Transcript Mexico`s Economy: Highlights

Mexican Financial Markets
Mexico’s Economic: Highlights
GDP: $621 B
 Largest in Latin America
 12th largest of the World
 8th Largest exporter of the world
 4th Largest producer of oil
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Economic Development 1950-1999
The Mexican Miracle: 1950-1970
Average growth: 6.7% Inflation: 4.2%
 Fiscal and Monetary Discipline
 Growth based on import substitution
 Investment in infrastructure
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The Downturn: 1970-1982
Average growth: 6.2% Inflation: 23.8%
 New oil reserves found
 Growth based on government spending
 Government debt grew dramatically
 Ended with the 1982 crisis:
 Government defaulted on its debt
 Dramatic devaluation of the peso
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Adjustment: 1982-1988
Average growth: 0.0% Inflation: 94.6%
 Priority inflation abatement
 Fiscal Discipline
 Beginning of privatization and of transition
to an open economy (GATT)
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The Salina’s Years: 1988-1994
Average growth: 0.0% Inflation: 94.6%
 The “Pactos”
 Structural Reforms:
 Privatization
 Free trade
 Renegotiation of external debt “Brady plan”
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Salinas Years: Results
Pactos were effective controlling inflation
 1987: 159.2% vs 1994: 7.1%
 At the same time GDP grew 3.3% in 1994
 Exports were more than double those in
1987 reaching $61 B
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What went wrong? 1994 Crisis
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A widening of the current account deficit that
reached almost 8% of GDP
Strong appreciation of the Real Exchange Rate
Diminishing domestic savings rate (15% of GDP
in 1994)
While financing to the public sector was growing
extremely fast (from 5% of GDP in 1987 to 45%
in 1994)
Political assassinations and uprising in Chiapas
Zedillo’s Years: 1994-2000
New stabilization plan
 Refinance short term debt
 Rescue the banking sector
 Economic growth resumed in 1996 and was
strong until 2000
 Inflation lowered to historical levels
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Challenges going forward
Fiscal reform:
 Reduce fiscal evasion
 Reduce dependence on oil
 Electric sector reform
 Reduce dependence on US economy
 Extremely unequal income distribution
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Mexican Stock Exchange
Founded in 1886
 The Stock Market Law in 1975 triggered
the development of the Mexican Stock
Exchange
 The devaluation of 1976 also helped to
develop the market
 Great performance until 1982 crisis
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Mexican Stock Exchange
Market cap grew from 3% of GDP in 1982
to 45% in 1994
 Over that period there were 76 IPO’s
 The government also helped developed the
market:
 Fondo Mexico
 Privatizations
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Historical Returns
Market Cap and IPO’s
International Comparisons
Securities Financing
Market Cap in 2001
Market Cap and IPO’s
Why this happened?
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Corporate Governance Issues
Absence of Institutional Investors
Mexican firms migrated to other markets
New Reforms to the Law of Stock Market
Law(2001):
 Improve protection to investors
 Increase transparency
 Access to the great public to capital markets