Mexico constitutes the class of developing countries which are characterized by numerous challenges. The challenges facing these nations play a critical role in their economic development through their adverse effects which hinder growth and development. Addressing such challenges effectively is the key to the realization of sustainable economic development and growth in these countries. Discussion Economic background Mexico has an interesting economic history.
Following a decade of high inflation and stagnant economic activities, in 1985 the government of Mexico liberalized the trade sector while at the end of 1987 an economic stabilization plan was adopted (Gil-Diaz). In addition to that, market oriented institutions were gradually introduced to enhance economic growth. As a result of these reforms, an economic growth of about 3. 1% per annum was realized between 1989 and 1994, and the inflation rate reduced to single digit levels (Gil-Diaz).
With the advancement of economic reforms and removal of major restrictions on capital inflows, Mexico started to attract more foreign investment and its economy continued to grow. However, the devaluation of its currency, Peso, in December 1994 brought the capital inflow and its economic growth and development to an abrupt end and a financial crisis emerged (Gil-Diaz). The country started to experience regulatory failures, growth in credit and in turn economy retardation begun.
In curbing the financial crisis, the government realigned its strategies and policies thereby resulting in improved basics of macroeconomics and the recovery process commenced. In 2002, another crisis emerged in Latin America which adversely affected many nations however Mexico’s economy was not influenced considerably. Consequently, the economy of Mexico never escaped the 2009 global economic recession as its Gross Domestic Product (GDP) experienced contraction.
Moreover, inasmuch as Mexico has an unprecedented stable microeconomic, the gap between the rural and urban population and the rich and the poor is tremendous (World Bank Group). Economic development In Latin America, Mexico harbors the second largest economy and is the largest regional economic partner to United States (US). The economy of Mexico depends heavily on oil exports, trade with US and remittances from US by millions of migrant Mexican workers.
Oil accounts more than a third of total revenue from the public sector, however, following high revenue records in 2008 from oil exports, the dramatic drop in international oil prices in 2009 adversely affected the country’s public finances. Moreover, the financial crisis experienced in US led to a drop in remittances from migrant workers as from 2009 a continued downward trend became eminent. Economic activities have also continued to contract as domestic and external credit conditions remain tight while external demands plunge (World Bank Group).