Until the global recession, many experts were feeling optimistic about the Mexican economy. The relatively pro-business stance of President Calderon, his moderate success in achieving some electoral and judicial reforms, and his prominent crack-down on drug violence seemed promising. However, Mexico still lacked a sufficient cushion going into 2008-2009 meltdown, and its dependence on the US economy only exacerbates domestic policy challenges. According to the Brookings Institution:
- Eighty-five percent of Mexican trade is conducted with the US. The recession has hit American consumers hard, decreasing demand for goods of all kinds, especially for cars whose parts are largely manufactured in Mexican factories. Unemployment in maquiladoras has risen sharply as manufacturing jobs disappear.
- Migration is down for the first time in recent memory, as are remittances.
- The US credit crunch and investor confidence has hurt foreign direct investment in Mexico, 50% of which has originated in the US.
- Some Mexican banks are linked to large failing banks in the US, and are also experiencing capital contractions which reduce their ability to lend.
- Currently rising oil prices will provide some breathing room to the Calderon Administration, although the economic retraction will increase hardships for Mexico’s poor.
Next: Inside Mexico: Government