The Mexico economy has been facing a number of problems. The higher rates of poverty, unemployment, inflation, declining agricultural production and a weak industrial base are the key problems facing Mexico. Mexico development strategy has greatly evolved since 1950 to date. The inward looking development strategy in the 1950s produced a sustained economic development given that the manufacturing and other sectors serving the domestic economy began to recover (Torres, 2002). The government achieved this by promoting development of local consumer goods industries, imposition of high protective tariffs and other barriers against imports.
Furthermore, the Mexican government promoted industrial expansion through public investment in agricultural, energy, and transportation infrastructures making cities to grow rapidly due to a shift from agricultural employment to industrial services. The macroeconomic strategy of the 1970s made Mexico economy to be vulnerable to external conditions which resulted to the worst economic recession in the 1980s. This was a result of rising inflation, higher world interest rates and deteriorating balance of payment.
Another strategy employed is the devaluation and nationalization of private banking system. Later, there was a reduction in the public spending to stimulate exports which led to economic growth that accounted to balance the national accounts (Torres, 2002). This stabilization strategy led to controlled inflation, achievement of relative price adjustment, economic recovery, and structural reforms in trade and public sector management and attainment of fiscal and monetary discipline. However, there was no foreign investment thus calling for a new development strategy.
Promoting private investment boosted the investment share of GDP for a sustained growth through denationalization of state enterprises and deregulation of the economy. Lowering domestic borrowing costs, re-privatizing the banking system and broaching the idea of a free trade agreement with the United States so that a higher capital inflow has been attained due to increased levels of capital repatriation and foreign investment. A proposed strategy has been put in place in order to deal with these problems so as to ensure a more equity oriented and resourceful growth is achieved by development of oil and gas.
The new strategy is aimed at dealing with the deficiencies of the past proposals so as to deal with dualism between the modern and traditional sectors. Consequently, the implementation of a radical reorientation of Mexico development strategy from state led industrialization and trade protection by reducing the role of the state in the economy in favor of marketing mechanisms and modifying the orientation of social policies towards targeting and decentralization. This new strategy has led to the reduction in inflation and the downsizing of the state thus fostering growth of the economy though at a slow pace (Torres, 2002).
In addition, the government strategies of dealing with poverty through public spending for social programs and economic competitiveness programs which are not effective given that they result to a decrease in productivity and retarded economic growth and that more resources are needed to increase workforce productivity. In conclusion, for Mexico to succeed in its pursuit of entering a path of vigorous long term economic development, it has to strategize on its economic and social policies effectively.
A trade and investment development strategy is far from success for it results to unemployment and economic and political uncertainty. Hence, a clear industrial strategy supported with international reserves instead of an overvalued exchange rate guarantees a sustained economic development while dealing with social costs. Furthermore, the adverse impact of a NAFTA on Mexican peasants could magnify Mexico’s employment situation. Reference Torres, S. (2002). Making Ends Meet: Income-Generating Strategies among Mexican Immigrants. London: LFB Scholarly Publishing.