This year Mexico will elect a new President and Senate and the parties are slowly presenting their candidates for the upcoming six-year Presidential term. President Calderon has served his one and only legislated term in office of six years and it will remain to be seen whether his PAN party will be re-elected. With excellent economic numbers in a slow global economy, the PAN has a good chance of being re-elected. What might hurt the party is the open drug war in Mexico currently taking place that was a result of Mr. Calderon pressing for drug security in Mexico and the entrenched drug networks that have been established in Mexico over the last few decades. With former PAN President Vicente Fox pushing for a legalisation of the narcotics trade to reduce violence in Mexico, the PAN may have some soul searching to do before putting the Presidential campaign into full force.

A decent market measure for all economies can often been seen in the aviation industries response to different national economies. In Mexico, the now defunct Mexicana Airlines is showing some signs of re-emerging in Mexico after its financial collapse a few years ago. Emerging markets in general has seen some attention from the aviation industry in general as many companies seek customers in Asia, Latin America and the Middle East, a result of region market growth in general through to 2016. While the aviation industry is not being displaced in North America and Europe, it does show that BRICS and other emerging and frontier markets will produce trade expansion while the US and eventually the EU drag themselves out of economic paralysis. A conference on competitiveness and innovation addressing the aviation industry by GE named “GE American Competitiveness: What Works” will deal with issues of expansion to emerging markets and strategies in the current US market slowdown next week in Washington DC. Anyone who wishes to see how one industry is handling expansion to emerging markets and growth in the time of economic slowdown should seek information from the conference presenters and organizers. With the possible re-birth of Mexicana and troubles in Asia with the A380, it is certain to be an interesting week of presentations. Information on the conference can be found here.

Telecommunications giants have been in the position to create a great deal of wealth as new technologies create new boom markets for their products in a commercial environment dependent on new forms of telecommunications. With technology, come many new IP laws to enforce violations of privacy and competition in those new markets as companies jostle for position and form legacies like Nokia and Microsoft. In the EU, stringent laws enforcing consumer protection within the Common Market have set much of the global standard against overly ambitious telecoms giants. Going from competition laws setting records against companies like Microsoft to investigations into companies like France Telecom regarding a series of employee suicides since privatization a few years ago, the EU has set the hard standard against companies that wish to violate competition laws and as well as all other market and labor standards. It is likely that Mexican competition laws will take much of their precedents from that of the EU and US to enforce any violations against Carlos Slim’s business interests, if evidence provides for enforcement to become necessary.

In reality Mexico is likely not the most expensive country for phone services, and there is a great deal of evidence showing that their NAFTA neighbor, Canada has the highest per-capita telecoms charges in the world. A lack of effective competition policies have created a market in Canada where people not only pay a great deal for services, but services are often out of date and ineffective due to a lack of competition in the Canadian mobile phone market. While many developing nations have modern up to date cellular services due to the reduced cost of setting up such systems in places that historically had poor phone access, Canada’s modern economy creates an expensive and outdated mobile phone market that has existed without proper scrutiny from the last few governments. There have been some moves to protect Canadian consumers over the last few years, but until a true measure to help Canadian consumers takes shape it would be a good idea for those like Carlos Slim and other telecoms to enter a Canadian market that sorely needs proper services in their sector for individuals and businesses. A study of the Canadian, European and Mexican telecoms markets would be a useful and interesting study to provide all consumers with a legitimate and fair market for telecoms usage.

The evolving U.S. Mexico border. Credit: Reuters

While the eyes of the American public are often turned toward the Middle East or Asia on foreign policy matters, America’s interaction with Mexico is perhaps the most ingrained foreign policy relationship. The Foreign Policy Association (FPA) emphasizes this partnership in its 2012 Great Decisions Television Series, aired by PBS. In Episode 3 – “Beyond the Border: The U.S. and Mexico,” Vanda Felbab-Brown of the Brookings Institution and Andrew Selee of the Woodrow Wilson Center Mexico Institute remind the audience why Mexico literally can’t be ignored. U.S. government dollars are spent on border policy, families are split between the countries, and 80% of Mexican exports are to the U.S. (though 40% of the content of such goods is American). As an FPA member, the message I take is that American leaders can progress the relationship further by engaging directly in Mexico’s political system, and focusing on more than border-issue politics.

In a cameo appearance for the episode, Julia Preston, the National Immigration Correspondent of The New York Times, reminds us that in 2000, the Institutional Revolutionary Party (PRI) was voted out of the presidency after holding power for 71 years. Preston believes the degree of this change was not felt by U.S. leaders, who are normally preoccupied with immigration or illegal drugs when thinking of Mexico. In a sequel cameo, Arturo Valenzuela, the Director of the Center for Latin American Studies at Georgetown University, states that Mexico “is going through one of the great transitions of our time” from one-party state to pluralist democracy. This transition requires Mexican political leaders to adapt to a system in which power must be shared and parties not in government must act as opposition loyal to the system. The transition also requires time and effort from Mexican leaders, who simultaneously must worry about the war on drug traffickers.

Mexico’s Ambassador to the U.S., Arturo Sarukhan, fervently links a healthy U.S. – Mexico relationship to the well-being of Americans, but also states that “non-traditional, trans-national security challenges” like drug cartels must be tackled jointly by both nations. While Sarukhan may be saying this because his military cannot control Mexico’s interior, Episode 3 sows seeds in the viewer’s mind that America is obliged to do more to foster positive change South of the Border.

Host Ralph Begleiter’s questions go down this line of thought – he inquires to Felbab-Brown, Selee, and the audience whether Americans are aware of the political transition occurring in Mexico (presumably he’s not referring to Mexican-Americans, who are 10% of the population). Begleiter also asks how the U.S. could build a wall between itself and a partner nation. Felbab-Brown points out that nineteenth-century U.S. actions, such as the U.S. – Mexican war, are still fresh in Mexican minds, along with the modern-day flow of drugs and money to the South that has turned many Northern Mexican towns into ghostly war zones. The Great Decisions panel and Ambassador Sarukhan do praise the Obama Administration’s effort to expand security cooperation as the joint responsibility of both states. This marks American efforts to go beyond the Mérida Initiative, a significant foreign aid program offered by the U.S. in 2008 to enhance Mexico’s armed enforcement capabilities.

Every Great Decisions viewer is entitled to his or her own reaction; mine is to wonder how U.S. policymakers at this moment can build up the bond with our Southern neighbor. Both countries have presidential elections this year, and there are 6 possible outcomes for the presidential duo who will carry the relationship forward. Also, the U.S. election is not until November. According to Duncan Wood of the Center for Strategic and International Studies, this uncertainty “should alert U.S. policymakers to the need to engage the leading contenders on security cooperation earlier rather than later with a view to understanding their positions and influencing their approaches.”[1] This should include a thorough investigation of the now infamous Operation Fast and Furious, which allowed firearms to pass directly into the hands of the cartels. However, deeper economic cooperation would positively affect security cooperation. The U.S. could incentivize Mexico to diversify the tax base away from PEMEX, the state oil company, and thereby open up new government revenue sources.

With regard to PEMEX itself, the company needs foreign investment to acquire new drilling technology and improve domestic refining capacity.  It would be beneficial to both countries if the U.S. oil companies could form an effective partnership with PEMEX. Enrique Peña Nieto of the PRI, currently frontrunner in the presidential race, may be poised to implement such a reform. The PRI is most likely to control Congress, is best poised to engage PEMEX’s unionized workers, and holds more state governorships than any other party. However, in the past, the PRI has cooperated with the U.S. behind closed doors while shouting anti-American rhetoric in public. No doubt this would hurt the partnership, particularly in a U.S. election year. Hopefully American candidates and the State Department will follow the lead of Great Decisions, and engage the Mexican candidates proactively upfront.

See a preview of the episode here:

Great Decisions TV webpage: http://www.fpa.org/great_decisions/?act=gd_tv

Guillermo Ortiz

Latin America’s technocrats spent the second half of 2011 on mushy footing, unsure what effect the euro zone crisis might have on the region and afraid that China might experience a “hard landing.”

Now some of the region’s wonks are expressing more confidence. “Latin America has never been better equipped to move forward,” said Guillermo Ortiz, a former central banker of Mexico, at Davos. He went on: “This is really the decade for Latin America.”

Two points: First, now it is the Mexicans who are cooing over growth and international clout, not the Brazilians. Fair enough. Brazil’s economy braked fast last year, recording nil growth in the third quarter, while Mexico did an impressive head fake by experiencing a growth spurt just as the region below went into slow-mo.

Second, whatever confidence leaders have recovered since last summer is premature. In his remarks, Ortiz suggested that the region had moved beyond the headwind of Europe’s crisis, and structural adjustments over the past decade ensure that Latin America will be sitting pretty to 2020.

Maybe this will be case for Mexico, which relies more on US consumers rather than European ones. But while forecast growth of 3.5 percent for Latin America in 2012 surpasses Mexico’s trend rate, elsewhere it signals a dangerous slowdown. Inflation will be higher than economic growth across most of South America; in turn, slower growth will increase unemployment, feeding informal sectors that already threaten socioeconomic development. Lower commodity prices could metastasize the bad news.

By now, anyone who’s been watching Latin America is well aware of the red flags raised over the region’s reliance on commodities for economic growth, so I’ll review by way of hyperlink and move on.

What troubles me are recent signs of Latin America’s inability to harvest commodities. A week ago a UN report concluded that a drought in northern Argentina means the world’s second-largest corn exporter will ship about 1.6 million tons of corn less this year than in 2011. A clear-cut case of nature’s wrath no doubt, but it shouldn’t be dismissed given the context of underproduction elsewhere.

Brazil produces over half of the world’s ethanol; the country’s cane-based brew is to biofuel what the bikini is to fashion. Last year though, Brazil was forced to import 1.1 billion liters of ethanol. And Mexico, which counts oil as its second-largest source of tax revenue and sits atop the world’s fourth-largest shale reserves, is importing record levels of natural gas.

Here’s the kicker: the United States is taking up the slack. Despite Argentina’s weak harvest, corn prices are expected to decrease this year because of strong exports from the US. Nearly all of Brazil’s ethanol imports last year came from the USA, as did most of Mexico’s imported natural gas.

Brazil and Mexico are in this situation because of inept government policy. Mexico’s Pemex has said it plans to operate 175 shale gas sites by 2015; to date, it is drilling at one site in the northern state of Coahuila.

Meanwhile, Brazil’s government has dis-incentivized ethanol production in recent years by capping domestic prices and by cutting taxes on oil–but not ethanol– production. The result? Brazil had some 150 million tons of spare mill capacity for ethanol production last year.

Just back from the Davos shindig, Moises Naim chided big talking officials from developing nations for their hubris. Poor management of hallmark commodities in Latin America leads me to agree.

http://www.campeche.com.mx/noticias/nacional/pan-y-pri-marcan-ruta-del-2012/6942

Mexico’s presidential election, to be held July 1, looks like a foregone conclusion. President Felipe Calderón’s right-wing National Action Party (PAN) has fallen far out of favor due to Mexico’s terrible drug violence. In the past 5 years, the drug wars have killed over 45,000 people. The Northern border city of Ciudad Juarez had 300 murders in 2007; in 2010, the figure was 3,622, giving this place the highest murder rate in the world. As Mr. Calderón’s critics like to point out, Juarez’s murder rate is higher than anywhere in Iraq or Afghanistan. With the PAN’s national security policy in disarray, Enrique Peña Nieto of the rival Institutional Revolutionary Party (PRI) led a recent presidential poll by 25%. Seeing these numbers reminds me of last time around in 2005, when President Calderón and the PAN trailed but went on to win the election, and wondering if the upcoming result will be as everyone expects.[1][2]

Is it truly unthinkable that the PAN could win again? Polling evidence says it is indeed unthinkable. Mitofksy’s November 2011 poll of voter preferences gave 44.6% to Peña Nieto (EPN), 19.7% to the PAN’s Josefina Vázquez Mota (JVM), and 16.1% to Andres Manuel López Obrador of the left-wing Party of the Democratic Revolution (PRD). PAN optimists observe that at the same point before the 2006 election, Mr. Calderón was third place in the polls before coming back to win. The difference is that the PAN’s current deficit is much higher at 25%, versus the 5% deficit Mr. Calderón faced in November 2005. However, not all commentators agree that a PRI victory is inevitable. I will discuss three reasons the PAN has a shot: EPN’s recent campaign gaffes, Mexico’s growing economy, and the Vázquez Mota factor.

Enrique Peña Nieto, the PRI’s man in 2012, is photogenic, well-known, and liked. At age 45, he has already served 6 years as Governor of Mexico State, the country’s most populous. While his image is attractive, some are questioning his ability to relate to ordinary Mexicans. At the 2011 Guadalajara International Book Fair, EPN was asked to name three books that had influenced his life. He struggled with the answer in an awkward speech eerily similar to Sarah Palin’s inability to name her own preferred newspapers.[3] In another gaffe, EPN was unable to state the price of the tortilla, a staple food in Mexico. EPN explained that he was not “the lady of the house.”[4] While these are hardly political killers, it is unimaginable that the President of Mexico could not know the price of a tortilla. EPN’s party has also suffered from disgrace at the leadership level. On December 2, PRI President Humberto Moreira resigned due to a debt accounting scandal in Coahuila State, where Moreira had been Governor. The PRI led Mexico for 71 years until 2000, and its detractors call it a bastion of corruption. The Moreira scandal provides more ammunition.

Another concrete issue where the PAN can directly challenge the PRI is Mexico’s economic progress. Duncan Wood of the Center for Strategic and International Studies writes “it is undeniable that successive PANista governments have been successful in…preparing the way for long-term prosperity.”[5] According to data from the IMF and government sources, real GDP grew 5.4% in 2010 and about 3.8% in 2011, after falling 6.2% during the 2009 recession. On January 3, the Mexican Government sold $2 billion in 10-year bonds at lowest-ever coupon and yield rates. This means that the bonds pay lower interest rates than past issues, and that investors demanded a very small discount when buying them. There has also been progress on unemployment, which soared up to 6.41% in September 2009, but had declined to 4.97% in November 2011 (Source: INEGI). Inflation will be a challenge due to the recent depreciation of the peso, which declined in value from 11.5 per dollar in May to around 13.7 per dollar currently. However, analysts are confident that the Central Bank has both the reserves and the strategy to stabilize the peso. Mexico is also expected to run a negative trade balance of around $4 billion and a current account deficit of $7 billion for 2011. However, the current account deficit will be easily offset by foreign direct investment, projected at around $20 billion annually for the next couple of years. The PAN can use its record to show that it is best poised to help the economy take next steps. These include liberalizing the labor market, widening the tax base, and incentivizing private companies to invest in state-owned oil producer PEMEX. The latter reform is necessary because PEMEX’s refining capacity has lagged domestic demand, forcing the government to subsidize imported gasoline. This reform is also controversial, as PEMEX’s unionized workers are extremely opposed.

The third factor that should keep EPN up at night is the woman to whom The Economist attributes “a flash in the PAN.” Josefina Vázquez Mota, most recently PAN leader in the Chamber of Deputies, served as Education Minister under President Calderón (2006-2009) and Minister of Social Development under President Fox (2000-2005). She is now in the driver seat to become the PAN’s candidate for the highest office. The popularity of JVM’s party has waned – public opinion of the PAN was 27% favorable and 30% unfavorable in November according to Mitofsky. However, she has solid anti-establishment credentials. As Education Minister she argued with the head of Mexico’s powerful teachers’ union, Elba Esther Gordillo, a political ally of President Calderón. Calderón has also endorsed a competitor, former Finance Minister Ernesto Cordero, to be the PAN’s nominee.[6]

Separation from Calderón has not hurt JVM within the party where 52% of members prefer her to be the nominee as of November, up from 38% in August. She is also making strides with the public at large: in the 3 months from August to November, the percentage of the public that recognizes JVM increased from 56.4% to 67.4%. In the same period her share of preference in a head-to-head contest with EPN and López Obrador (AMLO) increased 3%. JVM’s campaign may have more potential to win supporters through advertising than her competitors, who are both known by over 90% of the public. The PAN’s official primary in February will give her a boost through media exposure. Her key issues, strengthening education quality and the justice system, will be used to accuse the PRI of failing to develop Mexican institutions during the PRI’s long period in power. JVM may be the breath of fresh air the PAN needs, and the PRI should be concerned: its polling lead over the PAN has declined from a gargantuan 42% in November 2010, to a less gargantuan 25% one year later.

In part, political pressure against the university is motivating the endeavor. UNAM has a well-deserved reputation as a hotbed of leftist criticism: Diego Rivera murals adorn the Mexico City campus and UNAM faculty regularly lambast President Calderón. A Los Angeles Times article by Ken Ellingwood frames it as follows:

Sen. Gustavo Madero, a member of Calderon’s conservative party, said it was time for the UNAM to show what it does with its money, which he said included half of Mexico’s research funds. “What is needed is to show results … to be accountable,” Madero said at the time.

The online project is, in part, a response to that. “All of a sudden we said, ‘We should flood them with everything the UNAM does — put it all on the Internet,’” Ordorika said. “What better accountability could there be than all the books we do, all the articles we do, all the services the university provides, all the libraries, all the theses? Everything.”

Of course, UNAM is hardly the first university to move in this direction. Since 2001, over 200 universities across the globe have posted classroom material online. Some hallowed universities like MIT and Yale even offer free classes on iTunes, showing they are accessible institutions devoted to community service. Other universities have caught the wave of online education as a means of offering online certificates and degrees that, in many cases, are cash cows.

However, UNAM’s endeavor is more comprehensive. Included in Toda la UNAM en Linea will be newspaper clippings dating back to 1722, old and delightfully scratchy radio recordings, student theses, and photos. The LA Times piece called it “an effort of staggering scope.”

Podcasts of readings by the late great poet Jaime Sabines–“the sniper of literature”–are early faves. As awareness spreads, my guess is UNAM’s vast biology collection on the many species that nest in Mexico will prove popular to nature lovers across the Americas. Undoubtedly, a slew of information will be unearthed that challenges stale history; already chat rooms are tagging a 1919 newspaper clipping that likens Emiliano Zapata to “the king of the Huns that sacked Rome.” And maybe, just maybe, Mexico will uncover its own Dresden Codex.

Disclaimer: This post was written for Mexico Today, which compensates me. I conduct all my own research, and all the views expressed here are entirely my own.

Latin America’s two largest economies started 2011 on different notes. Mexico’s growth was set to ring up about 4 percent, with drug violence clipping about a point off growth, according to BBVA Bancomer, and reliance on a weakening U.S. economy wielding another discount. In April, auto production, a key industry in Mexico, experienced a sharp drop in the wake of the tsunami that hit Japan and resulting supply-chain kinks (.pdf, see page 8). By summer, as euro zone problems waxed anew, the US appeared to be headed toward a double-dip recession, with knock-on effects for Mexico: GDP projections dropped to two percent.

Brazil, on the other hand, started the year on high. Finance Minister Guido Mantega belted the opening lines when he announced that GDP expanded 7.5 percent in 2010. Beyond representing Brazil’s highest growth since 1986, the spurt made it the seventh-largest economy in the world. The forecast for 2011 was a palatable slowdown to 5-5.5 percent growth.

Turns out, while they started on different stanzas, the two economies were singing more or less the same song. When the official numbers ring out, Brazil will grow about 3.5 percent in 2011, and Mexico 4 percent.

It’s been a decade since Mexico chalked a higher rate of growth than Brazil. What’s more, this is unlikely to be a blip. Both countries are expected to grow 3-3.5 percent in 2012. However, variation from these forecasts would probably come in the form of Brazil lagging its target and Mexico eclipsing it, for two reasons. One: Mexico, not Brazil, has proven more resilient to global economic headwinds in 2011. Two: Mexico’s growth has discounts baked in—mainly in the form of security concerns and reliance on US consumer demand. In Brazil’s case, major impediments to growth—reliance on commodity exports to China and inflationary consumption—haven’t been given due consideration.

Early this year the peso recovered its ’08 value, feeding fears of a “super peso” that could hurt exports and the buying power of remittances. Then, from July to November 2011, the peso lost almost a fifth of its value against the greenback, leaving Mexico with the weakest performing currency in Latin America in the last half of 2011. In real terms, the peso is now about 12 percent weaker than it was in the summer of 2008.

At least three threads twine into the peso’s weakness. First, signs of slower growth in the US and EU is feeding assumptions of lower demand for goods from manufacturing countries. Hence, Mexico has been hit by flight to the dollar, as has the likes of South Korea and Poland. The exception helps prove the rule: after EU leaders announced an agreement to strengthen the currency union on Friday, the peso rallied by more than one percent.

Second, the peso is disproportionately battened by global or regional instability. Mexico’s currency is the only one in the region traded around the clock, and as such it is often treated as a proxy for Latin America. So, from a trader’s perspective, one of the easiest ways to express doubt about Latin America is to sell the Mexican peso. It’s not much of a surprise that many of the biggest hits on the peso in 2011 came overnight.

Third, to borrow a word from Agustín Carstens, Mexico’s central bank has taken a “neutral” approach to signs of a souring global economy. Brazil, Colombia and Peru all cut benchmark interest rates this year, and they have sold dollars to bolster their currencies. Mexico hasn’t cut interest rates, and only on 29 November did Banco de México announce it would sell dollars, and only in limited amounts, to prop up the peso. Without central bank intervention, the peso has been fully exposed to global volatility of late.

Combined, these factors help explain the vulnerability of the Mexican peso. But factors 1 and 2 also suggest that Mexico’s economy is softening. However, Mexico’s economic growth is accelerating, well outpacing GDP forecasts made over the past six months. There is no causation in the present currency-growth cycle. Rather, it may point to sloppiness on the part of investment banks in assessing Mexico’s economic prospects. The factors that weaken Mexico’s peso are false indicators of economic woe.

In little over a week since officially entering Mexico’s 2012 Presidential contest, the campaign of the Institutional Revolutionary Party’s (PRI) Enrique Peña Nieto already finds itself in full damage control following an embarrassing performance by the candidate during the presentation of his new book, and disparaging comments made by the candidate’s teenage daughter.

While speaking at the Guadalajara International Book Fair, Peña Nieto was asked to name three books that have shaped or informed his life. The Presidential candidate began by citing the Bible (while qualifying that he hasn’t read all of it “just parts”) and then proceeded to name partial titles of other books and mistaking the names of their authors. The three minute-long fumble (and accompanying stream of laughter from the crowd) would not of been as remarkable had it not been for the governor’s carefully guarded public image and reputation for being a polished and articulate politician.

The gaffe risks adding to perceptions that the candidate lacks depth and is simply the product of the country’s old guard and media duopoly (longtime supporters of Peña Nieto’s candidacy). Peña Nieto’s floundering also became an instant source for comedy on social networks, with twitter users offering book recommendations for the candidate under the hashtag #LibreriaPeñaNieto (Peña Nieto Library).

Further damage to Peña Nieto was added by his teenage daughter, Paulina Peña Nieto Pretelini, who came to her father’s defense by re-tweeting a message from her supposed boyfriend:

“Greetings to all of the idiots that form part of the proletariat and only criticize those they envy”

The tweet prompted an immediate closing of the adolescent’s twitter account and a public apology by her father (delivered via social networks of course). Apology withstanding, the damage by the young woman’s tweet had already been made. The classist overtones of the tweet revived feelings of elitism associated with the party (and people) who held Mexico’s presidency for an uninterrupted 71 years, and highlighted the country’s longstanding class divisions.

Peña Nieto’s long-held advantage in public opinion polls represents the PRI’s best shot at recapturing the office that it lost in the 2000 Presidential elections. The party’s popularity is an astonishing accomplishment for a group once synonymous with the corruption and authoritarianism of Mexico’s 71-year one-party rule. Peña Nieto’s fresh image and celebrity lifestyle (he is married to former soap-star Angelica Rivera) has for the most part succeeded in rebranding his party as one of youth, idealism, and competence. The elitism that Paulina Peña Nieto’s tweet projected is exactly the type of depiction that the party has worked to disassociate itself with.

While the candidate still holds a comfortable advantage over all likely opponents, his recent mistakes demonstrate Peña Nieto’s vulnerability to unscripted events and platforms not curated by the country’s media barons. Although Peña Nieto is sure to recover from this week’s mistakes, opponents should now feel greater confidence in their ability to attack the young governor and derail his seemingly inevitable victory.

At least 40,000 Mexicans have been killed from drug-related violence over the past five years, and the number directly affected is much higher. It is no longer acceptable to say that a good purge is underway—innocent bystanders and respectable officials are being killed in increasing numbers.

At the same time, the large drug syndicates are clearly under pressure. Several arrests came in November alone. “El Junior,” a Gulf cartel chieftan, was arrested in Texas. A high-level member of the Sinaloa Federation was arrested in northern Mexico a few days later; then came the apprehension of a key “paymaster” of the Zetas. All told, more than two dozen high-level narcos have been taken out of the drug trade this year. This may be a sign that Mexico’s drug violence is about to abate. Or, it could point toward a more blotted landscape of violence, with small gangs backfilling the work previously done by a handful of major groups.

Out of the mire, a poet warrants high praise. After his son Juan Francisco was murdered in March, Javier Sicilia helped organize a three-day, multi-city demonstration against drug violence. Sicilia is very critical of Calderón’s approach to the drug war; he also seethes patriotism. It’s a sentiment shared by millions of Mexicans.
Given his popularity, Sicilia could’ve resorted to demagoguery. That and two other things did not happen: the police didn’t crush the protests, and the government didn’t collapse. Meanwhile, protests in the Middle East, Europe, and America, have harkened parallels to the annus horribilis of 1968. While showing immense courage, Sicilia helped shed a light on how far Mexico has come since the Tlatelolco massacre. This complex of reasons is why I believe Javier Sicilia has impacted Mexico more than any other person in 2011.
Drug violence reduces Mexico’s growth by one point, according to BBVA. Yet, since the summer Mexico’s economy has outpaced expectations: industrial output is beating forecasts; unemployment is hovering around 5 percent; inflation remains low. GDP numbers released in November show the economy growing at 4.5 percent, instead of the 3.9 percent predicted. The biggest surprise of 2011 will come in early 2012, when official statistics confirm that Mexico’s growth this year surpassed Brazil’s.
What else is in store for 2012? A presidential election will be held on July 1. PRI candidate Enrique Peña Nieto is the odds-on favorite. He has heartthrob appeal, and he doesn’t avoid the camera. So, expect back-to-back episodes of the Enrique Peña Nieto show. This will be followed by more EPN. If you don’t like it, remember the run-up to his election is umpteen times preferable to AMLO and the aftermath of the 2006 elections.
Here’s my dos centavos on the best writing about Mexico in 2011. The Atlantic has published several short articles on different aspects of Mexican culture, including a piece on EPN’s charisma and, last month, a mother’s reflections on Guanajuato’s “Mummy museum.” A 2,500-word article in the Economist, “Making the Desert Bloom,” does a fantastic job of balancing the strengths of Mexico’ economy against the perception problem created by drug violence. If the drug war draws your interest, check out George Grayson’s study on vigilante violence in Mexico (this blog is referenced in footnote # 3). For fans of more lyrical fare, see Reed Karaim’s article on the US-Mexican border in the American Scholar.
Finally, Mexico is part of the Foreign Policy Association’s Great Decisions 2012 line up. “Beyond the Border,” which will air on the Great Decisions TV series, goes beyond drugs and immigration to show why Mexico is important to US security and prosperity.
Thank you for visiting Foreign Policy Blogs. Please check back to see how events unfold in 2012.

But on 22 November Mexico reported growth of 4.5 percent over the same period in 2010, well above the 3.9 percent forecasted. Within hours, the Bureau of Economic Analysis announced that the U.S. economy is growing at 2 percent, 0.5 percent lower than previously expected. Alberto Ramos, a senior Latin America economist at Goldman Sachs, expressed mild shock at Mexico’s robust growth in a research note. Regarding the Q3 numbers Nader Nazmi, a Latin America economist at BNP Paribas, acknowledged, “The industrial sector did well as the expected headwinds from the U.S. did not arrive.”

Of course, one quarter’s numbers don’t make for a trend, but this doesn’t appear to be a blip either. Mexico’s industrial output has beat expectations throughout 2011, and unemployment figures have been lower than expected. What gives?

Two trends are at work, both sprouting from the last global financial crisis. First, Mexico has benefitted from the better parts of Washington’s 2008-2009 bailouts. While the banks idled by on taxpayer cash, sacking employees and jacking up fees when they could get away with it, GM and Chrysler used their bailouts to mount an impressive rebound. Detroit has unveiled neat, fuel-efficient rides that have reduced Japan’s share of the US car market. This in turn drove demand at Mexican factories. Fourteen percent of cars sold in the US are now made in Mexico, a record high that attests to Detroit’s re-invention as well as the stable business environment that lures American and German car makers to expand operations in Mexico.

Second, while benefitting from higher demand in certain sectors of the US economy, Mexico has reduced its overall reliance on the United States. Mexico got pummeled from the US recession three years ago because 88 percent of its exports went to the US. Though still high, that figure has dipped below the 80 percent mark for the first time since NAFTA took effect. Seventy-eight percent of Mexican exports are expected to go to the US this year.

Meanwhile, Mexico is expanding its presence in Latin American markets. Exports to Brazil grew 500 percent from 2005-2010; Colombia is another fast growing market for Mexican wares. As more and more Mexican goods head south, the country’s reliance on the north is slowly, but methodically, being reduced.

For the second time in President Calderon’s administration, a secretary of interior (Secretario de Gobernación) has died in what government officials have prematurely dubbed as an aerial accident. Francisco Blake Mora, the de-facto second in command in Mexico’s executive branch, was en route to a conference in the central state of Morelos when his helicopter crashed into a wooded hillside bordering Mexico City.

Seven others passed away in the crash, including Mexico’s undersecretary for legal affairs and human rights, Felipe Zamora. A visibly shaken Calderon confirmed Blake Mora’s death today in remarks to media outlets, and spoke of the Secretary’s commitment to public service and his professional trajectory. The President pointed to the heavy mountain mist as a likely contributing factor to the helicopter’s crash, while also promising to conduct a complete investigation and consider “all likely hypotheses”. The death of Blake Mora comes nearly three years to day after that of Juan Camilo Mouriño, who held the same post as Blake Mora and passed away in an airplane crash less than a kilometer away from the Presidential residence of Los Pinos. Mouriño’s death has been deemed to be the result of human error.

Blake Mora was the face of President Calderon’s war on organized crime and the recipient of much criticism in the government’s handling of its military operations. The passing of Blake Mora has raised suspicion among an already tense Mexican public, with many believing his death to have been premeditated.

President Calderon has cancelled his trip to the APEC summit in Hawaii and called for an emergency meeting with cabinet members. Juan Marcos Gutiérrez González has been named as interim secretary of the interior.

Automation makes wages less of an issue, but a skilled workforce is needed to avail the technology, a trend that is likely to skew manufacturing investment into Mexico as opposed to low wage, low skill countries like Bangladesh. Also, transportation costs account for a larger share of overall production costs than in, say, the 1990s. Here Mexico’s rapid access to the United States will save money for firms looking to sell in the Americas. When it comes to transiting goods to America, Mexico is five times speedier than China.

A third, often overlooked comes into play—supply chains. In All the Tea in China, consultant Jeremy Haft advises Western manufacturers to add layers to their supply chains in order to minimize theft of intellectual property. Put simply, you can’t steal the Colonel’s secret recipe if you only make half the batter. The advice is well founded; China is notorious for its lax enforcement of intellectual property. In 2009 several honest-to-God counterfeit malls opened in the cities of Nanjing and Shenzhen, and today i-phoney stores can be found in many Chinese cities.

Piracy certainly exists everywhere, and it has gradations: city commuters hassled by street vendors are one thing, but fake drugs pose a serious threat. Since 2008, Chinese factories have peddled aircraft equipment, cell phones, laptops and medicine into the United States, in addition to more mundane offerings like knock-off Rolex’s and Ralph Lauren. Within its border, 20 percent of Chinese goods are thought to be knock-offs. In Mexico, a recent survey by the American Chamber of Commerce found that more than half of the pirated goods were music CDs—such IP-related concerns are small potatoes compared to China. NAFTA regulation on intellectual property mandates a baseline of enforcement. And there aren’t any credible instances of proprietary secrets leaking out of a Mexican factory.

In sum, a stable manufacturing environment matters more now than wage-based production does.

Credit: EPA

China has been the world’s factory floor for over a decade, but its manufacturing dominance is abating. Sure, a significant amount of investment will continue to enter the Middle Kingdom, if for no other reason than to target its burgeoning middle class, but factory investment that used to automatically go to China is diversifying. Much of the low-end assembly work is spreading across Asia, to Bangladesh where wages are half that of China’s, and to Indonesia, Vietnam and Cambodia.

Still, these countries aren’t full service alternatives to China; they lack infrastructure, skilled workers, and domestic supply networks. Mexico is, by contrast, especially for manufacturers eying American consumers. And given its attributes, Mexico stands to take on much of the high-end manufacturing that can’t be easily outsourced from China to Southeast Asia.

For starters, inflation-adjusted factory wages in China are now on par with those in Mexico (and, if a recent Boston Consulting Group study is to be believed, Chinese wages will rival those in the US South by 2015. This holds out the prospect of input production and final assembly between the two countries). Already manufacturers are turning a fresh eye to Mexico. In 2009, when the manufacturing revival may have begun, Foxconn, a firm best known for the iphones and ipods it produces, invested heavily in Mexico. Since then, other electronics firms and auto parts manufacturers have set up shop in Mexico or expanded operations.

In truth, wages are just a fraction of overall production cost, and a grab bag of other factors hints to the forces that make Mexico once again a hotspot for investment. Automation makes wages less of an issue, but a skilled workforce is needed to avail the technology. Mexico has it. Transportation costs account for a larger share of overall production costs than it did in, say, the 1990s. Here Mexico’s rapid access to the United States will save money for firms looking to sell in the Americas.

In my next post I’ll look at supply chains.

A small pilot program started by President George W. Bush in 2007 got nixed shortly after President Obama took office. Irked, Mexico announced $2 billion in retaliatory tariffs on U.S. goods.

Though Mexican businesses may have lost billions of dollars in revenue from the blockage, the owner of Transportes Olympic was gracious, saying that his truck crossing the border en route to a Dallas suburb was like being invited into a friend’s house. At the wheel, Josue Cruz waved to a crowd of reporters as brought his big rig to a halt at the Laredo, Texas, border crossing station.

Instead of rehashing the debate about how wrong-headed Washington has been, I choose to see this as a positive step that may lead to significant economic benefits. Bruno Ferrari, Mexico’s secretary of the economy, said, “With this program, we’re initiating a new stage of competition, of prosperity, of regional integration.” True, only 10 Mexican truck companies are going through the trusted carrier certification process. But panning out, Mexico is set to take on much of the manufacturing of goods currently made in China. Even the US is about experience a “manufacturing renaissance,” according to a recent Boston Consulting Group report. As manufacturing returns to North America, firms are bound to revisit the synergies created through research and production in the US and Mexico.