Chichen Itza, the pre-Columbian archeological site in present-day Yucatan, Mexico, bears the remains of the ancient Mayan civilization. The Maya were noted for their stately ceremonial architecture, including temple-pyramids which were built without metal tools.

One of the most visited countries in the world, the land of ancient Mayans and Aztecs is dotted with a varied landscape from volcanic peaks to snow capped mountains, tropical rain forests and inviting beaches. Holding a treasure trove of reserves like petroleum, silver, copper, gold, lead, zinc, natural gas and timber, Mexico plays a vital role in the economics of the Western hemisphere. Although the country echoes the cultural influences of its closest neighbor, the U.S., the country retains the cultural flavor of its varied past. After braving a major economic turmoil in 1981 due to a drop in oil prices, and an upheaval in 1994 owing to a massive undervaluation of its currency, Mexico has witnessed an imposing turnaround chronicle.

History

The western hemisphere’s cradle of civilization

Close to 15,000 years ago, evidence bears the footprints of the Mesoamerican civilization, the cradle of present day Mexico and other Central American countries. A land of hunters and gatherers for thousands of years, agriculture developed around 8,000 years ago, with the domestication of corn. As agriculture flourished, the earlier nomadic and hunting people of this fertile land were succeeded by the Olmecs, Zapotecs, Mayans and Aztecs. The Olmecs appeared to be the most innovative, developing the use of mathematics, a calendar and a system of writing. The Aztecs were the most powerful of the lot, asserting their authority over a large area sprawling from the Pacific Ocean on the west, Gulf of Mexico to the east and the modern day Guatemalan border in the south. But 3000 years of glorious civilization were pulled down in a matter of two years, with the Spanish invasion in 1519. Increasing resentment towards the Aztec rule helped the Spanish win over the native population, in their pursuit of gaining control over the area.

Unknowingly, the Aztecs welcomed the Spanish invaders instead of resisting them. The Spanish then cleverly took the Aztec King Montezuma II as a hostage and secured control of the region. In 1535, the Aztec capital was transformed into the capital of Spanish Viceroyalty, which was formed as a new bureaucracy and bore the name New Spain. Many diseases such as small pox and measles, which were carried by the European settlers, affected the native population and reduced their numbers drastically. This decline brought in a new hybrid class in the society formed by the intermingling of the Europeans, Native Americans and Africans, who were brought in as slaves. Four main classes of the society existed: Mestizos (Spanish – Native American origin); mulattoes, or people of European and African descent; zambos, of Native American and African descent; and Criollos, people of Spanish origin who were born in Mexico. Large-scale exploitation of the remaining Native American population was quite rampant.

The Alamo in San Antonio, Texas stands as a shrine to the fallen heroes of the Texan battle for independence from Mexico in 1835.

But the occupation of Spain by Napoleon Bonaparte turned the tide for the country. Spain gradually lost control of New Spain, and after several uprisings by the Criollos and Mestizos, the people were granted independence in 1821. The Empire of Mexico was formed, succeeded shortly thereafter by the United Mexican States, a republic. Yet, the movement against the Spanish had taken its toll over the economy and the social stability of the country. The nation plunged into decades of political instability. The annexation of Texas by the U.S. in 1835 became a thorn that festered and eventually led to the outbreak of the Mexican-American War in 1845.  The war resulted in the cession of Texas, California, Utah, Colorado and most of New Mexico and Arizona to the U.S.. By 1862, Mexico found itself neck deep in debt to Britain, France and Spain, due to the prevailing instability.  The French, who came in to collect debts, colonized the country and later named Austrian archduke, Maximilian of Habsburg, as the emperor of Mexico. His reign came to an end bloodily, after forces loyal to the earlier President Benito Juárez took control.

The country then witnessed a dictatorship under Porfirio Díaz, who heralded Mexico into the industrial era. But this brutal rule, controlled by a cold-blooded army, suppressed the people and denied rights to free press and free elections. This spurred the Mexican Revolution (1910-1920), a ten year period of shifting loyalties and an ideological struggle between the radical leaders and the liberal reformers. The revolution cost Mexico one in eight lives.

A time of healing

In 1932, the Party of the Institutionalized Revolution (PRI) came into power, ushering in an era of development focused on land reforms, social welfare, and education. The Party’s reign was characterized by several economic triumphs and failures, but also many social and political missteps, which eventually unraveled its foothold. The PRI’s 71 year rule came to an end in 2001, as the country held its freest and fairest election since the Mexican Revolution. Vincent Fox of the National Action Party (PAN) took over the helm, but the political situation in the country continued to be dominated by the PRI. The next Presidential elections in 2006 saw a close contest between PAN candidate Felipe Calderón and a populist leader Andrés Manuel López Obrador, with victory for the PAN candidate by a nose. Aside from bridging the poor-rich gap in Mexico, Calderon has had the arduous task of fostering macroeconomic stability and moving the economy on a steeper growth trajectory.

Culture

A history reflected

Reflecting the country’s Spanish heritage, The Mariachi Band, a staple at Mexican fiestas and weddings, finds its origins in the Spanish theatrical orchestras of the colonial era.

Pre-Hispanic Mesoamerican civilization and the Spanish occupation define the essence of Mexico’s cultural identity. These influences lend a unique flavor to the cuisine, art, music, religion and its fiestas (festivals) of the country.

Mexico is known for its well-renown spicy cuisine such as frijoles enchiladas, atole, tamales, and pozole. Corn, a staple from pre-Columbian times, together with Chili peppers and beans form the basic ingredients of almost all popular Mexican dishes including tortillas and tacos. Although Tequila is the national drink of the country, Mexico remains the largest per capita consumer of soft drinks. Food is also associated with nationalism in Mexico, as Independence Day is often celebrated with Chile en Nogada, a symbolic portrayal of the national flag in white walnut sauce, red pomegranates and green parsley.

Born through the seeds of a 300-year Spanish occupation, Roman Catholicism is the dominant religion. The most significant icon of Mexican national culture is the Virgin of Guadalupe, viewed as the "mother" of all Mexicans. The people also have various cultural beliefs attached to life after death, which date back to ancient Aztec beliefs. The festival of the Day of the Dead, coinciding with All Saints Day in November, is reminiscent of the Aztec celebration of the Lady of the Dead. On these days, Mexicans make a special arrangement of altars for the dead to welcome them on their return. These altars are decorated with food, beverages and many other objects like skulls made of chocolate or sugar.

Mexico’s Spanish past is also reflected in the country’s music and folk dances. The most renowned, the Mexican Hat Dance, is a colorful story of love and courtship set to music. Rural handicrafts made of clay and colorful embroidered clothes and rugs are also vibrant expressions of Mexico’s culture.

Economy

The rollercoaster ride of Mexican economy

A country tattered by foreign rule and political instability, Mexico found it difficult to realize its full economic potential. Silver mining formed the backbone of the economy before independence, but the fight for freedom left the mining sector in shambles. Invasions by the French, and the Mexican-American war kept foreign investors away from the country.

Yet, subsequent rule by President Benito Juarez and Porfiriato Diaz opened the doors of economic modernization. Tax and tariff structures were regulated and infrastructure and communications were improved. Foreign investors were attracted, giving impetus to the mining sector, and the construction of a rail link between the U.S. and Mexico. But widespread resentment brewed among the countrymen, as most of the development remained limited to the Northern areas of the country. The Mexican revolution that subsequently erupted and the ensuing depression wiped out any gains made before the period of revolution. The era of the 1930s saw a turnaround, beginning with the agricultural sector and slowly spreading to the manufacturing sector. Although the country maintained an inward looking economic policy, growth during the period 1940-1970 continued at a healthy average of 3-4%. By the end of the 1960s, Mexico had achieved self reliance in food crops, most consumer goods and steel, with diversified exports. Capital goods required for production remained the main imports.

Fiscal mismanagement by the ruling Presidents and the oil shock of 1973 hurled the Mexican economy to the brink of recession. However, the savior came in new oil discoveries in 1976, and the petroleum industry became the mainstay of a rescued Mexican economy. Income from rising oil exports at hefty prices were spent on energy, transportation, and basic industries. But on the flip side, agricultural growth fell drastically and the peso became overvalued. What’s more, the government has increased the tariffs on all imports to protect its domestic industries. This has cost Mexico its competitiveness. Foreign debt was incurred to finance domestic expansion activities, and the growth rate, which clocked an impressive average of 7.2% in the 60s, tumbled to 5.2% during the 1970s.

A slump in oil prices in 1981, flawed policies, increasing interest rates, and an overvalued peso battered the economy into a recession. This led to a Balance of Payment crisis and flight of foreign capital. The government trimmed all public spending to bring the economy to normalcy, but the economic growth for the decade averaged a meager 1.1%. The economic crisis resulted in large scale unemployment and an exodus of people to urban areas and to the U.S.. To stabilize the economy, major policy reforms were undertaken, such as the privatization of nationalized industries, deregulation of the economy, and reduction of foreign debt, which yielded results. A free trade agreement (NAFTA) between the , Canada and Mexico signed in the year 1994, ushered foreign investment back into the country.

The country had just risen from a major economic crisis and the future looked extremely bright with NAFTA in place. But structural imbalances within the country led to the Mexican Peso Crisis of 1994-95. Maintaining that a strong peso was required to sustain a healthy economy, the Central Bank of Mexico mopped up huge dollar reserves to keep inflation at bay. New foreign investments resulting from NAFTA caused a trade deficit, which was further financed by more capital inflows, in the form of short term bonds issued, to be repaid in dollars. Presidential elections in 1994 witnessed the assassination of two candidates, and also saw an uprising in the southern town of Chiapas, which was hit hardest by unemployment due to falling exports fueled by a strong peso. International investors perceived the situation in Mexico to be highly unstable and began withdrawal of funds. The situation was aggravated by the redemption of short-term dollar bonds. The foreign reserves in the country fell from $27 billion in February 1994 to $11 billion by mid December 1994, prompting the government to embrace a devaluation of the peso. The peso plummeted by almost 50%.

A rescue in the form of a $50 billion loan package from the U.S., Canada, the IMF, the Bank of International Settlements and Latin American countries, insured that Mexico would emerge from this economic crisis quickly.

Revival of the economy

Post-NAFTA, corn production in Mexico has increased, but has not kept up with demand. Today, the land that began the cultivation of corn 8000 years ago is a net importer of corn.

The decade after the peso debacle witnessed significant progress towards macroeconomic stability. Structural reforms were put in place to further open the economy to trade and services, to develop the financial sector and to foster a better functioning of the markets. The efforts paid off, resulting in sound GDP growth. As of 2006, the Gross Domestic Product figures for the country stood at $839.2 billion, and when measured in terms of Purchasing Power Parity, crossed a trillion dollars in 2004.

Agriculture, which once formed the mainstay of the Mexican economy, now contributes 3.9% to the GDP, with industry contributing 26.7% and the services sector representing 69.4%, as the main contributor.

Agriculture in Mexico has lost its luster, but still continues to employ a large proportion of the labor force. The country is the major supplier of many tropical fruits and vegetables and the fourth largest producer of corn. The U.S. is Mexico’s primary agricultural trading partner, with 10% of total U.S. agricultural imports coming from Mexico. After NAFTA was implemented, exports to the U.S. increased manifold, expanding to $7.4 billion during 1994-2006.

Industry has greatly benefited from trade liberalization under NAFTA. High technology industrial production in the automotive, metal mechanics and aerospace sectors form the core of the Mexican manufacturing industry. The country supplies complex components to the major global auto manufacturers. With the assembly of helicopter and regional jet aircraft fuselages on the rise, aerospace component manufacturing is also gathering steam. As well, some domestic companies are designing and manufacturing light propeller aircrafts and Unmanned Aerial Vehicles (UAV). With NAFTA and Free Trade Agreements inked with 44 other countries, Mexico has been catapulted into a favorable position, attracting investments. The manufacturing sector was the primary benefactor, capturing nearly half (49.6%) of Mexico’s $172 billion Foreign Direct Investment during the period 1994-2006.

Maquiladoras along the U.S. border in Mexico. During the late l960s, maquiladora industries grew rapidly and by 1985 had become Mexico’s second largest source of income from foreign exports, behind oil.

Vital to the manufacturing sector are the Maquiladoras. These are Mexican factories which take in imported raw materials and produce goods for export to the U.S. It is estimated that around 3,000 of these facilities function along the northern border of the country employing over a million people. Maquiladoras primarily produce electronic equipment, clothing, plastics, furniture, appliances, and auto parts. Today, 80% of the goods produced in Mexico are shipped to the U.S., almost duty free. Sadly, these factories are generally regarded as sweat shops, with poor wages and substandard working conditions; yet, they have been a major source of employment in these areas.

Energy reserves form the basis of the country’s revenue. Holding less than 1% of the world’s reserves, Mexico is the sixth-largest oil producer in the world, with 3.1 million barrels per day. Oil exports represent much less of the country’s GDP, with Mexico diversifying into other sectors. Since its nationalization in 1938, Mexican oil has been the preserve of a state monopoly, which has been riddled with problems ranging from insufficient finances, corruption, and poor governance to lack of infrastructure for new projects. Making matters worse, the Mexican energy ministry forecasts that oil production in the country may go down to 2.5 million barrels per day in the coming years, unless immediate reform of policies takes place.

Mexico is the world's second largest silver producer accounting for 14% of production. The country also supplies 17.2% of the world's fluorite, 23% of the world's strontium, 18.7% of the world's bismuth and substantial reserves of other important metals like copper, gold, zinc, lead and steel. In 2005, mining and metallurgical production accounted for over $4.8 billion of the GDP, but still accounts for a minor portion of the country’s economic output at 4.9%.

The lure of sunny weather and pristine beaches, as well as Meso American ruins draws hordes of tourists into the country, contributing 4.8 % to GDP.

The Mexican economy is predominantly driven by the services sector, comprised of tourism, financial services, transportation and telecommunications. As the seventh main vacation destination in the world, the country’s tourism industry is a huge cash cow. In fact, Mexico is the only Latin American country to feature in the top 25 list of tourist attractions. Financial services, above all the banking sector, have shown resilience with significant amounts of FDI inflow into the sector.

In the transportation sector, efficiency, quality and price are prime factors deciding the cost-competitiveness of Mexican firms and the country’s attractiveness to foreign investors. Though railways in the country are privatized, trans-national development is hindered by slow and cumbersome administrative processes and disputes between private concession holders. Road transport forms the lifeline of most of the trade in the country, but requires steady progress improvements.

Improved and quality telecommunications services are absolutely necessary for the development of any business and this is possible only through competition. Discouragingly, the telecommunications sector in the country lacks this competition resulting in the levying of higher charges and inefficiencies. Despite a large reduction in telephone charges, Mexico remains one of the OECD countries with the highest rates, especially for business use. Adding to this, a monopoly exists in the mobile telephone market, with the dominant firm trying to squeeze out smaller players.

Blips on the radar screen

The country’s capital, Mexico City, is one of the most powerful economic hubs of Latin America. The GDP of the city at $315 billion made it the eighth richest urban conglomeration. The country has made enormous economic progress since the beginning of the decade and is expected to take its growth further with favorable policies.

Sound monetary and fiscal policies have resulted in macroeconomic stability in the country for over a decade with healthy growth rates and moderate levels of inflation. The recent spike in food prices however resulted in annual inflation climbing up to 4.95% in May 2008. Mexico’s central bank raised its key interest rate in June 2008, in order to tackle spiraling prices. On the fiscal front, Mexico is in a comfortable position with public borrowing reaching a low. However, an over reliance on oil revenues in a highly volatile marketplace puts Mexico’s public finances in a precarious position. Moreover, a slowdown in the U.S. economy, which is the major trading partner of Mexico, will be a dampener for the country’s growth.

As of 2006, Mexico housed a population of 104.2 million, which saw a sudden increase after 1940 due to improved health care and living standards. There is a huge urban-rural divide, with the majority flocking to urban centers in search of better employment opportunities. In fact, Mexico City, the country’s capital, is home to almost 20 million people. Mexico faces a huge problem of illegal immigration to the U.S., again in search of jobs. With so many unskilled workers, widespread poverty and income inequality is a major challenge facing the nation, with over 45% of the populace living under moderate poverty and 18% living under extreme poverty according to World Bank estimates. Worse, there is inadequate social security coverage. Drug trafficking is yet another simmering issue. Mexico is the U.S.'s largest foreign supplier of marijuana, cocaine and methamphetamine. The drug trade is controlled by cartels based in border areas and along the southeast coast. These cartels often resort to violence, extortion and murder to ensure smooth trafficking.

Mexico’s government needs to address these issues thoroughly with a well thought-out strategy. Further opening up of the economy, embracing more liberal foreign direct investment norms and social sector reforms, and strengthening competition will be giant steps forward on the path to success. Mexico is bestowed with several positives to boost productivity and output growth. A young population, geographical propinquity to the world’s largest market, NAFTA and free trade agreements with 44 countries, a sound macroeconomic policy, healthy financial services and abundant natural resources are big pluses in Mexico’s favor. The land of the ancient Mayans and Aztecs has a will to prevail.

Postcards from Mexico

Last year was not a particularly good one for Mexico. The global recession and swine flu battered the nation’s economy. Amid this gloom, Mexican retailers had been looking forward to the Christmas season. However, like the rest of the year, the holiday season too seems to have ended on a disappointing note.
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In the last few days, Mexico has reeled
under a sudden attack of the little
known swine flu, which has not just
infected people but also economies,
especially that of Mexico.
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Tucked into a small cove on the south side
of the Peninsula de las Playas are the
sandy beaches of Caleta and Caletilla
in the city of Acapulco in Mexico. Read more