The fact that president Enrique Peña Nieto has been able to push ten consititutional reforms through Mexico’s legislature during his first year in office has left a positive impression on Jim O’Neill, as well as on other economists and global investors. O’Neill, now a columnist for Bloomberg View, and a one time top economic analyst at Goldman Sachs, has spent thirty three years examining the effects of reform legislation on the economies of emerging countries. According to O’Neill, the Mexican economic reforms that have been achieved during Peña Nieto’s first full year of office are among the deepest that he has seen in his long career. O’Neill is the individual that coined the term “BRICS” to refer to the economies of Brazi, Russia, India, China.
Perhaps the biggest change brought about during Peña Nieto’s first year in office was the energy reform. Among the Mexican economic reforms achieved in 2013, the opening of oil and gas exploration to private investment for the first time in more than seven decades may, in the mid-term, have the most positive impact on the country’s rate of economic growth. O’Neill and other believe that in the mid to long-term this single act will boost average Mexican GDP growth two points per year, from three to five percent. Due to the actions of the new administration, it is estmated that the Mexican Peso will strengthen against the U.S. dollar by approximately three and one-half percent over the course of the calendar year 2014. In a Bloomberg survey of currency analysts, this projected gain is the largest anticipated among thirty-three currencies that are tracked.
According to O’Neil, the Mexican economic reforms (besides energy, other major initiatives were pushed through in the areas of labor, taxation and education in 2013) successfully pushed through the country’s legislature put Peña Nieto in the same league of policy making effectiveness as Ignacio “Lula” da Silva, the ex-president of Latin America’s largest nation, Brazil.
In addition to O’Neill, Jan Dehn the London-based head of research for the Ashmore Group Plc, sees the changes that the present administration has made as being “the beginning of good news” for Mexico. Additonally, Marco Oviedo, Barclay’s chief economist predicts that Mexico’s economy will grow at a 3.6% pace during 2014, which is a significant improvement over this year’s 1.35%
There is a consensus among economists that the biggest challenge in terms of optimizing the efficacy of Mexican economic reforms is to increase the participation rate in the country’s formal economy. Today, six out of ten Mexican workers are “off the books.” One of the aims of certain provisions of the Mexican tax reform that will go into effect in 2014 is to make formal sector jobs more appealing to workers by increasing the quality and improving the delivery of social programs. To participate in these programs “on the books” employment is required.
O’Neill points to manufacturing in Mexico as another bright spot in the nation’s future. He sees the steady increase in wages paid to Chinese factory workers as something that will result in investors’ placing an ever larger share of their capital bets on Mexico.
Read the primary source for this post at Bloomberg.
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