MESSAGE OF AMBASSADOR EDUARDO MEDINA MORA ON THE OCCASION OF THE LUNCH PRESENTATION ORGANIZED BY THE POTOMAC EXCHANGE
Ladies and Gentlemen, good afternoon.
Thank you all for being here and thank you to Jane Cicala, President of Potomac Exchange for having organized this session. It is a pleasure and a privilege to address an audience so knowledgeable on Mexico.
I was recently invited a meeting with experts from Mexico and the United States to speak about the prospect of economic integration between both Nations. I came out with two main ideas: the first one is that economic integration is not a prospect, it is a reality in the making. The second one is that it what has happened in the last twenty years has happened more because of economic factors than due to government efforts. This has made me think that what we achieve if we actually pay attention to our shared potential through policy is enormous.
I want to answer three main questions through my presentation today. The first one is: where are we? January 2014 marks the twentieth anniversary for Nafta. It is a good time, I think, to reflect on its outcomes. The second question I want to ask is: what challenges do we face? And I am going to take into account Mexico’s individual challenges but also the challenges for the region. My third question is what tools do we have? And have we established the conditions we need to face what lies ahead?
Ladies and gentlemen: Nafta is a success. Let’s just look at the numbers: every minute, one million dollars are traded between Mexico and the United States. Our bilateral trade has grown more than 500 per cent in twenty years. But more importantly, our manufacturing relationship has become competitive and sophisticated.
Many of you will know what I am talking about. Products come and go through the border many times. Whether the final consumer is Mexican, American or from another Nation, he receives a product which is largely the result of a bi-national value chain. In general terms, 40 per cent of the value of manufactured products exported from Mexico into the US is actually American. The trade figures are equally impressive: U.S. exports to Mexico in 2012 rose $18 billion dollars above their 2011 value, reaching 216.3 billion dollars in that year, which is more than the U.S. exports to Japan and China together.
This means that we are already, as I said at the beginning, an economic region. And although each country will have it’s own conversation on how to plan for the future, it is increasingly difficult to foresee any significant growth without taking into account what happens on either side of the border.
With regard to Mexico’s individual economic performance, I think experts agree it is satisfactory, regardless of the slight decrease in growth in the last quarter. There are two main reasons for this phenomenon. The first one is that international demand has weakened due to uneven growth around the world, and it has slightly affected industrial output in Mexico. The second reason is that public spending has been slow in the first semester due to the start of a new administration in Mexico. This is an expected result of the public policy cycle and only natural for a period of planning. Meanwhile, macroeconomic stability has been maintained: public finances are sound, reserves are growing, debt is low and inflation, contained.
As you know, Mexico has taken on a serious reform agenda. Fiscal and energy reforms are due to take place in September, and they are central. But their importance tends to undermine the significance of the reforms that have already taken place. In a system such as ours –and yours, by the way- where majorities in Congress are hard to come by, the Pact for Mexico, a list of essential agreements signed by Mexico’s three major political parties, has allowed transformations that we hardly thought possible a few months ago. Education, antitrust, telecommunications, labor, are all the result of a consensus between political parties, which have overcome their differences to achieve these goals.
The Pact for Mexico is not written in stone, though. It is a vehicle for political dialogue, and as such, subject to discussion and agreement. A good example is the recently added component of transparency in the use of social programs in the context of elections. Parties have expressed concerns that have been addressed through addenda to the Pact.
So there are two ways in which we can analyze the reforms that are taking place. The first one is the reforms themselves. Are they broad, deep and wide enough? Will they be satisfactory in the long run? These are questions that we will have to answer with the benefit of hindsight.
But another dimension of the reforms, and this can be assessed immediately, is that their sole existence is the result of a more mature political system, with responsible leaders that are able to plan ahead, for the longer term.
It is no secret that Mexico used to be the victim of cyclical crises. Our people had to carry the weight of our limited vision. But this is not the case anymore. We have had sound macroeconomic policies and we have been able to build on them to ensure a sustained, although somewhat slow growth. And this takes me to the second part of my presentation. What can we do, as a country and as a region, to accelerate economic development and close the gap of inequality? How can we foster growth and increase competitiveness?
Nationally, we still need to build on certain dimensions of our economy. There is, for example, still a low level of penetration of financial services. Credit levels are unsatisfactory and the banking system generally is still serving only a limited spectrum of the economy. Microfinance, banking reforms, financial literacy programs and a worldwide effort from banks to attract new customers by taking a more creative approach to retail banking will all contribute to address this issue over time.
Another great challenge is the justice system in Mexico. It is still not optimal and needs to become more reliable and efficient. The main reforms are put in place, though. By 2016, we will have an oral and accusatorial model for criminal justice. We are also on the verge of having a unified criminal procedures code and a model penal code, both of which will create a more reliable criminal justice system.
The judiciary is independent and is developing its capabilities to address concerns for more expedite justice. A deep transformation of the justice system is taking place as we speak but it will take time, as all valuable transformations do.
With regard to our shared challenges, ladies an gentlemen, I can highlight a few. I think we need to review our border logistics. As I have said, the economic growth of our region is a result of companies who have figured out what to do with our shared space and resources. It is time to create policies that aim at reducing transaction costs for these –your- companies. We have a twenty first century value chain, with a twentieth century legal framework and nineteenth century infrastructure.
As 82%, or $404 billion, of bilateral trade was carried across the border via surface transportation in 2012, expanding and modernizing the current border infrastructure will help promote a world-class logistical capability that improves border wait times, customs procedures, and trusted traveler or shipper programs.
We need to look at logistical nodes and develop strategies to make them more efficient. Of course, any ideas of how to do this are welcome.
This takes me to the last part of my presentation. I said I was going to speak about the tools we have and whether we have established the conditions we need to face what lies ahead.
Actually, the recent visit of President Obama to Mexico allowed for a review of our bilateral agenda. The vision we have is that our relationship as economic partners is ready to go to the next level. For that reason, we have created a High Level Economic Dialogue, a mechanism that will have a very ambitious agenda: competitiveness, creativity, economic growth, productivity and a shared leadership in global issues. And because we realize that there is a need to pair industry needs with university programs, we have created the Bilateral Forum on Education, Innovation and Research between our two nations, with the purpose of facilitating that conversation and to putting forth proposals for specific actions. On this topic, I would like to point out that Mexico’s public spending on innovation and technology will be expanded. This year it was increased by 11% and we expect an investment of at least 1% of GDP by2018.
Ladies and gentlemen, the psychological aspect of our bilateral relationship sometimes casts a shadow on our possibilities as a region. We need to inform our people, both Mexican and American, of what is already a reality: social and economic integration are taking place and both governments are committed to addressing shared responsibilities. The relationship has never been better because we are realizing the full dimension of our shared interests. I am certain that, in the future, we will remember this as the year in which we started to unleash our shared potential.
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