Global financial and economic crisis How does Mexico

Global financial and economic crisis How does Mexico face it? Ambassador Sandra Fuentes-Berain Mexican Studies Center, Antwerp University March 12 th, 2012

The international financial and economic crisis The most serious international financial crisis since 1929 Three-Pillar Plan: 1. Counter-cyclical policies to avoid a drop in global demand 2. Agenda of reforms on financial supervision and regulation 3. Commitment to avoid economic protectionism Lessons: • Effective mechanisms to articulate a global response to the crisis; restore confidence in markets and avoid a deeper recession. • Decision making reflected the changes in the power structure and in the relative weight of emerging markets. • In fact, the G 8 became obsolete. 2

Economic indicators ØUSA 3

Mexico’s Evolution 1987 2010 200 $ 1, 035 billions of US dollars 1, 900 $ 9, 123 US dollars Inflation 159 4. 4 Annual % Interest Rate 120 4. 5 Annual % Exports 28 $ 299 billions of US dollars Imports 19 $ 302 billions of US dollars Trade balance 7. 2 -3. 0 billions of US dollars 16. 1 2. 8 GDP per capita Public deficit % of GDP 4

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Mexico’ s internal “homework” • Structural Economic Reforms since 80’s • Transformed from a protectionist to an open economy • All this together positioned Mexico in the global scenario • A key player in the WTO, G 20 and APEC • OECD member since 1994 (first Latin American country) 6

Despite adverse external context, macroeconomic stability in Mexico was preserved • Interest rates have registered historically low levels (4. 3%) • Inflation remains low and stable (3. 8%) • The external accounts are in order • International reserves stand at high levels (USD$148 Bn) • Access to international capital markets • Fiscal discipline has been preserved • A sound financial system, rated 150 in terms of stability (WEF 2010) • Mexico retains Investment-Grade Rating 7

Mexico’s international position • 14 th largest economy in the world (IMF) • 11 th Purchasing Power Parity, bigger than Spain, Canada or Korea • Mexico´s economy = Argentina + Colombia + Venezuela + Chile • Total trade: $600 billion USD, 10 th largest in the world • Export: $299 billion (10 th largest, manufacturing 62% of the exports of LA countries. Mexico exports more than all of Latin America together) • Import: $302 billion USD (10 th largest, 38% of LA countries) • 12 Free Trade Agreements with 44 countries (Americas, Europe and Japan), with market access for 1 billion consumers, 66% of world’s imports, 75% of world GDP and 28 Bilateral Investment Treaties • The export activities contribute with 25% of the GDP 8

• Mexico is among the top five emerging economies in terms of Foreign Direct Investment (FDI) inflows • 66% of the GDP is generated in the service sector and 19% in the manufacturing • Mexico is one of the world’s ten largest producers of vehicles and a key player in the aerospace industry • Middle-income country with a population of 113 millions • Income per capita among the top five in Latin America ($9, 123 dollars in 2010), even larger than some EU Member States such as Bulgaria and Romania • Average of the population 26 (2010); 39% aged 19 years or under • Young and increasingly better educated labor force able to produce higher value added goods • 15 th largest country in terms of territory (equals to France, Spain, Germany, Italy and UK together) 9

What others say “In the stock market, Mexico maintains its place as first option in Latin America” JP Morgan Oct/09 “You can do business here [Mexico] in a stable macroeconomic environment” World Bank country director Axel van Trotsenburg Apr/09 “Mexico offers a unique set of advantages that constitute a privileged “sweet spot” in the globalization landscape” Boston Consulting Group “Despite improved fundamentals Mexico is being hit by the financial turmoil and world economic downturn” OECD Economic Survey of Mexico 2009 “At global level, the rating reflects in an appropriate way the economic strength and the financial solidity of Mexico in connection with other countries that possess similar rating” Moody’s Sep/09 “Of the other countries we look at, only Mexico and perhaps Korea have the potential to rival the BRICs economies that we excluded initially because we view them as already more developed” Goldman Sachs “Mexican economy will grow 4. 3 percent in 2010” Goldman Sachs Jun/09 10

What others say “A major asset for Mexico in Latin America is its strategic geographic position at the boundary with the US. Mexico is a significant political, economic and cultural player in Latin America and its role in global issues is expected to grow with time. Its economy is fully integrated in the NAFTA and the voices of its rich culture are heard throughout Latin America. ” COMMISSION OF THE EUROPEAN COMMUNITIES Towards an EU-Mexico Strategic Partnership “Mexico has pursued sound policies, maintained macroeconomic stability and substantially reduced vulnerabilities. It has achieved a high level of credibility in the institutional framework supporting macro policy formulation, and has a sustained track record of implementing very strong policies” IMF Consultation—Staff Report Feb/09 “Mexico is affected severely by the global recession, like many other OECD countries, with negative economic, budgetary and social consequences. Although the banking sector has so far weathered the financial crisis rather well, manufacturing industries are being severely affected by the downturn of global demand, particularly in high-value added industries. ” OECD Economic Survey of Mexico 2009 11

What others say “Directors endorsed the planned 2009 fiscal stimulus, which should, along with increased development bank intermediation, provide timely support to economic activity. They observed that the counter-cyclical spending increases would protect employment and support low-income families, increase competitiveness of small-and medium-sized businesses, and augment infrastructure. Such measures were partly financed in effect by the authorities’ prudent price hedging of oil sold by PEMEX. ” IMF Executive Board Assessment Feb/09 “Mexico has made substantial progress over the past decade in strengthening its economic framework and enhancing resilience. ” IMF Consultation—Staff Report Feb/09 “Mexico entered the recent downturn with much stronger macroeconomic and financial fundamentals than they had in previous financial crises. This included lower liability dollarization, lower fiscal and private debt, and a better aggregate balance sheet for the financial services sector. ” WEF Financial Development Report 2009 12

International trade in Mexico’s strategy • By 2013, 63% of Mexico’s industrial tariff lines will have no duties, with the average industrial tariff rate lowered from 10. 4% to 4. 3% • Just as the EU, Mexico’s economy depends on open markets for its exports • Mexico rejects any form of protectionist being used as excuses by some countries to cushion negative impacts caused by the worldwide economic downturn 13

Transformation responds to a strategy • Mexico’s network of FTAs is one of the largest in the world • Preferential access to 1, 060 million potential consumers, 2/3 of world’s imports, 3/4 of world GDP FTA G 2 FTA Peru 2012 14 14

FTA and BIA network Europe Korea and Japan North America 12 Central America Australia Free Trade Agreements 6 Economic Complementarity Agreements 24 South America Mexican Mission to the EU Bilateral Investment Agreements 15

México is among world’s most open economies Market access for 1 billion consumers, 2/3 of world’s imports and ¾ of world GDP Iceland Canada Estonia Letonia Holland 6 ACE’s Lithuania UK Poland Czech Rep. Slovac Rep. Hungary Ireland Cuba Belgium Luxemburg Honduras Liechtenstein Switzerland Nicaragua Slovenia Costa Rica El Salvador Finland Germany 24 BIT’s Guatemala Sweden Denmark 12 FTAs with 44 countries US Norway Rumania Portugal Mercosur Panam a (Automobile Agreement) Italy Spain Austria France Malta Greece Bulgary Cypress Colombia Japan Ecuador Australia Israel Peru Republic of Korea Brazil 16 Chile Uruguay Argentina India 16

México: a world of economic opportunity Tijuana Population: 750, 000 Key Industries: beverages, processed foods, metalworking, radio and television manufacture, electrical machinery Ciudad Juárez Population: 800, 000 Key Industries: electrical machinery, transport equipment, meat, electronics, dairy products Chihuahua Population: 650, 000 Key Industries: electrical machinery, automotive, meat, electronics, dairy products, timber Hermosillo Population: 600, 000 Key Industries: automotive, meat, cement and derivatives, electrical machinery Torreón Population: 880, 000 Key Industries: automotive, bricks, clay, refractory, general machinery, cement and derivatives Monterrey Population: 3 million Key Industries: oil refining, iron and steel, electrical machinery, glass and derivatives, breweries, meat products, cement, banking Culiacán Population: 600, 000 Key Industries: food processing, cereal milling, sugar, beverages, edible oils and fats Tampico-Madero-Altamira Veracruz Population: 340, 000 Key Industries: chemical, industrial machinery, electronic & electrical equipment, oil and refinery, agriculture, cattle, fishing Aguascalientes Population: 500, 000 Key Industries: electronics, automotive, dairy, textiles, carpets Population: 450, 000 Key Industries: petrochemicals, refining, basic chemicals, iron and steel, sugar, beef, processed foods, tourism, transportation services (maritime) León Population: 1 million Key Industries: refining, footwear, leather and tanning, bakery goods, beverages Mérida Guadalajara Population: 600, 000 Key Industries: beverages, edible oils and fats, processed foods, cement and derivatives, plastic products Population: 4 million Key Industries: high-technology, edible oils and fats, plastic products, chemicals, dairy products, processed foods, textiles, footwear San Luis Potosí Mexico City Toluca Population: 850, 000 Key Industries: automotive, plastics, paper and cellulose, chemical derivatives, basic chemicals Source: SE-NAFTA. Population: 20 million Key Industries: retail, financial services, food, automotive, plastic products, paper and cellulose, chemical derivatives, basic chemicals Querétaro Population: 460, 000 Key Industries: automotive, paper and cellulose, synthetic fibers, general machinery, electrical machinery, processed foods, dairy products Population: 670, 000 Key Industries: iron and steel, non-ferrous metallurgy, tobacco products, electrical machinery, automotive, livestock Puebla Population: 1. 5 million Key Industries: automotive, textiles, iron and steel, bottled water, chemicals, meat processing 17

Some sectors: aeronautical 190 companies, 27, 000+ Workforce Ø 18

Some sectors: electronics TIJUANA Sanyo Sony Hitachi Matsushita JVC Samsung Pionner Mitsubishi Sharp Delta Ichia Merry Tech Wistron Display Orion ⌘Amphenol ⌘ADI Systems ⌘Philips ⌘Kyocera ⌘Rectificadores Intern. ⌘Vigobyte ⌘Bourns ⌘Bose ⌘Skyworks ⌘Panasonic Kodak Delphi Audio & video Home Appliance • Computer Telecommmunications Automotive CEM Foto & impresion ⌘ Others MEXICALI Sony Mitsubishi LG Thomson King Cord Mex Ben. Q SONORA JUÁREZ Alcatel Motorola Volex ⌘ Molex ⌘ AMP ⌘ Amphenol Toshiba Philips Thomson Kenwood Asus Keytronics Tatung Lite on Enlight ⌘ Elamex ⌘ Plexus ECMM Elcoteq Delphi GUADALAJARA • IBM • HP Nec Lucent Technologies Kodak Siemens MTI Electronics Solectron Méx. Flextronics Jabil Circuit SCI Sanmina ECMM Benchmark ⌘ ⌘ Technicolor Universal Scientific Motorola Cumex CHIHUAHUA Foxconn Honeywell ⌘ Altec Jabil SMTC TORREÓN ⌘ Thomson REYNOSA MONTERREY Pionner Kodak SCI – Sanmina Celestica • Elcoteq AFL Nippon Denso Axa Yazaki AGUASCALIENTES White Westinghouse ⌘ Texas Inst. Xerox Siemens Flextronics Volex Philips Sony Jabil Celestica Nokia Lucent Technologies Fujitsu Condura Delnosa Delco Matsushita Delphi Keytronics Tyco CANCÚN Vitelcom CUERNAVACA Nec QUERÉTARO Clarion ⌘ Siemens EDO. MÉXICO Ericsson Alcatel Pantech ⌘ AMP ⌘ Sony 19 ⌘ Scientific Atlanta Olimpia

Some sectors: automotive FORD (MOTORS) Final assembly plants in Mexico KENWORTH (Trucks) G. M. (AUTOS & UV) INTERNATIONAL (Trucks) DAIMLERCHRYSLER (BUSES) FORD (Cars) G. M. (CARS) SCANIA (TRUCKS ) (MOTORES & UV) DINA (TRUCKS) NAYARIT NISSAN (Cars & Motors) FORD (CARS & UV) HONDA GM (UV) GM (PRUEBAS) VOLVOTrucks) G. M. (MOTORES) DAIMLERCHRYSLER (AUTOS & UV) DAIMLERCHRYSLER (CAMIONES) BMW (AUTOS) NISSAN (AUTOS & UV) V. W. (AUTOS & MOTORES) 20

Job Training, Education, Science & Technology Development Macroeconomic Stability Trade Policy & Market Access Fiscal Policy Competitiveness Infrastructure Development (Including Technology Parks) Support Research & Development Programs Development of Suppliers Regulatory Environment 21

MEXICAN PRESIDENCY OF THE G 20 22

Transformation of the international structure • New modus operandi of international cooperation: multilateral, informal coordination among developed and emerging countries • Deficit in international governance: Economic borders are dissolved, while, in politics, nation-states are maintained • G 7 loses space in favor of emerging powers with more weight, demographics and regional leadership • Innovative mechanisms of cooperation for a globalized and more interdependent world Brazil, China, India, Mexico and South Africa: essential partners Formalization of the G 20: more variation in global economic power. 23

G 20 predecessors G 8 1998 1976 1975 + 1977 G 5 24

Ministerial G 20 G 8 + 85 % Global GDP (FMI) Context: Asian crisis 1998 -1999. Importance of emerging economies and systemically relevant countries becomes evident. 1999: Dialogue between Central Banks and Finance Ministers to maintain macroeconomic cooperation and address global imbalances. Agenda: including policies for financial and economic stability, prevention of abuse in the financial system, growth policies, crisis management 25

G 20 Summits (leaders’ level) WASHINGTON, D. C. NOVEMBER 14 -15 2008 PITTSBURGH SEPTEMBER 2425 2009 SEOUL LONDON APRIL 2 2009 TORONTO JUNE 26 -27 2010 NOVEMBER 11 -12 2010 LOS CABOS JUNE 18 -19 2012 CANNES NOVEMBER 3 -4 2011 26

G 20’s contributions TO ECONOMIC AND FINANCIAL GOVERNANCE • Economic stimulus packages adopted in 2008 • Improvements in international macroeconomic coordination and financial regulation • Financial institutional reform (such as the IMF and World Bank) • Bank sector reforms (FSB) • Financial security networks • Strengthening the structure and governance of the international monetary system TO GLOBAL GOVERNANCE • More faithful reflection of current international economy • Fosters globalization • Contributes to a recovery of trust in multilateralism • Complements United Nations’ and Breton Woods Institutions’ capacity for action 27

G 20 and citizens Actions promoted by G 20 are directly related to the improvement of living conditions of all citizens in areas such as: • Employment and social security • Mitigating the effects of food price volatility • Reducing risks in the financial system and promoting conditions that allow banks to provide credit • Fight against corruption • Protection of savings • Support to regional development banks for social programs, etc. 28

Priorities of the Mexican presidency of the G 20 • Economic stabilization and structural reform for growth and employment • Strengthening financial systems and financial inclusion for economic growth • Improving the international interconnected economy • Promotion of food security and addressing the issue of commodity price volatility • Fostering sustainable development, including an agenda on infrastructure, energy efficiency, green growth and financing to fight climate change financial architecture in a globally 29

Organization of the Mexican presidency 30

Importance of the G 20 for Mexico • Facilitating the construction of agreements around global economic and financial problems that have consequences for our economy and levels of welfare • Reaffirm our presence in the design and construction of a new, more just and representative structure of international financial governance • Interest in promoting more equitable and sustainable development both nationally and globally • Strengthening the bilateral relationship with global and regional powers, a key part of Mexico’s foreign policy strategy • Strengthening communication and coordination amongst international groups on issues of common interest 31

THANK YOU 32