Mexico

H

Currency and Banking

Mexico’s currency is the peso. The U.S. dollar is widely used in Mexico, due primarily to geographic proximity and extensive American tourism. The peso is currently allowed to float freely (measured in terms of its value to the dollar) and has fluctuated between 5 and 9 pesos to the dollar since 1994. In 2005 the exchange rate averaged 10.90 pesos per U.S.$1.

The Mexican government has instituted a number of peso devaluations since the 1970s. These devaluations reduce the rate at which the peso is exchanged for foreign currency. A peso devaluation is usually prompted by an economic situation in which the cost of goods and services in Mexico, measured in U.S. dollars, exceeds their actual value, thereby discouraging foreign tourism and the purchase of Mexican goods on the global market. Peso devaluations generally produce an increase in exports from Mexico, while bringing about higher prices for Mexican citizens. The peso was officially devalued by the Mexican government in 1994, prompting a 45 percent drop in the value of the peso against major world currencies. The steep drop in the value of the peso induced many domestic and foreign investors to withdraw their money from the country, which brought on a severe economic crisis in early 1995.

Mexico’s federal reserve bank is the Bank of Mexico, a government-owned central bank that was created in 1925. The Bank of Mexico is the nation’s bank of issue, meaning that it controls Mexico’s total money supply by monitoring the banking system’s reserve requirements and by allocating credit to other banks. Although all domestic banks were nationalized in 1982, the administration of Carlos Salinas de Gortari (1988-1994) sold them back to private investors. The bank nationalizations had given the Mexican government more control over the nation’s economy, angering many businesspeople in the private sector. The privatizations helped to alleviate the distrust of the Mexican government that had developed among many Mexican investors in the early 1980s. They also allowed the government to direct the revenue made from selling the banks toward a number of social-spending projects.

As a result of NAFTA, Mexico opened its banking system to foreign competition and began allowing retail branches of foreign banks to operate in the country. Mexico’s banks have been criticized for inefficiency. Many major banks have exceedingly high levels of debt because their clients cannot repay their loans. Mexico has a stock exchange (Bolsa de Valores), located in Mexico City, and some of the stock of companies on this exchange is also traded on the New York Stock Exchange.

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I

Transportation

Mexico’s rapid population growth since the 1950s has placed considerable pressure on its transportation infrastructure. Its topography has made transportation difficult in some regions, particularly between the western coastal plains and the central plateau. Mexico’s railroads were extremely important in the economic development of the country in the 19th century. The state-owned and operated system received little investment and was inadequately maintained after the Mexican Revolution (1910-1920), however, leading to an outdated railroad system in need of significant improvement. In the late 1990s Mexico privatized its national railway, granting private firms 50-year concessions to operate the rail lines.

The growth of Mexico’s trucking industry has put pressure on the government to improve the highway system. Most of Mexico’s major highways are still only two lanes wide. Under President Carlos Salinas (1988-1994), the government encouraged private contractors and investors to build toll roads. Although a number of these were constructed throughout Mexico, their costs were so high compared to the public system, especially during the economic crisis that began in 1994, that most are not economically viable.

Mexico has a well-developed airline system that serves domestic and international destinations through links to every major U.S. and European carrier. The country’s major airports are located in Mexico City, Guadalajara, Monterrey, Puerto Vallarta, Cancún, Acapulco, and Tijuana.

Mexico’s long-standing urban transportation problems, especially in the Federal District, are gridlock and air pollution. Although there is a modern, efficient bus and subway system in the capital, cars remain the most popular form of transportation. The government has been forced to institute severe restrictions on automobile use in an attempt to reduce air pollution.

J

Communications

The most important recent change in Mexican communications was increased competition within the telephone system, which was one of the first major utilities to be sold to private investors in the 1990s. Changes in the industry dramatically improved telephone service, which had been plagued by long waits for new phone service in Mexican homes and businesses. This was especially true in the cellular phone business, which saw a dramatic increase in usage beginning in the 1990s. The television industry has also seen increased competition in recent years and Televisa, the chain of television stations that had been dominant in Mexico for decades, now sees increased competition from Televisión Azteca.

Mexico City has a large number of newspapers, which creates extreme competition among papers and results in a relatively small readership for each publication. Many of these papers are read nationally. Among the most influential are La Reforma, Excélsior, El Financiero, and La Jornada. Several magazines, noted for their independence and criticism of the government, are also published in Mexico City. These include Proceso, a left-of-center weekly, and two intellectual magazines, Vuelta and Nexos. The government has tried, on occasion, to censor the print media, primarily by threatening to withhold government advertising. Television and radio are regulated by the government, which authorizes the production of programs on state-owned radio and television networks, as well as on a number of commercial broadcast networks. Talk radio, however, is increasingly independent. Many Mexicans use computers and e-mail, but the growth of the Internet is currently limited by the country’s relatively undeveloped system of telephone lines. Communication links from many parts of Mexico still must first pass through the capital, which slows both computer and telephone connections between regions of the country.

K

Tourism

Mexico’s tourism industry is an essential component of the economy, often helping to sustain economic growth during times when growth is slow in other economic sectors. The government has long had a cabinet-level agency devoted exclusively to expanding and improving tourist facilities. In terms of foreign exchange earnings, tourism often ranks third in importance behind petroleum and manufacturing. Tourists spent $11.8 billion in Mexico in 2005.

Mexico’s most important tourist destinations, other than the capital city itself, are numerous beach resorts. These include: Cancún, an island and resort town just off the Yucatán Peninsula in the state of Quintana Roo; Acapulco, Puerto Vallarta, and Mazatlán, all resort cities on Mexico’s Pacific coast; and Los Cabos, a sport fishing and resort center at the end of the peninsula of Baja California in the state of Baja California Sur. Mexico’s border cities are also important tourist attractions and are visited by residents in nearby U.S. states. The most popular of these destinations is Tijuana, just across from San Diego, California. Hundreds of thousands of U.S. citizens regularly visit this community and other border cities on weekends. In 2005 Mexico tallied 21.9 million visits by tourists, with most of the visitors coming from the United States and Canada, other countries in Latin America, or Europe.

VI

Government

Mexico’s political model theoretically has much in common with that of the United States. As with the U.S. government, Mexico’s government is divided into three branches: executive, legislative, and judicial. In Mexico, however, the executive branch dominates the other branches to such an extent that the country effectively has a political system that is controlled by its president. For most of the 20th century, only one political party, the government-controlled Institutional Revolutionary Party (PRI), played an influential role in politics or in the decision-making process. After it was founded in 1929, the government party monopolized most national political offices. The PRI did not lose a senate seat until 1988 or a gubernatorial race until 1989. It lost the presidency for the first time in 2000, when Vicente Fox of the National Action Party (PAN) defeated the PRI candidate.

Given the dominance of the executive over the legislative and judicial branches, interest groups and lobbyists similar to those found in the United States have not developed in Mexico. Groups and individuals who wish to influence policy do so primarily through the executive branch, seeking contacts with agency heads and cabinet figures and, on occasion, with the president himself.