugal Austria Greece Italy El Salvador Mercosur Spain Bulgary Panama Malta France (Automobile Agreement) Cypress Colombia Japan Ecuador Australia Israel Peru Republic of Korea Brazil Uruguay India Chile Argentina 16

  16. México: a world of economic opportunity Tijuana Population: 750,000 Key Industries: beverages, processed foods, metalworking, radio and television manufacture, electrical machinery Ciudad Juárez Population: 800,000 Key Industries: electrical machinery, transport equipment, meat, electronics, dairy products Torreón Population: 880,000 Key Industries: automotive, bricks, clay, refractory, general machinery, cement andderivatives Chihuahua Population: 650,000 Key Industries: electrical machinery, automotive, meat, electronics, dairy products, timber Hermosillo Population: 600,000 Key Industries: automotive, meat, cement and derivatives, electrical machinery Monterrey Population: 3 million Key Industries: oil refining, iron and steel, electrical machinery, glass and derivatives, breweries, meat products, cement, banking Culiacán Population: 600,000 Key Industries: food processing, cereal milling, sugar, beverages, edible oils and fats Tampico-Madero-Altamira Population: 340,000 Key Industries: chemical, industrial machinery, electronic & electrical equipment, oil and refinery, agriculture, cattle, fishing Veracruz Population: 450,000 Key Industries: petrochemicals, refining, basic chemicals, iron and steel, sugar, beef, processed foods, tourism, transportation services (maritime) Aguascalientes Population: 500,000 Key Industries: electronics, automotive, dairy, textiles, carpets León Population: 1 million Key Industries: refining, footwear, leather and tanning, bakery goods, beverages Mérida Population: 600,000 Key Industries: beverages, edible oils and fats, processed foods, cement and derivatives, plastic products Guadalajara Population: 4 million Key Industries: high-technology, edible oils and fats, plastic products, chemicals, dairy products, processed foods, textiles, footwear San Luis Potosí Population: 670,000 Key Industries: iron and steel, non-ferrous metallurgy, tobacco products, electrical machinery, automotive, livestock Mexico City Population: 20 million Key Industries: retail, financial services, food, automotive, plastic products, paper and cellulose, chemical derivatives, basic chemicals Toluca Population: 850,000 Key Industries: automotive, plastics, paper and cellulose, chemical derivatives, basic chemicals Puebla Population: 1.5 million Key Industries: automotive, textiles, iron and steel, bottled water, chemicals, meat processing Querétaro Population: 460,000 Key Industries: automotive, paper and cellulose, synthetic fibers, general machinery, electrical machinery, processed foods, dairy products Source: SE-NAFTA.

  17. Some sectors: aeronautical 190 companies, 27,000+ Workforce • 18

  18. Some sectors: electronics TIJUANA MEXICALI SONORA JUÁREZ CHIHUAHUA Sanyo Sony Hitachi Matsushita JVC Samsung Pionner Mitsubishi Sharp Delta Ichia Merry Tech Wistron Display Orion ⌘Amphenol ⌘ADI Systems ⌘Philips ⌘Kyocera ⌘Rectificadores Intern. ⌘Vigobyte ⌘Bourns ⌘Bose ⌘Skyworks ⌘Panasonic Kodak  Delphi Sony  Mitsubishi LG Thomson  King Cord Mex  BenQ  Alcatel Motorola Volex ⌘ Molex ⌘ AMP ⌘ Amphenol Toshiba Philips Thomson Kenwood Asus Keytronics Tatung Lite on Enlight ⌘Elamex ⌘Plexus ECMM Elcoteq  Delphi Foxconn Honeywell ⌘ Altec  Jabil  SMTC TORREÓN ⌘ Thomson REYNOSA  Philips Sony Jabil Celestica  Nokia  Lucent Technologies  Fujitsu  Condura  Delnosa  Delco  Matsushita  Delphi  Keytronics  Tyco MONTERREY  Pionner  Kodak  SCI – Sanmina  Celestica • Elcoteq  AFL  Nippon Denso  Axa Yazaki GUADALAJARA • IBM • HP  Nec  Lucent Technologies  Kodak  Siemens  MTI Electronics  Solectron Méx.  Flextronics  Jabil Circuit  SCI Sanmina  ECMM  Benchmark ⌘ Technicolor ⌘ Universal Scientific ⌘ Motorola ⌘ Cumex AGUASCALIENTES CANCÚN  Vitelcom  White Westinghouse ⌘ Texas Inst.  Xerox  Siemens  Flextronics  Volex CUERNAVACA  Audio & video  Home Appliance • Computer Telecommmunications  Automotive  CEM  Foto & impresion ⌘ Others Nec EDO. MÉXICO  Ericsson  Alcatel  Pantech ⌘ AMP ⌘ Sony ⌘ Scientific Atlanta  Olimpia QUERÉTARO Clarion ⌘Siemens

  19. Some sectors: automotive Final assembly plants in Mexico FORD (MOTORS) KENWORTH (Trucks) G.M. (AUTOS & UV) INTERNATIONAL (Trucks) DAIMLERCHRYSLER (BUSES) FORD (Cars) G.M. (CARS) SCANIA (TRUCKS) (MOTORES & UV) DINA (TRUCKS) NAYARIT NISSAN (Cars & Motors) FORD (CARS & UV) HONDA GM (UV) GM (PRUEBAS) VOLVOTrucks) G.M. (MOTORES) DAIMLERCHRYSLER (AUTOS& UV) DAIMLERCHRYSLER (CAMIONES) NISSAN (AUTOS & UV) V.W. (AUTOS & MOTORES) BMW (AUTOS)

  20. Job Training, Education, Science & Technology Development Fiscal Policy Support Research & Development Programs Macroeconomic Stability Development of Suppliers Competitiveness Infrastructure Development (Including Technology Parks) Trade Policy & Market Access Regulatory Environment

  21. MEXICAN PRESIDENCY OF THE G20

  22. Transformation of the international structure • New modus operandi of international cooperation: multilateral, informal coordination among developed and emerging countries • Deficit in international governance: Economic borders are dissolved, while, in politics, nation-states are maintained • G7 loses space in favor of emerging powers with more weight, demographics and regional leadership • Innovative mechanisms of cooperation for a globalized and more interdependent world Brazil, China, India, Mexico and South Africa: essential partners Formalization of the G20: more variation in global economic power.

  23. G20 predecessors G5 G8 1975 1976 1998 + 1977

  24. Ministerial G20 G8 + 85 % Global GDP (FMI) Context: Asian crisis 1998-1999. Importance of emerging economies and systemically relevant countries becomes evident. 1999: Dialogue between Central Banks and Finance Ministers to maintain macroeconomic cooperation and address global imbalances. Agenda: including policies for financial and economic stability, prevention of abuse in the financial system, growth policies, crisis management

  25. G20 Summits (leaders’ level) LONDON APRIL 2 2009 WASHINGTON, D.C. NOVEMBER 14-15 2008 PITTSBURGH SEPTEMBER 24-25 2009 TORONTO JUNE 26-27 2010 SEOUL NOVEMBER 11-12 2010 LOS CABOS JUNE 18-19 2012 CANNES NOVEMBER 3-4 2011

  26. G20’s contributions TO ECONOMIC AND FINANCIAL GOVERNANCE • Economic stimulus packages adopted in 2008 • Improvements in international macroeconomic coordination and financial regulation • Financial institutional reform (such as the IMF and World Bank) • Bank sector reforms (FSB) • Financial security networks • Strengthening the structure and governance of the international monetary system TO GLOBAL GOVERNANCE • More faithful reflection of current international economy • Fosters globalization • Contributes to a recovery of trust in multilateralism • Complements United Nations’ and Breton Woods Institutions’ capacity for action

  27. G20 and citizens Actions promoted by G20 are directly related to the improvement of living conditions of all citizens in areas such as: • Employment and social security • Mitigating the effects of food price volatility • Reducing risks in the financial system and promoting conditions that allow banks to provide credit • Fight against corruption • Protection of savings • Support to regional development banks for social programs, etc.

  28. Priorities of the Mexican presidency of the G20 • Economic stabilization and structural reform for growth and employment • Strengthening financial systems and financial inclusion for economic growth • Improving the international financial architecture in a globally interconnected economy • Promotion of food security and addressing the issue of commodity price volatility • Fostering sustainable development, including an agenda on infrastructure, energy efficiency, green growth and financing to fight climate change

  29. Organization of the Mexican presidency

  30. Importance of the G20 for Mexico • Facilitating the construction of agreements around global economic and financial problems that have consequences for our economy and levels of welfare • Reaffirm our presence in the design and construction of a new, more just and representative structure of international financial governance • Interest in promoting more equitable and sustainable development both nationally and globally • Strengthening the bilateral relationship with global and regional powers, a key part of Mexico’s foreign policy strategy • Strengthening communication and coordination amongst international groups on issues of common interest

  31. THANK YOU

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