Mexico has made massive strides in its financial reforms to enable lending. Its economic activities have boosted as a result of the improvements in industrial production, sound policy framework and good administration.
Mexico, the second largest economy in Latin America has remained resilient to the slowdown in U.S. and the financial turmoil’s from European countries. The country is closely integrated with the U.S. Its economic activities have boosted as a result of the improvements in industrial production, sound policy framework and good administration.
Mexico has made massive strides in its financial reforms to enable lending in the Latin America’s No.2 economy, which makes it easier for the banks to collect on guarantees for bad loans and spruce up the regulatory powers over loss making companies. The reforms are being changed to target the financially conservative policies of Mexico’s banks, which possess high capital levels but lend very less compared to their counterparts in other countries. The Banking Reforms Bill will also include a new mandate for the development of banks to foster growth in the financial sector and increase competitiveness in the banking and financial system, reduce costs and strengthen the sectors. However, the bill does not have details on specific lending levels of capital interest rates. In the words of Mexico’s finance minister Luis Videgaray “The reform initiative is integral. It does not seek to lower interest rates by decree. It proposes for a greater flexibility and incentive that the private sector and development banks can give more credit, which is cheaper.
The newly introduced banking laws also provides more collateral security to the banker which paves the way for small and medium businesses to obtain loans and giving its assets as security in cases of nonpayment. Although the financial reforms was involved in a deadlock between the President Enrique Pena Nieto’s Institutional Revolutionary Party (RPI) and the country’s main opposition parties due to a political dispute, the parties reached on a consensus, to pass the bill. There have also been reforms in the Telecom sector, Education system and labor laws in Mexico. The U.S. market has predominantly been critical to Mexico, not only to its manufacturing sector but also adding stability to its economy. Signing the North American Free Trade Agreement (NAFTA) provided Mexico the early inroads to boost the country’s manufacturing activity. Mexico’s proximity to the U.S. has also benefitted it in many ways. The price of oil has increased from $ 25 a barrel to more than $ 100 a barrel, which substantially raised the transoceanic freight costs. This proximity to the U.S., has given Mexico a huge locational advantage over China, particularly when transporting time sensitive and bulky and sensitive goods. To quote an example, in 2009 Mexico became a world leader in the export of flat screen TV’s putting aside the competition posed by South Korea and China. Locational advantage is considered a huge benefit in the international market because inventory costs and the adoption of just-in-time manufacturing which requires timely and precise delivery of the inputs. Mexico, has always been protecting proprietary technologies which has also helped it to garner Foreign Direct Investment (FDI), which has a positive bearing on the economy. It has also has a strong reputation for protecting trademark rights, patents, international treaties, this has helped the country to minimize the risk of piracy, counterfeiting and other infringements. This is considered very important for high technology sectors and manufacturing sectors whose technologies have possible military applications. The country’s two largest banks Banco Bilbao Vizcaya Argentaria SA of Spain Citigroup Inc of the U.S., control 39% of Mexican bank deposits. Mexico, has a huge potential for accelerating its economic growth. Its growth was 3.9 % during 2012 and down to 3.5 % mainly due to decline from oil revenues and expenditure on health and pensions. The issues which need to be addressed in Mexico are the declining revenues from the oil sector, raising costs of social security issues like pension and health expenditures.