Presented by the Atlanta Fed's Americas Center and the World Affairs Council of Atlanta

April 12, 2012

Ed Skelton: Thank you, Dennis, and thank you everyone for being here today. From the seventies through the mid-nineties, Mexico was a country that lurched from one crisis to another—tremendous booms followed by dramatic busts, debt defaults, financial crises, some combination of both. Today, what I'm going to do is talk about Mexico's newfound economic stability. A lot of that was put into place in the aftermath of some of these past crises and past difficult situations. So they've had a past history of crises, a situation usually accompanied by presidential elections, policy surprises, sometimes data surprises, which are always bad for financial systems and for economies. But they made some key changes. The first was changing the monetary policy framework. They adopted inflation targeting in 2001. And then also, the most important of all, though, was giving the central bank operational independence. They've also adjusted fiscal policy, so it's now more disciplined.

Because I wouldn't be an economist if I didn't leave you with "the dark cloud" amidst all these silver linings, I'd also like to point out that there are limits to what macroeconomic stability, to what policy discipline can do.

Jennifer McCoy: So what we have seen, of course, in Mexico over the last two decades is a dramatic increase in competitive elections, and so an opening of the political system in that sense, beginning in the 1990s with electoral reform, continued rise of the middle class, joining NAFTA, of course—all of these things converging together. I, myself, became involved with the electoral reform with Bob Pastor through the Carter Center in 1993, and remember my first trip to look at the electoral preparations there and how I was blown away by the sophistication of the efforts they were making to bring credibility to elections that had not had credibility in the past. And the technological sophistication and presentation, especially of how they were creating a nationwide voter ID base and sophisticated cards with holograms, etc.—ID cards—was such a contrast to what we have here in the United States that it was really quite impressive. They continued to open up the electoral system, create independent electoral institutions. And, of course, what we saw was in 2000 a change after 70 years of the ruling PRI, a change for the first time to an alternative party—the PAN party.

Finally, I would say that Mexico's attention to the rest of the region, I think, is growing, changing from its historical tradition of not being so engaged. One [piece of] evidence of that is an idea that emerged more than a year ago at a meeting in Mexico to create the Community of Latin American and Caribbean [States]. A lot of people attribute this to Venezuela, [but] it did not come from Venezuela. They had the second meeting last December of this group, which is called CELAC (the acronym in Spanish), but it actually happened first in Mexico. And the idea is to create an organization that some are seeing as a competitor, some are seeing simply as parallel to the OAS, but obviously it includes Cuba and excludes Canada and the U.S.

So far they don't have an infrastructure, they don't have an organization, they don't have funding, so it may not go anywhere, but it is showing generally the regions and including Mexico, in this case, interestingly, attempt to also create and expand and deepen their own ties and create in an independent way from Canada and the United States. And I think this will be very interesting in the context of Bob's point that we need to be creating deeper ties within North America.

Jorge López Pérez: So I'll begin with the importance of what I believe ties the relationship between Mexico and the U.S. And the first, we have an 1,800-mile border and a history of 200 years, at least, together, so it's not that we want or we don't want it. It's a large relationship just by pure fortune. We are tied together by geography today and by some free trade agreement, some history and heritage and culture and food, and a lot of things. Mexico is the third-largest partner for the U.S., and we are your second-largest market. Thirteen percent of the exports of the U.S. go to Mexico; 6.5 million jobs in the U.S. depend on the trade with Mexico. Mexico exports 79 percent of our services and goods to the U.S. and Canada together—the larger part of that, of course, is the United States. And the trade among us three is $1 trillion. It can be bigger, yes, but $1 trillion is the size of the economy of Mexico, which is, by the way, the fourteenth-largest economy in the world. So it's not small; it's really large.

Mexico imports a lot from you guys, and I'll use some numbers. Mexico imports from the U.S. more than Brazil, or Colombia, or Guatemala, or other countries I'm listing from Latin America, together. Second, Mexico imports more than Brazil, Russia, India, China together. Mexico imports more than China [and] Japan together. Mexico imports more than Germany, U.K., Netherlands, Italy together. So we have been a great, great partner. In conclusion, I believe that the relationship was, and is, very important. It's huge for us, and for the world. $17 trillion [the value of the NAFTA economic bloc] is not minor.

Second, Mexico has been adding a lot of value to this relationship—Mexico, U.S., and NAFTA— and to the world. And Mexico, I believe, is a great partner. There is a lot to do and we are working on it, but we have been really good partners. And I believe that we have an aligned vision together with the U.S. for today and for the future.

Robert A. Pastor: Our vision of Mexico has not kept pace with what we have just heard Jorge Lopez talk about and what we have heard from the other panelists as well. We look at Mexico as a failed state or as subject to these grizzly murders by drug cartels. We look at our other neighbor, Canada, as being just like us except they have health care and they don't have guns. But the truth is these two countries are different and they share something, like Jorge said. We share not just a continent—we share an idea, and we need to rediscover that idea. We need to start by understanding what we don't understand.

In Mr. Skelton's charts, he showed a history of financial crises, but those financial crises, by and large, ended with the establishment of the central bank. We heard also from Jennifer [about], and I personally witnessed, a history of electoral fraud in Mexico. But at the same time that a central bank was established in Mexico, a federal election institute was also established. And I did a study of the election administration in the three countries of North America and compared it with eight criteria and found that the good news for the United States is that we came in third. The bad news is that there are only three countries in North America. Mexico came in first.

We began to rediscover North America with the North American Free Trade Agreement that came into force in 1994. And in just seven years, trade tripled among the three countries of North America. Foreign direct investment quintupled. And yet somehow, NAFTA became a piñata for pandering pundits and politicians. From 1994 to 2001, this emerging region called North America increased its share of the world product from 30 percent to 36 percent—growing faster, trading more with each other than East Asia or Europe. Since 2001, we have returned to where we started. We peaked in 2001 because we didn't adequately understand that trade with our neighbors is more important than just trading products—40 percent of our imports are actually our exports to them. We have stopped just importing and trading products; we have been building products together. We have a North American unit, which we have not worked on in trying to improve. And so the critical question is, "Where do we go from here?"

I think we have to understand that the normal default option that Americans like to take to deal with the problem, which is to deal with one problem, one country, one crisis at a time—it's not working in North America, and it's not working because the new agenda in North America is a domestic agenda. It's energy, it's transportation, it's infrastructure, it's labor mobility. These are issues that we have historically all felt are domestic issues, but in an integrated unit we have to find new ways to collaborate with each other. We have to find new ways to deepen economic integration if we are going to be able to compete against East Asia and Europe.