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Markets  |  September 07, 2012 10:31:32

Reform efforts in Mexico

Election contest comes and goes, the real crucible of political leaders, however, could be their ability to transform their promises into reality. Now they are in Mexico Hopes to Enrique foam and the Institutional Revolutionary Party (PRI). It was Enrique Pena, who apparently will emerge as the winner of the recent presidential election. Voices of voters while Pena earned just the promise of introducing reforms and the end of the old "undemocratic" ways. Mexican securities market has responded positively to the first estimates of the outcome of the elections and after the announcement of preliminary victory Enrique foam even climbed to new highs. Although it is not always clear who has won the contest for the presidential post, I'm an optimist in the case of Mexico.

word-spacing: 0px; vertical-align: baseline; white-space: normal; orphans: 2; Widows: 2; font-size-adjust: none; font-stretch: normal;-webkit-text-size-adjust: auto ,-webkit-text-stroke-width: 0px; "> Time will show us all whether the PRI can actually change the direction in which Mexico is going. Residents of Mexico are hungry for change and that Pena could meet their expectations, will be joining office need to support their allies in Congress. Goals are high and Mexico and its people waiting for enforcing a number of structural reforms, including changes to the tax system more transparent economy and modify the existing social system.

vertical-align: baseline; white-space: normal; orphans: 2; Widows: 2; font-size-adjust: none; font-stretch: normal;-webkit-text-size-adjust: auto;-webkit-text- stroke-width: 0px; "> From my point of view is to increase the competitiveness of the Mexican economy and strengthening enforcement of key fiscal reforms, adjustment and reform of the Labour Code in the energy sector. As far as fiscal reforms, especially those seeking to increase tax revenues and subsequent investment facilitation infrastructure and the possibility to provide stronger support for economic growth. schedule to achieve this takes the form of reducing the tax burden and at the same time broaden the tax base. Mexico has a very significant share of the gray economy and thus a high volume of tax evasion.The reform of the labor market is an increase in productivity using improved working conditions and support meritocracy within individual companies with employees promoting equality and eliminate the possibility of strikes.

The greatest wealth in Mexico are now rich deposits of oil. Mexican industry itself in the future in this direction could particularly benefit from increased efficiency of oil production and increased efforts to explore new sites.

The aim of presumed future president is also access state-controlled petroleum and petrochemical industries to private investors. They should now be able to acquire shares in these companies through joint projects. Newly initiated cooperation between state and private sector could then trigger the ambitious privatization plans, which would have helped with settlement foam with other monopolies and duoply in the rest of Mexico's industries.

Strong links with the U.S. as a double-edged sword

-Webkit-text-stroke-width: 0px; "> double-edged sword, in the case of Mexico's strong links with its northern neighbor. Travels to the U.S. about 80% of Mexico's exports, which is also the largest supplier of U.S. oil. Mexican economy thus benefits from growth in U.S. demand. On the other hand the local economy also suffers from a possible slowdown in the U.S. economy. dvousečnosti O interconnection with the U.S. economy could convince in Mexico in 2008-2009, when the U.S. economy showed a downward trend, which subsequently caused a 6% decrease in the Mexican economy (the largest decline for several decades).

orphans: 2; Widows: 2; font-size-adjust: none; font-stretch: normal;-webkit-text-size-adjust: auto;-webkit-text-stroke-width: 0px; "> With the adoption of fiscal measures including reducing government spending, however, Mexico was able to get back on his feet. According to the International Monetary Fund, Mexico's GDP grew in 2010 by 5.6%, in the following year by a further 3.9%. This year Mexico is predicted to grow 3 9%, which is higher level than that which is predicted by just the U.S.. Mexico also boasts lower unemployment. attracts attention and Mexican foreign exchange reserves, which last year rose to new highs ($ 150 billion), in a very favorable level remains ratio of debt to GDP, which is 37.5% which is also lower than in other countries in Latin America (including Brazil). Personally, I think that the current good condition of the economy will help Mexico cope more easily the current global challenges.

Risks and potential

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Many people looks at Mexico as an outlaw in Latin America. While there is still a lot of "if", but I think that Mexico has the potential to once replace Brazil and has the largest economy in Latin America.Improvement of the security situation, the successful implementation of these reforms and of course a positive development of the U.S. economy, all that is necessary so that the Mexican economy has made her way to a better tomorrow. But today I can say that the local economy is in better shape than the Brazilian and due to several reasons. Mexico is less indebted local government interferes less in economy (as measured by percentage of GDP and inflation in Mexico handles better.

Mexico is for large corporations still a source of cheap labor


As regards inflation, that reached 18-month highs, when in July of this year climbed to 4.5%. Although it may be a worrisome at first glance indication of inflation, according to the Bank of Mexico is still within acceptable limits. The risk, however, for Mexico, the current dry summer in the U.S. and the risk of rising corn prices. Mexico is importing 20% ??- 30% of its total consumption of corn, any increase in its price can therefore have a very negative impact on the sentiment of the population. It would not surprise me, then, we have seen government intervention. Despite the potential government intervention, however, could slightly increase inflation further. Maize prices are not the only risk factor for attention is the recent strong rise in prices of eggs and chickens, that when a number of companies affected poultry virus (which is not transmitted to humans).

Production and trade

Mexico is undergoing an interesting evolution. With my own eyes I saw how the economy evolves from Mexico "ruin" producing products with low added value to the economy producing technologically advanced products to high-tech. Even so, it is for large corporations in Mexico still a source of cheap labor, its production here and then launching companies from the fields into which you would not say, specifically companies in the automotive and aerospace industries. I recently had the opportunity to visit industrial park in Queretaro, serving corporations how to set up production lines and research and technology centers.

baseline; white-space: normal; orphans: 2; Widows: 2; font-size-adjust: none; font-stretch: normal;-webkit-text-size-adjust: auto;-webkit-text-stroke-width: 0px; "> Mexico Geographic proximity allows many U.S. companies to produce goods more cheaply here than in China, mainly due to lower costs on logistics. With the growth of wages in China, the importance of Mexico as a source of cheap labor takes on even more importance.

A large part of Mexican exports end up in the U.S., more than 90% of Mexican exports then falls under the free trade agreement covering more than 50 countries, including Canada, Guatemala, Honduras, El Salvador, euro area and Japan. Mexico was also offered the opportunity to join the Trans-Pacific trade partnership, a new Pacific trade group that could help Mexico with the diversification of its export base.

In recent years the media have washed violence took its toll on Mexico's image in the eyes of the outside world. So we'll see how the foam and PRI can deal with the legacy of corruption and crime, and to improve Mexico's reputation in the world. Despite poor media image, but Mexico doing to lure foreign tourists. Mexican Tourist Board estimates for this year a new record for the number of foreign tourists, it would be their final stop of the number 22670000. Increases not only the number of tourists from the U.S., but also the number of tourists from other emerging countries to Mexico attract beautiful beaches and cultural treasures.

sans-serif; font-size: 18px; font-style: normal; font-variant: normal; word-spacing: 0px; vertical-align: baseline; white-space: normal; orphans: 2; Widows: 2;-webkit -text-size-adjust: auto;-webkit-text-stroke-width: 0px; "> Investing in Mexico

Even investors are now aware of the attractiveness of Mexico as an investment destination. From the investor's perspective, I especially like the energy sector that could benefit from reform efforts. While the oil is now building short-term price frustration long should global consumption (and cost) increase along with the growth economies of China and India. I also like the potential of the local consumer base. Consumer industry, the banking sector and telecommunications are no longer areas of increased interest, foreign investment and increasing privatization efforts should then forward their attractiveness even higher. The crisis in the eurozone means for companies from emerging countries the opportunity for profitable acquisitions, Mexican companies are not the exception in this case.

2, font-size-adjust: none; font-stretch: normal;-webkit-text-size-adjust: auto;-webkit-text-stroke-width: 0px; "> The absence of a majority in Congress for the foam can mean trouble fulfillment of his campaign goals, and so I am an optimist. partial I had these goals gives Mexico a promising potential for the future.

© Copyright 2011 Franklin Templeton Investments. All rights reserved.
The article was translated and reproduced with kind permission of Franklin Templeton Investments' Mark Mobius from the blog,

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