Mexico's Economy Strengthens

Growth returns after worst slump in 60 years, but most Mexicans left out

Since the early months of this year, Ramn Gonzalez Carrera has started breathing a little bit easier: After a disastrous drop in car sales at his Ford dealership in Tehuacn, Mexico, during 1995, he says sales have stabilized and are now back on the rise.

"Sales are growing very slowly, but they are going back up," says Mr. Gonzalez, who was accustomed to selling up to 60 cars a month before Mexico's steep peso devaluation in December 1994. The ensuing economic crisis left him signing the sales contract on as few as five cars in some months of 1995. "There's a little more money out there, but not a lot," he adds. "This is going to be a slow recovery."

His comments capture the essence of Mexico's economic picture as the country begins pulling out of its worst downturn in 60 years.

Signs of recovery

For months, Mexican officials from President Ernesto Zedillo Ponce de Len on down have told Mexicans that the economy had "hit bottom" and was on the verge of recovery. Now various economic statistics support that claim - but also indicate that for average Mexicans, happy days are not exactly here again.

Last week, the government announced that the economy grew a hefty 7.2 percent in the second quarter of this year, the first positive quarterly figure since 1994. Economists predict that it portends growth of about 3 percent for the year. But Mexico still won't recover from 1995's 6.9 percent retraction in economic output until at least sometime next year.

Inflation is steadily falling, expected to end the year at about half of last year's 50 percent rate. But Mexicans have still lost more than a quarter of their buying power as a result of the crisis, according to the Mexican Labor University in Mexico City.

Interest rates are way down from last year's astronomical levels - at one point 12 percent a month - but cash-starved small and mid-size firms still find borrowing almost impossible.

And because of the kind of recovery Mexico is experiencing, according to economists, largely fueled by growth in exports rather than by any leaps in internal consumption, the "growth" and other positive economic signs the government touts will not be broadly felt at the level of average Mexicans for some time to come.

"Yes there are some positive signs of growth, but it's still not being felt," says Jess Estban Macias, a finance expert at Monterrey Technological Institute's Mexico City campus.

Last year, Mexico turned 1994's $18 billion trade deficit into a $7 billion surplus, and this year exports continue to grow, up nearly 23 percent over 1995. Mexico is benefiting from a solid economy next door in the United States, economists say, since Americans buy a whopping 85 percent of Mexico's exports.

Mexico has been able to repay all but $3 billion of the $12 billion in US "rescue" funds that Mexico tapped into in the wake of the peso crash.

Dualization of economy

The export growth is coming largely in the country's maquiladora industries (which assemble foreign components) and multinational companies, which have "very low impact" on the general economy, Mr. Estban says. "What we're seeing is a dualization of the Mexican economy," he says. "The modern sectors, including efficient globalized exporters, are ... becoming even stronger, but the backward sectors" - where much of the country's employment sits - "are going further backward."

President Zedillo recently announced that almost all the jobs lost in the crisis have been replaced by 720,000 new jobs. But many economists discount that claim, estimating rather that 1.5 million jobs were lost and less than half of those recovered. Relatively few new jobs have been added in the growing export sectors.

Lower inflation and booming exports have helped the Mexican peso stabilize and even rise in value against other currencies - a factor that has boosted the confidence of Mexico's business owners. About half of all companies participating in a survey by Mexico City's Center for Private Sector Economic Studies reported seeing signs of economic recovery in this year's first quarter - even before the second quarter's growth leap.

Still, many companies "are tired of waiting for growth to return in the domestic market," says Malenko Panich, director of Monterrey Tech's Business Support Center in Mexico City. "They recognize that exports are where growth is going to come."