Economic Reform In Mexico

In the year 1979, the then President Lopez Portillo declared that the country would comply with the General Agreement on Tariffs and Trade or GATT. However, there was a reversal of the decision and in the year 1980, the same was reversed.
During the period 1982 to 1988, the country was subjected to many adverse situations on the economic frontier. The then President De La Madrid introduced economic reform in Mexico.

Important reforms:

Foreign credit:

The fall in the price of oil made Mexico face the credit crunch. Inflow of foreign credit was restricted. During the same period, to pay off foreign debt approximately 5% of the gross domestic product was utilized.

Trade reform- Trade liberalization and privatization:
Despite several obstacles, Mexico submitted to the norms of GATT. By the year 1987, economy of Mexico, changed from a closed economy to an open one .NAFTA or North American Trade Agreement was signed in 1993 with United States of America and Canada.
All these transitions had taken place despite the fact that economic reform in Mexico comprising liberalization in trade necessitated adjustments in various costs pertaining to state owned sectors, imports as well as the private sector. Once trade liberalization had occurred, economic reform in Mexico consisting of many fiscal reforms were also brought in. Privatization of several companies owned by the state were affected. The total number of SOEs or state owned companies reduced to 220 in the year 1993 from 1,155 in the year 1982.
Rate of income tax decreased to 34% from 42%. Collection of taxes had increased owing to compliance of taxes. Subsidies of the government were significantly decreased. As a result of the economic reforms in Mexico, the fiscal balance transformed to a positive figure from a negative figure. Mexico had a negative fiscal balance during the period 1970 to 1982. Positive fiscal balance showed up during 1983 to 1993.

Note: The changes mentioned above had occurred when the terms of trade manifested a downward trend. The index pertaining to the terms of trade dropped to 50% during the period 1981 to 1986.

In addition to the above, several changes pertaining to the PEMEX or Mexican Petroleum had also occurred as part of the economic reform in Mexico. Few other reforms, which were noteworthy include introduction of the CETU or the new corporate flat rate tax. Economic reform in Mexico also consisted of changes pertaining to public spending, role of oil sector in the economy of the country, tax evasions, pension schemes. Effect of economic reform in Mexico also impacted foreign investments as well as the labor market in the country.

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Last Updated on : 26th June 2013

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