STRAIGHT THROUGH TOUGH TIMES, MEXICO HAS BECOME THE LEADING ECONOMY IN LATIN AMERICA. CAN IT STAY ON TOP?
Brazil has almost 70 million more people and more than four times the land mass of Mexico but, as 2001 draws to a close, Mexico appears poised to pass Brazil on a number of economic fronts:
GROSS DOMESTIC PRODUCT: Even as it enters a recession, the Mexican economy will likely finish this year with a total value in excess of US$600 billion, compared to Brazil's roughly $500 billion economy. While the strong Mexican peso largely explains this year's power shift, analysts forecast that Mexico's continuing integration into the U.S. economy will allow the country to pull away from the South American giant in the next few years.
Trade: Years ago, Mexico sped ahead of Brazil in exports, imports and total trade. Unarguably, the North American Free Trade Agreement gave Mexico unique access to the world's largest single market. "In the measure that the United States signs free trade agreements with other countries, Mexico will lose its preferential treatment," says Eduardo Javier Soils Sanchez, head of foreign trade and investment promotion at Mexico's Economy Ministry.
Foreign Direct Investment: Mexico will likely record more than $20 billion in foreign investment in 2001--about the same as Brazil- although much of Mexico's boost will come from a single deal: Citigroup's $12.5 billion acquisition of financial group Banamex-Accival. Due to its close ties with the United States, Mexico may take a bigger hit than Brazil on declining international capital flows to emerging markets this year and next. "Brazil has been largely shut out of international capital markets for the last six months, so it is hard to see how things could get worse," says Ernest W Brown, bead of fixed income and economics research for Santander Investment in New York. "Mexico has had full access and now it may not."
To remain the lead economy of Latin America, Mexico will need to overcome a tough economic climate. At home, the country is heading at best into flat growth and most likely a recession. Mexico's central bank, Banco de Mexico, only recently began to loosen monetary policy, and the Fox administration is still struggling to get approval of its tax increase. Meanwhile, the country will face stiff competition for international cash from exports and investment from countries like Brazil in the depressed U.S. market.
Brazil and Mexico have long been rivals for investments...