THE 7 MOST SERIOUS ECONOMIC PROBLEMS IN MEXICO - CULTURE VOCABULARY - 2025

Some of Mexico's current economic problems are inflation, corruption, drug cartels, dependence on the United States, and socio-political tensions with border countries. In addition, corruption is a problem that causes enormous economic losses in the public coffers.

Mexico's economic system is based mainly on the free market in terms of exports. Its GDP is $ 2,571,633 million (2018), while the GDP per capita is $ 9,797 (nominal, 2018). Inflation in 2019 has been 3.4%, while the population below the poverty line is around 40%, with 25.7% earning less than $ 5.5 a day.

Mexico is famous for being a giant in the manufacturing of consumer goods. It has the largest silver reserves in the world and is the tenth country with large oil deposits, with the state-owned company PEMEX being in charge of this last sector.

However, like any country, it has a series of difficulties that affect the economy. These trigger general insecurities in the population, but it is in the corporate and private sector where concern diminishes confidence in good projections.

Some of the problems that Mexico presents in economic matters

1- United States dependency

Mexico's main trading partner is its immediate neighbor to the north. More than 80% of all national production is exported to the United States, followed by exports to Canada (3%) and China (1%).

Despite the fact that exchange costs are regulated by the North American Free Trade Agreement (NAFTA), better known by its acronym NAFTA, bilateral relations have been considered unequal and asymmetric throughout the last 150 years..

The main analyzes among economists, sociologists and politicians assert that the geographic location and border with the United States brings great advantages, especially at the cost level.

However, it has become clear that any change in the environment and the internal political and economic platform of the US directly and indirectly affects the treaties, agreements, commitments and negotiations with Mexico.

This situation keeps practically the entire economy of Mexico tied to the interests of another country, which makes it vulnerable to foreign policies.

2- Drug cartels and drug trafficking

The United States is not only the main client for Mexico's legal exports, it is also the main client for illegal products such as drugs.

Arrest of drug trafficker 'Chapo' Guzmán.

There are many drug cartels that operate near the border and transport their merchandise north.

It is stated that the cartel networks come to exert enough control over Mexican government mechanisms and institutions, and even over large companies, to facilitate their transit to the United States.

This destabilizes the confidence of the business sector and investors by not wanting to involve their businesses with links to drug trafficking.

Other aspects related to drug trafficking are also taken into account, such as violence and insecurity, which also affect businesses.

3- Corruption

The Mexican government is sometimes described as institutionally limited, disabled, or disinterested in taking seriously the war to end the drug cartels, despite working in conjunction with the United States in this campaign.

Elba Esther Gordillo, former leader of the National Union of Education Workers (SNTE) and accused in February 2015 of embezzling 200 million dollars

Many attribute it to direct links to the same cartels at different levels. It was estimated that by 2014 corruption cost Mexico 9% of GDP.

Additionally, more than 40% of companies admitted to having accepted bribes, making their companies less competitive in the world market.

60% of entrepreneurs accept that this type of corruption is considered part of the cost of owning a business. Less than 20% of the corruption cases that reach the judicial system result in some guilty verdict.

4- Socioeconomic gap

Despite the fact that Mexico's macroeconomy continues to be good, it is the second country in the OECD (Organization for Economic Cooperation and Development) with the highest degree of economic disparity between rich and poor, and rural and urban population, only surpassed by Chile.

Girl wanders the streets of Mexico DF

The 10% of the society with the lowest income level has 1.36% of the country's resources, while the top 10% has almost 36%.

26% of Mexico's GDP comes from the informal economy, where almost 60% of all active labor force works.

Inequality of income, the tax system and infrastructure affects the lower social classes much more.

5- The Trump case

The statements in the speech of the current president of the United States when he was still a presidential candidate, created an environment that destabilized the economic projections of Mexico that had been very optimistic throughout 2016.

The protectionist approach of the Trump administration by threatening to change conditions on trade and immigration policies, increased the political tensions already existing between the two countries.

On the one hand, it affects that a large part of the labor force in North American border industries is Mexican, and they require constant transit across the border. Changes in the immigration system could leave many families without support.

On the other hand, there is corporate uncertainty about the changes that President Trump wants to apply to the NAFTA trade guidelines, where there is fear that more pressure will be placed on Mexico.

This point highlights the economic fragility of Mexico due to dependence on the United States.

6- Business productivity

This point is believed to have been another repercussion from the Trump case. Investor mistrust of Mexican production companies has been affected by uncertainty in the political environment.

Some reports affirm that the setback in the increase of investment is temporary until the foundations for new commercial negotiations are laid, but such a dilemma raises the alerts in the business owners.

The deputy governor of Banco de México, Alejandro Díaz de León, has as a priority to regain the confidence of the companies in the process to maintain Mexico as the good production machinery that it has always been.

7- Inflation, devaluation and oil

At the beginning of 2017, the Mexican peso had a considerable fall against the dollar, the price of gasoline increased by 20% and the popularity of President Enrique Peña Nieto fell by 25 points.

Several protests were raised in Mexico City, Guadalajara and in border areas demanding a response to the situation and denouncing billions of dollars that have escaped in well-known corruption scandals. This situation is believed to be another consequence of the Trump case.

* Data sources: Central Bank of Mexico, World Bank and Bloomberg.

References

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