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Monday, March 8, 2021

THE ECONOMIST: Changing of the guard in Mexico

Mexicans have elected Andres Manuel Lopez Obrador their president by a wide margin. Lopez Obrador is a left-leaning, long-time politician who ran on a platform emphasizing change and a reduction in corruption and violence. Both major candidates in the race expressed concern regarding President Donald Trump and the state of Mexico’s relations with the United States, but the primary issues for voters were domestic.

Reforms over the past few years are working, with prices for telecommunications and electricity falling, conditions improving and tax receipts rising. However, growth has been uneven, with some states far outpacing others. Poverty and income inequality remain massive problems, Mexico compares poorly in terms of the perceived level of corruption, and violence is a concern. Mexicans responded to these issues by electing a very unconventional candidate.

In addition to strong cultural and familial ties between the United States and Mexico, particularly in border states such as Texas, the situation in Mexico is of crucial importance to the U.S. economy. Mexico is one of our most important trading partners, ranking second among U.S. export markets and third in total trade (imports plus exports). Many industries rely on cross-border supply chains to remain competitive in global markets, while others depend on accessing the Mexican workforce.

The Organization for Economic Co-operation and Development (OECD) is projecting that the pace of growth in the Mexican economy will increase. Unemployment is expected to remain at historic low levels and inflation should continue to decline. Challenges noted by the OECD include “high levels of violence and corruption, poverty, inequality, informality and slow productivity growth.” Uncertainty is also a problem, including questions about the future of the North American Free Trade Agreement (NAFTA) and whether negotiations will end favorably.

The president-elect is taking office with some advantages (such as the improving economy) as well as difficulties. He will also be working to smooth and strengthen Mexico-U.S. relations. He indicated in a speech to supporters that he would work toward a relationship based on mutual respect. Lopez Obrador also said he will be working to support Mexicans living and working in the U.S. as well as to enhance the Mexican economy to reduce the need for migration. On the other hand, he is a forceful personality and will face pressure to respond to adverse U.S. actions, and tensions could escalate.

The wide margin of victory is indicative of a strong desire for change. Reforms to date have been helping, but there is more to do. The United States will benefit from improvement in Mexico, and U.S. actions to facilitate NAFTA and work with our neighbor to the south toward common goals is in the best interest of Mexicans and Americans alike.

M. Ray Perryman is president and CEO of The Perryman Group (www.perrymangroup.com). He also serves as Institute Distinguished Professor of Economic Theory and Method at the International Institute for Advanced Studies.

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Ray Perrymanhttp://www.perrymangroup.com
Dr. Ray Perryman is President and CEO of The Perryman Group, an economic research and analysis firm based in Waco, Texas. His firm has served the needs of more than 2,500 clients, including two-thirds of the Global 25, over half of the Fortune 100, the 12 largest technology firms in the world, 10 US Cabinet Departments, the 9 largest firms in the US, the 6 largest energy companies operating in the US, and the 5 largest US banking institutions.

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