Mexico - Recent economic developments and prospects

Report No. 4996-ME Mex'ico Recent Economic Developments and Prospects May 7,1984 Country Programs Department I Latin America and the Caribbean Regional Office FOR OFFICIAL USE ONLY - . I ~~~~~~~~~~~~~~~~~~~~~~ -- Document of the World Bank This document has a restricted distribuition and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Currency Unit - Peso (Mex $) On April 30, 1984, the exchange rate in the controlled market was US$1 = Mex$159.58; the freemarket exchange rate stood at US$1 = Mex$177.70. Both exchange rates are currently sliding at a rate of Mex$0.13 per day against :he US dollar.  FOR OFICIAL USE ONLY MEXICO: RECENT ECOMOMIC DEVELOPMENTS AND PROSPECTS PREFACE This report focuses on recent macroeconomic developments and examines the prospects of Mexico's economic recovery and growth over the coming years. The report does not address sectoral devel- opment issues in any detail, as these are being addressed in the context of a number of ongoing sector studies. A draft of this report was discussed with the Government of Mexico in April 1984. The report was prepared by Irfan ul Haque in collabora- tion with Jorge Garcia-Mujica who devloped the model used in the macro-economic projections. Nadereh Chamlou prepared the Statisti- cal Appendix. Michael Klein (Public Investment), James Hanson (Trade Policy), Darrel Fallen-Bailey (Oil Sector), and Peter Gregory (Employment) also contributed to the report. The report is based on the findings of an economic mission, led by Afredo Pastor, that visited Mexico in February 1983, and a subsequent updating economic mission in January, 1984. IThis domnt ha a restcddi tribution and may be used by ipients only in the peronrmance of thr offidd duts Its cotents may not othewse be discosed without Wod Bank auration.  Abbreviations and Acronyms AEMSA Altos Hornos de Mexico, S.A. CFE Comision Federal de Electricidad CLFC Comision de Luz y Fuerza del Centro CONASUPO Compania Nacional de Subsistencias Populares FERTIMEX Fertilizantes Mexicanos, S.A. FICORCA Fideicomiso para la Cobertura de Riesgos Cambiarios FMSA Fundidora de Monterrey, S.A. FOMEX Fondo para el Fomento de las Exportaciones de Productos Manufacturados IDCE Instituto Mexicano de Comercio Exterior IMP International Monetary Fund LIBOR London Inter-bank Offer Rate PEMEX Petroleos Mexicanos SECOFIN Secretaria de Comercio y Fomento Industrial SHCP Secretaria de Hacienda y Credito Publico SPP Secretaria de Programmacion y Presupuesto  MEXICO RECENT ECONOMIC DEVELOPMENTS AND PROSPECTS TABLE OF CONTENTS Page No. COUNTRY DATA MAP..... ..........B ...IRD No. 15553 SUMMARY AND CONCLUSIONS. . . . . . . . . . . . . . . . . . . . . i-xiii PART I. RECENT DEVELOPMENTS: AN INTERPRETATION . . . . . . . 1 AND AN ASSESSMENT A. Structural Changes in the Mexican Economy . . . . 1 B. Origins of the i982 Crisis . . .. . . .. ... aa 3 C. Conclusions on the Origin of the Crisis . . . . . 13 D. The Aftermath of the Crisis . . . . . . . . . . . 16 PART II. PROSPECTS FOR LONG TERM GROWTHI. . . . . . . . . . . . 21 A. Imperatives for Future Growth . . . . . . . . . . 21 B. Key Assumptions Underlying the Projections. . . . 31 C. Prospects for Stable Growth . . . . . . . . . . . 33 D. Conclusions for Stable Growth . . . . . . . . . . 43 PART III. POLICIES FOR STABLE GROWTH. . . . . . . . . . . . . . 46 A. Resource Mobilization . . . . . . . . . . . . . . 47 B. Promotion of Non-oil Exports & Trade Policy . . . 52 C. Pricing and Subsidy Issues...... . . . . . . 57 D. Public Sector Investments . . . . . . . . . . . . 59 STATISTICAL ANNX..*... 66  -2- TEXT TABLES Page No. Part I A. Table 1: Selected Economic Indicatorso...o.......o......... 2 B. Table 2: Changes in Public Sector Revenues and Expenditures. 4 Table 3: Summary Balance of Payment.0........................ 7 Table 4: Summary Balance of Payments: Public and Private Sector Accountso....eo..o....................... 10 Table 5: Factors Affecting Money Supply ...................... . 11 Table 6: Net Domestic Credit Creation ...................... 12 C. Table 7: Public Sector Imports and Foreign Borrowing........ 15 D. Table 8: Selected Economic Indicators 1982 and 1983 ......... 17 Table 9: Public Sector Receipts and Expenditures............ 19 Part II A. Table 10: External Debt Outstanding and Disbursed............ 23 Table 11: Projected Service on External Debt Outstanding and Disbursed, December 31, 1982 .................... 26 Table 12: Labor Force Estimates. ....o.o.oo.o.o.o.o......... 29 B. Table 13: Macroeconomic Projections: Scenario I .............. 33 C. Table 14: External Debt Projectionoo..p.o................... 35 Table 15: Private Sector Savings and Investment........... 37 Table 16: Macroeconomic Projections: Scenario II......I..... 40 Table 17: Macroeconomic Projections: Sensitivity to Foreign Financinga.......00n............ .. ..... 42 D. Table 18: Macroeconomic Projections: Sensitivity to Interest Rats..... tes...... o . oo 44 Part III A. Table 19: Tax Buoyancies 1964-1982o.o.o.......... O........ 48 Table 20: Nominal and Real Deposit Rates - 1979-1983...-... 51 B. Table 21: Exports of Goods and NonrFactor Services.. ........ 54 C. Table 22: Federal Government Transfer Payments ......... o...... 58 D. Table 23: Public Sector Investment ........................... 61  T A B L E 3A Page 1 of 5 HEXICO - SOCIAL INDICATORS DATA SHEET HEXICO REFEREUCE GROUPS (WEIGITEO AVERAGES) 1- HOST (5MT ) EWT STIK&TE) /b Sb zb RS~CENT, RlUOLb IN= tIlXLS 1'XI ,60/b 1970k'. ESTINATdLb LAT. IRLCA I CAlI StUHELO aM cwuIIDIASD SQ. a) TOTAL 1972.5 1972.5 1972.5 AGRICULTURAL 1000.0 976.4 978.3 mW En CAWI (US$) 370.0 740.0 2250.0 2068.Z 2453.6 mr mon vsanC (KILOGRAmS OF COAL EIMVALENT) 786.0 1145.0 1684.0 1407.6 lSbO.8 JOA X AM LrL SUAnCS POPULATION.MID-YEAR (THOUSANDS) 37073.0 51176.0 71215.0 URBAN POPULATION (Z OF TOTAL) 50.8 59.0 67.3 65.9 47.8 POPULATION PROJECTIONS POPJLATION IN EMAR 2000 (MILL) 115.0 STATIONAR POPULATION (HILL) 215.0 YElA STATIONAXY Po. REACHED 105 POPULATION DNSI7Y PER Sq. 13. 18.8 25.9 35.2 35.6 82.U PEA SQ. IN. AGRI. LAND 37.1 52.4 7U.9 93.2 157.2 POPULATION ASE STRUCTURE (A) 0-14 YRS 45.6 4b.5 44.7 40.1 31.9 15-64 YS 51.0 50.0 51.d 55.8 W.9 65 AND ABOVE 3.4 3.5 3.4 4.1 7.2 POPULATION RWOm AM (1) TOTAL 3.0 3.2 3.0 2.3 1.6 URAiN 4.8 4.7 4.2 3.7 3.4 CRUDE BIRTH RATE (PEA THOUS) 45.4 43.4 36.0 31.5 25.0 Cain DEATd RATE (PER THoUS) 12.2 9.7 7.0 8.1 9.1 GROSS REPRODUCrION RATE 3.3 3.2 2.4 2.0 1.7 FAMILY PLANNING ACCEPTIRS. AWNUAE. (THOUS) . 25.1 1145.0 USERS ( OF HARED WOHEfl) .. .. 38.0 FM -ND mr INDEX OF FOOD PROD. PEA CAPITA (1969-71-100) 97.0 100.0 109.0 113.0 108.4 PER CAPITA SUPPLY OF CAIORIES (Z OF REQUIAENTS) 117.0 111.0 121.0 111.3 129.6 PROTI (CRAM PER DAY) 69.0 65.0 74.0 67.9 92.3 OF IBIICH ANIMAL AND PULSE 29.0 27.0 27.0c 34.1 34.6 CXID (ACES 1-4) DEATH RATE 10.1 6.5 3.5 5.3 10.4 sYII LIFE EXPECT. AT BlRTl (YEARS) 57.0 61.3 65.6 64.6 o7.2 [MEANr MORT. M.ATE (PEt THOU1S) 91.1 73.6 54.4 62.6 71.4 ACCESS TO SAFE WATEA (ZPOP) TOTAL 23.5 49.0/d 58.0/d 64.8 URBN .. 6B.5/d 61.4/d 77.6 RUlAL 21.07oT 51.o7; 44.3 ACCESS TO EICRETA DISPOSAL (Z OF POPULATION) TOTAL 37.0/d 36.0/d 54.6 URBAN .. 60.0Wd 50.s1d 69.8 RURAL .. 4.0oT 13.u7Td 29.8 POPULATION PEA PHYSICIAN 183'Xu 1510.0 1260.0/e 1776.0 1094.8 POP. PER NURSING PERSON 3650.o 1640.0 1420.0oe 1012.2 762.5 POP. PER HOSPITAL BED TOTAL 590.0 970.0 870.0/e 477.0 334.0 URIAN 570.0/f 1170.0 ioo.oTe 667.5 216.0 RURAL .. 1370.0 LZO.077 1921.. ADMISSIONS PER HOSPITAL BED .. .. .. 27.2 2U.U AVERAGE SIE OF aOUSEIIOLb TOTAL 5.4 5.7 URBAN 5.7 5.7 RURAL 5.2 5.8 AVERAGE MD. OF PERSONS/M3ON TOTAL 2.9 2.5 URBAN 2.6 2.2 RURAL 3.4 3.2 ACS5 TO ELECT. (Z OF llELLINS) TOTAL 58.9 URBAN .. 80.7 RURAL .. 27.8 BEST COPY Aall arlr  TARLI UA Page 2 of 5 HEXTCU - SOCIAL INDICATORS DATA SHEET MEXCO REFERENCE QUPS (WEICTED AVERAGES) 1 IIST (MOST RECENT ESTDNATr) /b 1960b b RECENT A MIDDLE INCOGE MIDDLE I[MCCI 96- 1 ESTI[ATb LAT. AMERICA