mexico balance of payments and external financing
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Title: MEXICO'S BALANCE OF PAYMENTS AN D EXT ERNA L FINANC ING
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Mexico's Balance of Pay rnents and Exter nal Financing
Author(s): Al f redo Nava r r ete R.Sauree' Weltwirtschaftliches Archiv, Bd. 101 (1966), pp . 70-66
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Mexico's Balance
oC Payments and External Financing
By
Alfredo Navarrete R.
Conten ts: 1. Introduction. - 1I. The General Pattern 01 Development. -IU. External Capital.
I. IntroductioD
The external sector is quantitatively important in the Mexicaneconomy, and foreign trade and other international transactions
are also effective vehicIes of economic development. The scarcityof foreign exchange relative to the demands of a growing economy, andthe maintenance of free convertibility as a basic element of foreigneconomic policy, make the external sector sensitive to developments inother sectors, so that balance of payments considerations have constitutedessential points of referenee in the shaping of industrial development
policy and in the formulation of financial and monetary policy.Industrial expansion has taken place largely on the basis of import
substitution with the view of saving foreign exehange, and production
for the growing home market, aided by government protective measures.Emphasis is now being made as well on the production of manufacturesfor the export market to provide new sources of foreign exehange required
to finance the imports of increasingly eomplex goods. At the same timeit is considered that the production of goods directed at the internationalmarkets, offers lower prices and more competitive quality to domesticeonsumers. Agricultura! production has also been influenced by the desire
to save foreign exchange and this objeetive has been substantially achieved.Along with the promotion of exports, recent years have witnessed
the important growth of the tourist industry as a permanent souree 01
foreign .exchange. Earnings from tourism have provided close to 40%
of income on current account since 1960, and last year (H¡67) amountedto 959 million US-$l.
1These figures and the folIowing are based on: Banco de ~ l é x i c o , S. 1\., alld ~ a c j o l l a lFinanciera, S. A., Annual Reports, México.
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:\Iexico's Balance of Payments and Externa! Financing 71
The dynamic quality oi the Mexican economy is revealed in the
tremendous expansion and growing diversification of its international
transactions, which now represent a two-way flow of c10se to 5,000 million $
yearIy. In 1950 exports of goods and services amounted to 827 million $
and current account expenditures totaled 787 million $. Last year exports
of goods and services registered 2,200 million ¡: and current accountexpenditures, 2,663 million $. (Exceptionally, a favorable balance was
registered on current account in 1950 and again in 1955.)
Exports of goods and services have been growing at the relatively
high rate 01 7% per year since 1960, even though Iess than the rate ofgrowth of national product in monetary terms. Imports of goods and
services have maintained an average ratio of 12% to national product
in these years, whiIe growing considerably in absolute volume from
1,683 million to 2,663 million S. The relation of exports of goods andservices to imports averages 86% so that most 01 the foreign exchangeexpenditures are financed by foreign exchange income on current account.
In addition, 85% of merchandise imports are made up of industrial
materials and capital goods which increase the productive capacity oí
the economy. Capital goods average 46% of Mexico's merchandise imports.
Import controIs are designed to permit maximum use of foreign exchange
for development purposes, by limiting unessential imports as well as
protecting domestic producers. Import duties are generally low, averaging
II.7% of the value of imports (compared with ratios of 30 to 150% in
other Latin American countries), reflecting the fact that the major partof imported produets consists of industrial materials and equipment.
Merchandise exports are more rnversified than in most developing
countries; the leading export product, eotton, accounts for 18% of export
income, whereas in most developing countries the leading product accounts
íor 33 to 50%. The other learnng exports - coffee, livestock and meat,
tomatoes, sugar and fish - account for 5 to 7% eaeh of total merehanrnseexports. Exports of manufactured goods have been growing in recent
years and amounted to 250 million $ in 1967 (22% of the total). Besides
cotton textiles and canned fruits and vegetables, thefollowing manufactures
among others are showing increases: chemical products, rubber products,copper and steel tubing, wood and metal furniture, chinaware, automobile
parts, typewriters and electric equipment.
The United States are Mexico's most important trading partner,
although trade has been growing with European countries in particular.
Trade with the United States aecounts for about 65% of total exports
and imports; and tourism and border trade are also mainly with that
country.
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72 Alfredo Navarrete R.
The percentage of Mexico's exports to and imports from the member
countries of the Latin American Free Trade Association (LAFTA) were 5%
and 2%, of total exports and imports, respectively, in 1967. Tarifis andother trade barriers between the LAFTA countries have been reduced
or eliminated through multilateral negotiations on approximately 9,5°0products.
The maintenance of free convertibility in a vigorously growing economyresulted in devaluations in the rate of exchange in the early stages of
Mexico 's development when the financial sector was weak, savings volumeswere low, and the economy highly vulnerable to extemal disturbances.
The peso, Mexico's unit of currency, suffered devaluations in 1940, 1949
and 1954. Since then the foreign exchange position has been greatIystrengthened along with the intemal integration of the economy, and the
parity 01 the peso has remained unchanged.Mexico assurned Article VIII status under the Articles of Agreement
of the Intemational Monetary Fund in 1946 and imposed no restrictionson the movement of capital or other intemational payrnents. The adherenceto freedom of exchange is a long standing characteristic oí Mexicaneconomic policy (where exchange controls have never been used) and
together with other factors has encouraged the inflow of extemal capital
for development purposes.
As examples 01 the present intemational status of the peso, we may
cite the fact that in May 1967, the Bank of Mexico signed a reciprocal
currency exchange agreement with the United States Federal ReserveSystem for 130 million $. The Mexican central bank is one of the fifteeninstitutions entering into such an arrangement with the Federal Reserve.
Both this and the stabilization agreement for 100 million $ which Mexico
maintains with the United States Treasury, provide currency exchange
facilities for both countries. In addition, since 1965 the IntemationalMonetary Fund has used Mexican pesos in operations to support the
currencies of four other Latin American countries. These operations haveincreased Mexico's drawing rights on the Fund, which have remained
unused since 1962 .
At the time of the strong demand for gold that followed the devaluationof the pound sterling last November, the Bank of Mexico continued toperrnit the free intemal market in gold and stood ready to sell metalfrom its stock to meet the demando
Mexico's foreign exchange reserves arnounted to 621 million $ at the
close of 190. having risen by 36% since 1962. About one-half consistsof foreign exchange (over 90% in US-$) and the other half is in goldand silver.
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Mexico's Balance af Payments and External Financing 73
11. The General Pattern oC Development
As a nation committed to the social reforms resulting from the
Revolution of 1910, and with an undeveloped economic structure, the
great majority of whose population had attained very low income levels,Mexico found itself in the 1920'S in the need to create adequate mechanisms
of financing its economic development and of distributing the burdens
of sacrifice as equitably as possible. The Mexican Constitution predicates
an economic philosophy based on private property and free enterprise
together with responsible government action to institute needed social
reforms, assure social welfare and protect the nation's natural resources.
Democracy is defined in the Mexican Constitution "not only as a juridical
structure and a political system, but aJso as a way of life founded on
the constant economic, social and cultural betterment of the people."
The prime instrurnent for furtherlng economic development has been
the persistent volume of public investment in the economic and social
infrastructure, carried out by government agencies and decentraJized
organizations in the public sector. Domestic natural resources have been
mobilized and an effort made to absorb modern technology and train
manpower, while providing necessary social services. All the constituents
of the private sector have responded favorably and participated actively
in these aims. The econornic impact of the policy of social justice has
been manifested in the steady expansion of the domestic market, the
growth of savings, and the channeling of savings into productive investments, at rising levels of national income. Thus a mutually reinforcing
process of social progress, political stability and economic development
has been set in motion.
On the other hand, as a nation with a long history of foreign econornic
relations, Mexico is zealous of protecting newly and hard-won gains and
of preventing their dissipation abroad. Measures are therefore sought
to assure that the external sector effectively contributes to capital
formation and econornic development. While Mexico is convinced that
development must be achieved essentiaJIyby
domestic effort, capitalfrom abroad on a supplementary basis helps to accelerate the rate of
growth, when it adds to internal savings, enhances the productive capacity
and provides needed technology and imports, and provides export markets
as well.
l t is recognized that the effectiveness of foreign capital in furthering
domestic capital formation, and economic development depends not only
on the behaviour of the external capital itself, but in a fundamental
sense on the growth capacity of the economy as a whole and on its
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74 Alfredo Navarrete R.
capability oi undergoing appropriate changes and becoming increasinglyintegrated.
The visible material progress achieved by Mexico seems to indicate
that a dynamic growth process of this sort is indeed taking place. Amongthe manifestations of this development there are to be observed theincrease in production in most branches oi the economy, vigorous
industrial integratíon, the diversifieation oi the sourees of ineome andthe growth of per capita income, urbanízatíon, the shifting and up-gradingoi the work force, the introduction of modem institutions and instrumentsin trade and finance, and the constant expansion of intemational transaetions.
In addition one could mention the absolute values registered by theeconomy in the key indicators of national product, population and
balance of payrnents. The gross national product at market prices, which
in 11)67 amounted to the equivalent of 24,050 million $, ranks amongthe highest in countries in the process of development. The value of the
national product in recent years is similar to that of Spain, Sweden, the
Netherlands, and Australia. The population of Mexico at 46 million constitutes a potential market worthy of taking into account and will reach
51 million by 1970. And foreign business transactions represent, as has beenindicated, a two-way flow c10se to 5,000 million $ yearly.
Not many countries have been able to maintain the free convertibilityof their currency as has Mexico during the whole development process.
In addition, the rate of inflation has been relatively controlled in recentyears, amounting to an annual average of 2.5% since 11)60, as compared
with 3.4% for the industrial countries and 8.0% for the less developedcountries as a whole.
Furthermore, growth has proceeded at a relatively stable and vigorousrate during most of the postwar years. During the last two decades the
national product has tripled in volume and, in spite of one of the highest
rates oi population growth, real per capita income has íncreased by threefourths. Average annual increases of 6.2% in gross national product at
constant prices during the period 1956 through 1967 have exceeded annual
population increases averaging 3.3% during the same periodoIndustry has been the leading growth sector in the rise of nationaloutput and the economy has experienced progressive industrialization.Except for mining, the industrial sectors are those which register the
highest rates of growth - petroleum, electric power, construction and
manufacturing. Manufacturing has grown over 8% per year during the
past three decades and now contributes 26% of the gross domestic product
(as well as 22% of merchandise exports) and provides occupation to
16% of the work force. The country is largely self-sufficient in the produc-
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:\lexico's Balance of Payments and External Financing 75
tion of foodstuffs, basic petroleum products, electric power, steel and
consumer goods.
Manufacturing development has been characterized by more rapid
growth in producers' than in consumers' goods. During the period 1950to 1966, for example, the production oí steel and meta! products has
grown lI.5% yearly; fabrication oí machinery has expanded 10% yearly;
construction of vehicles and transport equipment, 10.7%; and output oí
chemicals, 12.5%; while production of foodstuffs has grown only 6.7%
yearly.
Manufacturing is outgrowing the stage of assembly of capital goods
and is now producing equipment such as automobile motors, rear axles,
hydraulic brakes, tractors, industria! motors, pressure va!ves, mechanical
shovels, color television, electric transformers and air conditioning units.
Agricultura! production has grown at arate double the rate of increasein the population during the past three decades. 1 has also become an
important source of foreign exchange, producing about ha!f 01 total
merchandise export receipts, and larm products such as cotton, coffee,
livestock, vegetables, and fruits are among the leading exports. While
lann productivity has grown during the process of economic development,
as it has in a!1 sectors of the economy, agricultura! output per worker
is only about a third of the average for the economy, and only about
a fifth 01 that in industry. Fifty per cent oí the economically active
population are engaged in agriculture, livestock, forestry and fishing,
while this combined sector contributes 16.5% of the national productoThe poverty which exists in the rura! areas constitutes the gravest
weakness of the economy. Lack oí water and mountainous topography
are the principallimiting lactors to agricultural development. Only 15%
01 the total area is susceptible of cuItivation and oí this less than 60%
is actually under cultivation. In order to raise agricultural productivity,
high priority is placed on raising investments in irrigation, among other
measures.
The money and capital markets have developed along with the fiscal
system, and the infiationary financing first used to get under way the
necessary infrastructure public investments, has been replaced by sounderand more diversified financing. Personal and family savings are increasingly
channeled through credit institutions, for which the monetary authorities
have encouraged the use of more varied forms of financia! investment.
Businessmen are willing to reinvest in modemizing their installations
and investing in new industries and in new geographical areas.
Savings of the public sector are effected through the fiscal system
and the operating surpluses of tlle decentralized agencies and state
enterprises, whose receipts and expenditures are consolidated with the
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76 Alfredo Navarrete R.
annual budget of the Federal Government. The principal agencies included
in the budget are the railroads, the electric companies, Petroleos Mexicanos,
the Federal to11 road agency, the National Housing Institute, social
security institutions, the Government trading agency in consumers' food
stufIs, and the airport servicing agency. Whereas Federal Government
expenditure for 1968 is budgeted at 24,221 million pesos, the outlays
of internally generated funds of the agencies are budgeted at 37,193 millionpesos.
Fiscal revenue, incJuding social security quotas, averaged II .6% of
gross domestic product in 1960-1967, and ti surpluses of the decentralized
agencies are added the total amounts to about 14%.
Since the money and capital markets are cJosely intertwined, monetary
policy has been directed to maintaining the confidence of the public in
the financial instruments, both public and private, in order to encouragethe mobilization of savings. By providing a ready market for fixed
income securities, the monetary authorities and the public and private
banking institutions have been able to attract rising volumes of funds
from the growing middle cJass and to keep capital flight to a minimum.
In the period 1949-1953, the annual rate of infiation averaged 7.2%;
in the period 1949-1966, the rate diminished to 5.7% ; and since 1960,
has averaged 2.5%.The savings coefficient has increased from approximately 8% of the
national product 30 years ago, to more than 17%. At the same time
the gross domestic investment rate has moved from 10% to 19% ofthe national producto The difference between domestic investment and
internal savings has been covered by foreign savings which, notwith
standing notable changes in composition, have financed on the whole
:ro% of gross fixed domestic investment .
Thus in Mexico the rate of internal saving grows about 3% of the
national product every ten years, while according to United Nations
surveys, the world average for developing countries barely exceeds 1%
per decade. The capacity to increase the savings ratio could permit
domestic self-sufficiency in another generation, for financing an invest
ment ratio of 24% of national product, adequate for a sustained growthrate of 7% to 8% per year, provided the productive structure is rendered
able to satisfy its foreign exchange requirements.
lli. Extemal Capital
The capacity manifested by the Mexican economy to mobilize it s
internal resources - to successively raise the savings and investment
ratios - also has made it possible to make productive use of external
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Mexico's Balance of Payments and Externa! Financing 77
capital and to provide adequately for its servicing. The productive impact
of external funds has also been enhanced as a result oi changes in the
investments to which they are destined. While marginal in volume with
relation to domestic savings, the rising infiowoi ioreign capital strategically
influences the growth rate by adding to the capacity to import highly
productive equipment and technology as well as by filling the savings gap.
Mexico will continue to require a net inflow of foreign capital unti! the
economy is able to produce the goods and services demanded by inter-
national markets in suificient volume to pay ior the imports essential
to its growth. The maximum development impact must therefore be
derived from the use oi available foreign exchange in order to assure
that this equilibrium will be achieved in the future.
Mexico's experience with foreign capital goes back to it s Independence,
in 1821, when foreign private funds first began to arrive. The earlyfiows
of portfolio investment were very burdensome in the terrns imposed.
They were used to finance budget imbalances and frequently required
moratoria or extensions. The specific guarantees given pro ved to be
onerous and a source of affronts to the national sovereignty. In the
1870's capital began to arrive, in both portíolio and direct private invest-
ments, in railroad construction, mining, and later petroleum.
By 1910, direct private investment accounted ior 85% oi foreign
capital and was invested in the railroads (40%) which were used to export
minerals; mining and petroleum (30%), and banking, trade, and electric
power (18%). Foreign capital undertook 45%oi
new annual investmentin the first nine years of the century (immediately preceding the Re-
volution) and financed an even greater share, by providing funds ior
public works through portfolio investments.
In 1935 when foreign capitalists controlled 9B% oi the mines, 99% oi
the petroleum, 79% of the railroads and trolleys, and 100% oi the e1ectricpower industry, the Federal Government launched a vast program of
public works, financed exclusively by internal funds. The worldwide
depression of the 1930's also slowed down the infiow oi direct private
investment irom abroad. In addition, the nationalization oí oi! and the
railroads originated the conversion of direct investment into public debt.Thus by 1939 foreign capital financed only 15% of total fixed domestic
investment. Since 1942, it has provided on average 10%.
In 1941 the Mexican Government renewed the servicing oi the old
external public debt, suspended in 1924 because of inability to pay,
and subscribed a consolidated debt agreement with the United States
and other bondholders which paved the way for the negotiation of the
first loans from the Export Import Bank oi Washington (now the Export
Import Bank oi the United States). Starting in 1942, at fue same time
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78 Alfr edo Navarrete R.
that this new source of international capita! in the form of development
loans became available to Mexico, private direct investment from abroad
resumed its upward trend.The war scarcities stimnlated the accelerated industrialization promoted
by the Mexican Governrnent , in which an active part was taken by theindustria! prornotions of Nacional Financiera, S.A., the industrial developrnent bank. Foreign capital, both public and private, participated inseveral of the key industrial prornotions of Nacional Financiera in thisperiod, notably in the establishment of enterprises to produce steel,copper, lertilizers, paper, synthetic fibers ann electric equipment -industries oriented primarily to the substitution 01 imports. The in
dustrialization effort bore fruit because of the rnany institutiona! reformsintroduced into the social and political fabric after the Revolution, and
as a result ofthe
important programs of infrastructure investmentsundertaken since the previous decade. Thus foreign capital was able to
assist in the active process of transformation of the productive structure
necessary to economic development and growth.In 1946 agencies of the public sector began obtaining credits frorn
United States suppliers, with the guarantee 01 Nacional Financiera.In 1949 the first loans were negotiated through Nacional Financierawith the International Bank for Reconstruction and Developrnent andcredit relations were also established with private banks in the UnitedStates. In subsequent years a large volume of rnediurn-term credit trans
actions was operated with suppliers and banks in severa! countries ofEurope, Japan and Canada as well as in the United States. Loan transactions with the Inter American Development Bank were initiated in
1961 and in the following year with the Agency for International Develop
ment (of the U.S. Government). In 1963 the Mexican Government enteredthe private international capital market with the first of a series 01
twelve externa! bond issues.
The availa ble statistics on fcrcign capital movements in Mexico from1942 on, revea! the increasing quantitative importance of the use ofdevelopment loans {rom abroad, as compared to the inflow of new direct
private investments, including increases in balances with parent cornpanies.Since 1956, drawings on medium- and long-term loans have considerablyexceeded new direct investment and intercompany transactions, year by
year. In recent years, for instance, new direct investments as definedaveraged about 100 million $ annually, and loan drawings arnounted to
over 400 million $.
Development loans from theU .S. Export-Import Bank, theWorld Bank,
the Inter American Deve\opment Bank and other public sources are part
of the new patterns of intemational economic cooperation which emerged
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Mexico's Balance of Payments and Externa! Financing 79
after the Second World War. Public international development loans
represent in a way a partial return flow of benefits to the underdeveloped
countries, after more than a century of international trade and investment
in which the distribution of gains favored the industrial countries.
International development loans have been directed mainly to public
infrastructure investments required in order for private initiative to
expand in the underdeveloped countries, sorne types of which in the
nineteenth century were commonly financed by foreign private capital.
At that time the foreign investor himself built public services because
the immediate raw material exports facilitated by these services were
sufficiently remunerative by virtue of the vigorous demand for them in
the industrial countries (such as the export-oriented railroads built by
private capital which flowed into Mexico in the 1870's).
The infrastructure investments undertaken by the public sectornowadays often yield their benefits more slowly and indirectly since
their purpose is to bring about permanent structural changes in the
economy rather than immediate profits. Their productivity is dependent
upon complementary and interacting investments and the social and
economic benefits derived from them are spread over the entire economy
or region, rather than being concentrated in the export sector enclaved
in the economy.
Nevertbeless, to tbe extent that infrastructure investments help to
achieve balanced and integrated development, they a1so contribute to
the growth of the economy's capacity to generate foreign exchange, andthe evidence seems to indicate that this is what bas been happening in
Mexico. The essential conditions are that the bulk of the yields remain
inside the domestic economy so that they add to internal capitalization,
and the foreign exchange is devoted principally to imports of goods,
skills and technology which add to the nation's productive capacity.
The nature of the effort made by tbe public sector in Mexico to provide
the necessary infrastructure for economic development is illustrated by
performance in the following areas during the period 1950-1<)66: irrigated
land has increased 4.9% per year in area; electric power installed capacity
has grown 10% per year; production of petroleum and gas has risen6.6% per year ; the nation's highways have multiplied by 6.8% per year;
rail freight transported has grown 5% and air passengers 10.5% annually ;
the death rate dropped by 3.5% per year; student enrollment at aH
levels has increased 5.7% per year.
Development loans in Mexico leave a net inflow of foreign exchange,
after deducting payrnents for amortization of capital and interest, whereas
in the case of direct private investment, transfers of profits, interest
and royalties have since 1958 consistently exceeded new investment,
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80 Alfredo Navarrete R.
and did SO in more than half 01 the previous years, in spite 01 growingvolumes oi new investment. This trend can be expected to continue as
the value oi existing ioreign investment rises, so long as control oi the
enterprises is held predominantly by ioreign capital, wlúch is interestedin remitting a substantial part oi earnings. For tbis reason, the Mexicanpolicy iavoring joint ventures aims at aclúeving greater domestic capital
accumulation as local owners retain at home part oi the dividenddistribution.
Intemational development financing has made a net contribution oi
II.7% oi the cost oi gross fixed public investment in the period 1942-190,
and new direct private investment irom abroad has financed 7.8% oi
private gross fixed investment.This development financing ineludes 257.5 million $ obtained in
external bond issues placed since 1963 in the United States and Europeancapital markets by the Federal Govemment (177.5 million $ in sevenissues), Nacional Financiera (40.0 million $ in two issues), and the FederalElectricity Commission (40.0 million $ in two issues). (In March oi 1968
the Federal Govemment placed an additional issue in the amount oi
35.0 million $.)
On the other hand, the contribution oi intemational developmentfinancing is measured net of export credits granted by Mexico since 1964in the sale oi manuiactured goods, originating mainly from public sector
resources.l f we
take into account as well net portfolio investmentsof
Mexicansin loreign long-term securities (an average of 8 million $ per year since
1950), the contribution Di foreign capital in financing gross fixed investment
amounts to 9.1% for the perlod 1942-190 and 9.8% ior the period
1960--1g67·Because of the lower absolute values Di direct ioreign investment
capital movements in Mexico, servicing of private investment in recent
years (1900-1966) represents 8.8% oi total foreign exchange incomeon current account, while servicing (amortization plus interest payments)
oi the extemal public debt amounts to 19 .7%. For the overall period
1942 to 1966, servicing Di private direct investment registers a ratio of8.1% to income on current account, and servicing Di development loans
ior the public sector, 7.9%.In 1960, 80% oi the value Di direct ioreign prlvate investment in
Mexico was oi United States origin, but in recent years tbis proportionhas probably decreased, as major investments have come from Europeancountries.
With the shift oi the role oi ioreign capital to a complementary
position in the financing and carrying out oi Mexico's domestic investment,
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Mexico's Balance of Payrnents and External Financing 81
carne a change in the composition oí íoreign direct investment by field
01 activity. In 1938 foreign direct investment in petroleum was reduced
to zero, but 26% oí the value of direct private investment was allocated
to mining, 32% to electric power and gas, and 31% to transportation
and communication. Only 6% was devoted to manuíacturing. By the
end 01 1960, the composition had changed radically. Over hall (56%) 01
the value of direct foreign investment was devoted to manufacturing,
mining had diminished its share to 16%, electric power and gas to 1%'
and transportation and communication to 3%.
During this time direct loreign investment has been increasingly
directed to supplying the domestic market, in substituting imports and
in producing new goods. The rate of return to direct private investment
(as measured by profits over total value) has been highest on average
in manufacturing. Now foreign capital is beginning to produce for the export market again, but in manufactured goods rather than exhaustible raw
materials. This trend is expected to continue as Government policy is
encouraging the production 01 manulactured goods lor exporto
New investments entering Mexico in recent years represent for the
most part joint ventures with Mexican capital. The Government would
like to see foreign capital associate on a minority basis with domestic
investors in newly established firros, and encourages foreign-owned
companies in Mexico to offer part of their shares on the local market
when undertaking important expansions. This is aimed at relieving the
drain on the balance of payments from future dividend remittances and
intensifying at the sarne time domestic capital forroation. Arrangements
are frequently made for the gradual sale on the domestic market of shares
in expanding enterprises, and sometimes part of the shares destined for
future placement in the local market is allocated provisionally to trust
funds established for the purpose.
The railroads, electric power, radio and telegraph communications,
petroleum and basic petrochemicals are in the exclusive domain 01 Govern
ment enterprises. In mining and the manufacture of sorne petrochernical
derivatives, Mexican ownership of percentages ranging from 51% to 66%is required. In the radio broadcasting, international marine transport,
cinema production and exhibition, domestic transportation, fishing, solt
drinks, publishing, advertising and rubber industries, Mexicans must hold
51% of the capital. Foreign entities may not acquire shares in Mexican
banking and insurance firms, and loreigners are prohibited from owning
real property in zones along the country's land borders and seacoasts.
With these exceptions, foreign capital can move Ireely and is doing
so in a .very broad rauge 01 activities. Investments and earnings may
WdtwirtscbaftUche$ Archiv Bd. el. 6
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Alfredo Na varrete R.
be freely repatriated, since there are no restrictions on intemational
payrnents.Direct foreign investment is bound to continue as an effective vehicle
for bringing to Mexico needed knowledge, technology, and productiveengineering and should aIso be instrumental in training Mexican personnel,thus contributing to raising productivity and lowering prices to theconsumer. It i5 particularly weU suited to establishing industries whichcan substitute imports and seU manufactures abroad. Foreign companiesare finding in Mexico a base of operations with other countries of the
Latin American Free Trade Association and European investors are ina position to produce in Mexico on an intemational scale for the United
States market as weU.
The largest item in the capital account of Mexico's balance of payrnents
islabeled "credits to Nacional Financiera and other institutions." Theseare the international development loans, which constitute the most
important source of external financing for the public sector. Eighty percentof this financing is obtained by Nacional Financiera or with its guaranteeand under its Charter Law tbis institution negotiates aIl medium- and
long-term loans for the Federal Government. External financing obtainedby other public agencies must aIso have the approval of the SpecialCommission on External Financing established in Nacional Financiera,consisting of the Secretary of Finance and Public Credit (who is chairmanof the Board of Directors of Nacional Financiera), the General Director
of Nacional Financiera and the General Director of the Bank of Mexico(the central bank).
From 1942, when Nacional Financiera obtained it s first loan from
the Export-Import Bank of Washington, to December oí 1967, the capital
obtained abroad by this institution or with its guarantee, totals4,218 million $, most of which has been channeled to infrastructureprojects and basic industries.
In the period 1942 to 1954, 79% of the amounts drawn by NacionalFinanciera (or with its guarantee) carne from the United States; 19%from international institutions and onIy 2.3% from European and
Canadian sources. Last year 46% originated in the United States; 22%in international institutions; 14% in England; 7% in Franee; 4% inCanada; 2% in Italy; and the rest in Germany, Belgium, Finland, the
Netherlands, Japan, Luxembourg, Sweden and Switzerland.This diversification of sources has resulted in greater fiexibility in
use of fue funds, which are employed not only to cover foreign exchange
eosts, but a1so for local expenditures arising from the investment projects.
The use of foreign funds for local expenditure eosts contributes to effeetivedemand for the many components and products which Mexican industry
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Mexico's Balance of Payments and External Financing
is able to supply when financing is available, but for which it is unable
to grant long-tenn credits.
There is reluctance to authorize loans for the installation of plants
in "package" arrangements and i m p o ~ permits are not granted forpackage-plants without examining the components, in order to provide
domestic producers the opportunity to compete for orders.
A the same time, the loreign exchange received for local expenditures
becomes available for financing the import demand derived from the
additional income generated by the new investments, so that the loans
from abroad result almost immediately in import expenditures.
Diversification of sources also has helped in obtaining longer terms
and grace periods and more competitive interest rates.
On the other hand, the improvement in terms is also related to the
capacity of the economy to mobilize domestic resources, as manifested
in the growth of the savings ratio, and to the ability demonstrated to
formulate and carry out productive investment programs. More flexible
uses of development loans inelude, for example, !oans by the World Bank
for the overall program 01 investments of the electríc power sector and
for agricultural investments. The lnter American Development Bank has
granted loans for programs in education, exports of manufactures, and
financing of housing, in which additional internal resources are a!so
mobilized through the domestic banking system.
Funds obtained abroad in recent years from institutions such asinsurance companies and investment banks, as well as through the bond
issues on the prívate capital markets, provide the particular advantage
of not being tied to specific goods, markets or projects, thus reducing
financia! costs hidden in the prices of equipment and technica1 services.
European suppliers are in a good position to benefit from untied !ong
term fmancing granted to Mexico, because of their favorably competitive
prices on capital goods.
The projects to which foreign development funds are directed
- principally electric power, railroad transportation, highways, agri
cultural investments and irrigation, petroleum and petrochemicals, steel,construction of vehieles - fonn part of public investment programs
which stríve for balance between investments which produce long-tenn
benefits and those more immediately productive. Sorne investments
result in direct foreign exchange savings through import substitution or
generation of exports (petroleum and petrochemica1s); others such as
electric power and highways augment the capacity to export goods and
services indirectly through their effect on economic activity and pro
ductivity.
••
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Alfredo Navarrete R.
While sorne projects involve goods and services which are sold com
merciaily (railroad cars, for instance) in others the Government recovers
the cost through rates related to the projects (water for irrigation, toll
highways and bridges) or via increased fiscal revenue resulting from the
additional income generated by the investments.
From the point of vicw of internal capital accumulation, the excess
yields after the transfer abn¡ad of contractual amortization and interest
payrnents, remain in the first instance in the domestic economy. They
wiil continue to move in the savings-investment stream and form an active
part of the growth process as long as there are productive investment
opportunities and adequate financial mechanisms fOl channeling the
savings. The vigorous growth of the economy and in particular tbe
dynamic expansion of private investment which now makes up three
fifths of gross fixed investment, indicate that this is actually taking place.From the point of view of Mexico's foreign trade and investment
partners, the growth and integration of the economy to which tbese
investments contribute, generate the savings and the foreign exchange
required to service the financing as weIl as new import capacity, resulting
in constantIy increasing volumes of international transactions, so that
there are mutual benefits at rising levels of income for aIl the countries
involved.
• ••
Zusammenfassung: Mexikos Zahlungsbilanz un d aullenwirtschaftliche Finan-
zierung. - Der Aullenwirtschaftssektor der mexikanischen Volkswirtschaft is t
quantitativ bedeutend, un d der Aullenhandel sowie andere internationale Trans-
aktionen stellen auBerdem wirksame Hilfsmittel der ókonomischen Entwick.lung
dar. Die angesichts der Anforderungen einer wachsenden Wirtschaft relativ knappen
Devisen und die Aufrechterhaltung der freien Konvertierbarkeit der Wiihrung als
Grundelement der Aullenwirtschaftspolitik machen den AuBenwirtschaftssektor
Mexikos empfindlich gegenüber der Entwicklung in den anderen Wirtschaftssektoren,
so dall Zahlungsbilanzüberlegungen eine wichtige Rolle bei der Gestaltung der
industriellen Entwicklungspolitik sowie der Fiskal· und Geldpolitik spielten.
Nach einleitenden Ausfnhrungen über Umfang, Zusammensetzung und Richtung
des mexikanischen Aullenhandels beschaftigt sich der Autor eingehend ntit den
Zusammenhilngen zwischen de r Aulleowirtschaft un d der wirtschaftlichen Ent-
wicklung des Landes. WlIhrend de r gesamten Entwicklungsperiode konnte Mexiko
die freie Konvertierbarkeit seiner Wabrung bei einer relativ niedrigen Inflationsrate
(seit X9ÓO : 2,5 v. H. jilhrlich) und einer ziemlich hoheo Wachstumsrate (rund 6 v. H.)
awrechterhalten. Abschlielleod geht der Verfasser ausführlich au f Umfang und Be-
deutung der auslandischen Kapitalanlagen fn r die wirtschaftliche Entwicklung
Mexikos seit de r ErIangung der Unabhilngigkeit (1821) ein
•
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~ e : t i c o ' s Balance of Payments and External Financins 85
Résumé: La balance des paiements du Mel<ique et le financement de son
é<:onomie internationale. - Le secteur international de l'économie mexicaine est
quantitativement important; aussi, son commerce extérieur. ainsi que d'autres
transactions internationales, constituent-ils des ressources pré<:ieuses pour le
développement économique du pays. Vu que, vis -a.-vis des besoins toujours croissantsd'une éeonomie en cours d'expansion, i l y a un certain manque de devi5es, et vu
que c'est un des principes de politique économique internationale du Mexique de
maintenir la libre convertibilité de sa monnaie, l'économie internationale du pays
est tres sensible au x développements dans les autres secteuTS de l'économie, de sorte
qu e les considérations de balance des paiements ont joué un róle important dans
la politique de développement industriel aussi bien qu e dans la politiqueotiscale
et monétaire .
Apres quelques explications introductoires, concemanl l'étendue, la composition
et la direction du commerce extérieur mexicain, ¡'auteur traite a fond des relations
entre l'économie internationale du pays et son développement économique. Pendant
toute sa période de dévcloppement économique, le Mexique a pu maintenir la libre
convcrtibilité de sa monnaie, avec, en meme temps, un taux d'infiation relativementbas (2,5 pour-cent pa r an, depuis 196o) et un taux d'accroissement économiquc
reJativement haut (6 pour-ce-nt, enviran). Finatement, I'aute-ur donne une appré p
ciation détailléc des placements de capitaux étrangers au Mexique, de leur envergure,
et de leur importance pour le développement économique du pays. depuis la réalisation
de son indépendance en 1821.
•
Hesu men: Balanza de pagos y financiamiento económico exterior de Méjico. -
El sector económico exterior de ]a economía nacional de Méjico es cuantitativamente
importante, y el comercio exterior, así como otras transacciones internacionales,
representan además recursos eficaces de] desarrolIo económico. El fondo de divisas
relativamente precario ante las exigencias de una economía en crecimiento, as í como
el manten imiento de la libre convertibilidad de ]a moneda como elemento básico
de la poJítica económica exterior, hacen qu e el sector econ6mico exterior de Méjico
sea sensible frente al desarrollo de IOf= otros sectores económicos, de modo qUE' las
reflexiones acerca tIe la balanza de pagos han jugado un papel importante en la
dirección de la política de desarrollo industrial, así como de la política fiscal ymonetaria .
D{"spués de hacer exposiciones preliminares sobre el yolumen . composición y
direcci6n de] comercio exterior de Méjico, el autor se ocupa minuciosamente de las
relaciones entre la economía exterior y el desarrollo económico del país. Durante
todo el período de desarrollo ha podido Méjico mantener la libre convertibilidad
de su moneda, dentro de una proporci6n inflacionista nlativamente baja (desde
1960, de un 2,5% anual), así como un a tasa de crecimiento bastante elevarla (de
un 6% aproximadamente). Fina]mente, el autor pasa a tratar por extenso el volumen
e importancia de inversiones de capital extranjero para el desarrollo económico
de M6jico desde el añ o ¡ 8·21 , en que consiguió su independencia
•
Riassunto: Bilancia dei pagamenti del Messico e finanziamento economico
es tero. - n settore economico de]J'economia messicana riguardante l'estero equantitativarnente significativo, e i l cornmercio es tero cosl come altre transazioni
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86 Alfredo Navarrete R.
Mexico's Balance af Payments and External Financing
internazionali rappresentano per di piú mezzi efficaci dello sviluppo economico.
Le divise relativamente scarse in considerazione deUe richieste di una economía
in sviluppo e il mantenimento della libera convertibilitiL della valuta come fonda-
mento della política economica estera rendono suscettíbile i1 settore deU'economia
estera del Messicoin
confronto a110 sviluppo negli altri settori economici. cosi cheriflessioni riguardanti la bilancia dei pagamenti banno giocato una parte importante
neU 'attuazione delta politica di sviluppo industriale e anche di quella fiscale e
monetaria.
Dopo consideraziooi introduttive suU'ampiezza, consistenza e direzione deU'
economia estera messicana, ]'autore si occupa in modo esauriente delle connessioni
tra economía estera e lo sviluppo economico del Paese. Durante 1'iotero periodo
di sviluPPOr il Messico pote mantenere la libera convertibilita delta sua valuta in
una rata relativamente bassa d'inflazione (dal 1960 il 2,50/0 annuo) e in una rata
abbastanza alta di sviluppo (circa iI 6%). Alla fine l'autore s'interessa in modo
esteso della mole e significato degli investimenti di capitali stranieri per 10 sviluppo
economico del Messico fin da l momento del conseguimento dell'indipendenza (1821).