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Mexico Holds Breath for US Trade Deal

A NORTH American Free Trade Agreement neatly signed by the presidents of Canada, Mexico, and the United States may be only weeks away. But a NAFTA with legislative blessings, particularly in the US, is something else, say analysts.

"Mexico wants this agreement in 1992. But chances are it's not going to get it," says Roberto Salinas Leon, economist for the Center for Free Enterprise Research in Mexico City.

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The ingredients for a postponement are in place in the US: a prolonged recession, high unemployment, a Democratic-controlled US Congress that barely approved "fast-track" consideration of NAFTA, a presidential election year, President Bush's popularity slide.

The question being considered here and in other Latin American capitals is how a NAFTA on ice might affect their economies and plans for other free-trade pacts. "It would temporarily change the investment profile, some projects would be postponed, and it's likely foreign capital flows would be reduced," says Rodolfo de la Torre, an economist at the Center for Research and Economic Analysis. "But it wouldn't significantly change Mexico's economic outlook," adds Mr. De la Torre, who is among the few who ex pect that NAFTA could be approved this year.

With NAFTA, economists are predicting the Mexican economy will grow at 4 to 6 percent clip this year, up from the 1991 growth rate of slightly less than 4 percent. Without NAFTA, Mexican economists predict a slower rate of growth, somewhere around 2 to 4 percent. At the slower rate, the Mexican economy would not keep pace with population growth.

Most analysts see the economic reforms engineered by President Carlos Salinas de Gortari as substantial enough to ensure continued growth. But there's no doubt that the prospect of creating a single market of 360 million consumers (bigger than the 12-nation European Community) has helped pump billions into the Mexican economy. Foreign investment hit US$9.2 billion last year, almost double the previous year. But more than half of the money went into the stock market (the sale of the government telephone c ompany alone brought in about $2.5 billion).

The concern is that if NAFTA prospects dim, investors may look elsewhere for profits. And that would undermine financing of a swelling current-account deficit (about $12 billion last year) which is expected to top $15 billion in 1992. A free-trade pact would assure foreign and local investors that President Salinas's economic reforms would continue into the next administration, and thus keep capital from leaving financial markets.

But Mexico isn't the only nation hanging on the outcome of this trade pact. "It's crucial not only for Mexico but for all of Latin America," Enrique Iglesias, president of the InterAmerican Development Bank, said recently. "The value of the agreement doesn't reside solely in the effect on trade in products, but in that it establishes the bases for future investment in the hemisphere."

And Latin America looks at NAFTA as the test case for the Bush administration's "Enterprise for the Americas" plan for a hemisphere-wide free-trade zone. "Without NAFTA, the Americas initiative is dead," says economist Salinas.

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Currently, a host of regional free-trade agreements are being developed in Latin and Central America. A Mexico-Central America pact is planned for 1996. Mexico signed an open trade agreement with Chile last year, and plans to sign individual deals with Colombia, Venezuela, Costa Rica, and Honduras. But NAFTA - granting free access to the US consumer market - remains the engine upon which the rest of Latin America hopes to hook its economic future. If not linked directly to the US in similar agreements, t hen these countries hope for an indirect connection through Mexico.

A final draft of NAFTA appears to be close enough now that observers say Mr. Bush faces a political decision whether to submit the pact to Congress, thus making it a campaign issue, or wait until after the November presidential elections. But NAFTA supporters are encouraged that the leading Democratic candidates have also voiced their support for the concept, if not for this particular agreement.

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