Mexico - Recent economic developments and prospects

R E S T R I C T E D RETURN TO REPORTS DESK R e p o r t N o. WH-801 WITHIN ONE WEEK L LtWY This report was prepared for use within the Bank. In making it available to others, the Bank assumes no responsibility to them for the accuracy or completeness of the information contained herein. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT RECENT ECONOMIC DEVELOPMENTS AND PROSPECTS OF MEXICO November 24, 1958 Department of Operations Western Hemisphere.  CURRENCY EQUIVALENTS 1 U.S. $ s 12.49 pesos 1 peso a 8 cents 1 million pesos a $80,000  TABLE OF CONTENTS Page No. BASIC DAThA SLHNARY AND CONCLUSIONS i - iv I - TRENDS IN MEXICO'S DEVEFLOaRI,ENT 1 Past Characteristics 1 Changes in the Pattern of Future Development 2 Role of the Capital Market 4 II - THE FEDERAL GOVERIIMENIT BUDGET DEFICIT 6 Recent Financial Developments 6 Causes of the Budget Deficit 7 III - THE DEFICIENCY OF RESOURCES AVAILABLE FOR PUBLIC INVESThiENT 11 IV - TH.E BALANCE OF PAYMiENTS 16 Present Position 16 Future Trend of Current Foreign Exchange Earnings 17 Foreign Exchange Resources available for Imports 18 V F FUTURE EXTERNAL BORROWING 19 APPENDIX: Projection of Merchandise Exports 22 List of Tables (see following page)  LIST OF TABLES Table Nos. 1 External Public Debt Balances Outstanding 2 Estimated Service 3 New Money Utilized 4 Economic Growth Indices of Volume of ?roduction,195o-57 5 Indices of Industrial Production,1950-57 6 PrinciDal Agricultural Crops 1939, 195o-57 7 Supply aid Use of Resources Gross National Product and Gross Fixed Investment 1950-58 9 Savings in Relation to Gross National Product 10 Import Components of Consumption and Investment 1953-1968 11 Public Finance Federal Government Budget Performance 12 Federal Government Revenue 1955-57 and Projection for 1958 13 Public Exoenditures, Savings and Revenue 1952-58 14 Public Investment Functional Breakdown 1953-58 15 Breakdown by linistries, Agencies and Enterprises 1955-58 16 Financing of Public Investment 1955-58 17 Monetary Developments Origin of Clhanges in M4oney Supcly (1955-57) 18 Price Indices 1950-58 19 Indices of Industrial Wages 1945-57 20 Balance of Payments 1952-1968 21 l'lajor Commodity Exports 22 Exports of Manufactured Goods, l15o-56 23 Current Foreign Exchange Earnings  BaSIC DiThA Area 760,C00 square miles Population (1958) 32.5 million Gross National Product (1957) 103 billion pesos National Income 92 billion Desos Per capita income (approx). US& 235 Federal Government Budget (1c57) (millions of pesos) Exoenditures 8 396 Current 5,660 Inves tment 2,716 Revenue 8,012 Incone TPx 2,513 Balance of Poymncnts (1957) (millions of US dollars) Current Account - 164 Total Fcreign ',xchan-e Receipts i 02 Total Current Pay1:ua-s 1,566 Netc Long-tein CaTDital Receiots 196 Short-term Ca,'ital 3 Gold arid Foreigrn F,xchange Reserves (Dec. 1557) 441 Fxternal rThThic Debt (Dec. 1957) 552 Fliblic Boreds -nd Nationalization Obligations 110 Other Lorn--teinl- Debt 290 Suppliers; e -i?ivate Baki Credits 152  SLT]`ARY AIND CONCLUSIONS 1. The Mexican economy has experienced a favorable rate of growth -- averaging 5% per annum in the past decade. Despite severe droughts in 1956 and 1957 and the recent recession in tlhe markets for raw material exports, Mexican output expanded by 7% in 1956 and 4% in 1957. Both agriculture and manufacturing industry have contributed greatly to the country's economic development. The expansion of agricultural exports -- together with steadily increasing tourist earnings -- made for a growth of foreign exchange earnings considerably greater than the growth of Gross National Product. This enabled industry to import a steadily increasing amount of capital equipment. Indus- trial development was also facilitated by an increase in direct foreign invest- ment. 2. During the next decacde Mexico has the potentiality of main.taining a growth rate close to that achieved in the past ten years. The country has achieved a broad and strong forward momentum which it will be hard to subdue. A strong feeling of confidence prevails in the business sector. Manufacturing industry enjoys a favorable investment climate. The efforts of the private sector are, with increasing effectiveness, being supplemented by public in- vestment (accounting for one-third of total investment). However, if Mexico's development potentiality is to materialize, it will have to step up total investment to at least 15% of Gross lqational Product (compared with an average of 14% in the past decade). This would appear to be possible only if total domeStic savings are increased by 1.5 -- 2% of Gross Nlational Product over the average of 1957 and 1958. While continued efforts are necessary to step up savings of the private sector and to channel personal savings into productive enterprise, _t would seem that the bulk of the necessary increase in total savings will have to be achieved in the public sector. 3. Mexico has experienced over-all economic stability in the last three years, but there are signs of increasing inflationary pressures. Upward price and cost adjustments, unavoidable after the 1954 devaluation, were carried out while the Governmenit exercised restraint in the public sector and the Central Bark made more restrictive its policy on private credit. Following two years of post-devaluation adjustments -- 1955 and 1956 -- the increase in the money supply and the domestic price level tended to level off in 1957. Simultaneously, however, there was a shift in the financial position of the public sector from a surplus to an increasing deficit. The Federal Government budget deficit amounted to 384 million pesos in 1957 and is expected to increase to 670 million pesos in 1958. Although part of the 1958 deficit will be covered by the sale of bonds to the public, Central Banlc financing of the public sector will prob- ably, as in 1957, be the principal inflationary force in the economy this year. Continuation of this deficit trend would tend to upset the present over-all stability in the economy. 4. The urgency of measures to reverse the deficit trend is also borne out by recent balance of payments developments. This year gold and foreign exchange reserves will probably decline by $50 - $100 million (compared with $28 million in 1957), bringing them to $350-4co million at the end of the year. This is an adequate level of foreign exchange reserves. However, since they  - ii - are needed as a cushion against short-term caoital movements, it will be necess- ary to prevent further losses of reserves resulting from the current foreign exchange deficit. This requires vigcrous action to avoid an intensification of inflationary pressures by restoring balance to the public finances. 5. Underlying the budgetary deficit are certain basic maladjustments in the public sector. There has been a steady rise in current expenditures as a result of many factors including various kinds of subsidies (foodstuffs), cer- tairi social outlays, wage and salary adjustments, and support of operational expenditures of government agencies (e.g. agricultural banks). Current expen- ditures are expected to increase to 6.5 billion pesos in 1958 or 5.8% of GNP, the highest level in relation to GNP for the past decade. Tne budget is also burdened by continued support of investments by state enterprises. These en- terprises would be able to finance a larger share of their own investments, if they were permitted to charge more adequate prices for their goods and ser- vices. In 1958 net budget support for investments in electric power and the railroads amounts to 84o million pesos. In addition, the national petroleum enterprise, Pemex, had unoaid tax obligations of 300 million pesos in 1957 and an estimated 200 million pesos in 1958. These difficulties of public finances are accentuated by the slackening in the rate of increase in Government revenue. This year Federal Go-vernment revenue, at an estimated 8.6 billion pesos, will have the lowest ratio to GNP (7.6%) for the last six years. 6. The Federal Government budget deficit trend has been accompanied by a decline In savings of the public sector as a whole - i.e. that part of the revenues of the Government, its agencies and enterprises which are available for investment. In 1958 total puiblic savings are expected to fall to 3.3 billion pesos (2.9% i.e. the lowest nercentage of GNP for the period 1952-1958). The gap between public savings and investment has increased from an average of 0.4 billion pesos in 1955 and 1956 to 1.81 billion pesos in 1958. This increase has taken nlace desnite well-directed efforts to keep investment outlays with- in the limit of available resources. After allowing for utilization of ex- ternal credits, the short-fall of total available resources below investment will probably come close to one billion pesos in 1958. 7. The deficiency of investment funds is bound to increase unless several steps are taken to imTrove the financial position of the Government and its enterprises. In the years ahead there are likely to be many upward pressures on current expenditures which would depress public savings below the already low level of 1958 in relation to GNP. Moreover, in view of existing needs in health, education and welfare, the Government may well find it diffi- cult to resist further increases in investments in these fields (which between 1953 and 1957 rose from 0.7 to 1.1% of Gross National Product). To prevent suppressing other types of investment activities, total public investment would have to be increased to some 5.5% of GNP over a period of three to five years. In all, the deficiency of public investment funds - even assuming a substan- tial increase in the utilization of long-term external credits - is likely to increase from about one billion pesos this year to some three billion pesos or 2.1% of GNP by 1963. 8. Unless the Government takes adequate measures to overcome this  - iii - deficiency lIexico will experience serious instability. Public deficits in- creasing from one billion pesos this year to 3 billion pesos in 1963 would be equivalent, each year, to at least 102 of the rising money supply, surely considerably more than is warranted by the expected growth in GM?. It would seem that no adequate and lasting solution can be expected from a reduction in public investments alone. Without increasing revenues, the investment reduc- tion sufficient to restore balance to the public finances would have to cut deeply - between one-third and one half - into every key sector of Dublic in- vestment activity, namely irrigation and regional development, highway and railroads, electric power and petroleum. Such reductions would greatly slow- dowJn the growth of the Mexican economy. 9. Thus if the Government wants to avoid economic instability and a slow- down in development, the only alternative is to imrprove its revenue and the financial resources of government enterprises. Half of the potential deficiency could be covered by raising Federal Govermnent revenue and avoiding further in- crease in currenit out'Lays. With the continued growth of the Mexican economy, the maturing of industry and the increased imortance of the middle class, it shoild be possible to increase Federal Government revenues from the low 1958 level of 7.6% of GNP to 8.6 - 9% of GNP by the early '60's. Moreover, a reduc- tion in the various kinds of' current subsidies granted by the Federal Govern- ment would permit some increase in social expenditares (which may be unavoid- able in coming years) without increasing total current outlays in relation to GTP. This conbiration of measures would overcome the deficiency of funds for activities directly undertaken by the Government. The other half of the deficiency must be covered by the Government enterprises. As a minimum this will require adequate adjustments in the Drices of petroleum products and fur- ther efforts to make the Federal Electricity Cormmission independent of the Government budget. In addition it will be necessary to improve the financial position of the railroads by- increasing tariffs and/or cutting operational expenditures by a reduction of labor costs, thus enabling the railroads to carry out their operations ard investments without the present substantial support from the Government. 10. Provided measures are taken enabling the public sector to carry out an adequate level of investment, the outlook is good for continued economic growth at the rapid pace of the last decade. I;exico can also count on a steady increase in foreign exchange earnings. Even so, the growth rate of foreign exchange earnings may well be less than that of the domestic eoonomy. However, on the basis of present development trends, industry and agriculture should be able to produce an increasing proportion of the country's consumption and investmient needs. The balance of payments is relatively stable because of the wide export diversification, the growing importance of tourist earnings and Mexicots self sufficiency in fuels and food (except in years of severe drought). 11. Mexico has kept external debt service well within the margin of safety. All new external borrowing is controlled by a special commission which regards 10s' of foreign exchange earnings as the upper limit for external debt service. This would appear to be an adequate policy under prevailing circum- stances. In 'yractice, debt service has remained well below the 10% limit. In  - iv - 1958,total external debt service amounts to $111 million or 7.8% of foreign exchange earnings, of wJhich 55% is taken up by suppliers' and private bank credit. 12. The projected increase in foreign exchange earnings and the decline in service on existing debt opens up a widening margin for servicing addition- al external debt. If Mexico continues its present cautious policy toward suppliers' and private bank credits, most of this margin can be used for new long-term credits. For instance if Mexico chose to continue the present policy of limiting total debt service to 10% of current foreign exchange earm- ings and if medium-term credits were permitted to increase only slightly above their present level, there would be a considerable margin of projected foreign exchange earnings availaole for servicing additional long-term debt. This would permit a substantial increase in the annual utilization of long-term external debt over the level of recent years.  RECENT ECONCKIC DEVELOPMENTS ANiD PROSPECTS OF MEIICO I. TRENDS IN 1]iEXICO tS DEVELOPIVENT Past Characteristics 1. Since 1947 M4exico's Gross Naticnal Product has increased by 5% per annum. This is a good growth record indicating a gradual im)rovement (somewhat over 2% per annum) in the standard of living of the rapidly in- creasing population. 2. Mexico's development in the post-war period has proceeded ,jith highly cyclical movements. In 1947 and again in 1952 and 1953 economic growth slowed down greatly due to a combination of adverse weather con- di-tions and nrice-cost inflation which made domestic industries uncomDeti- tive with imports and in export markets. In 1948/49 and again in 1951 these situations Twere quickly imnroved by devaluation of the peso which co- incided with favorable crons at home and uoward trends in the econony of the U.S., Fiexico's principal trading partner. During years immediately follow- ing devaluation (1950 and 1955) Mexico enjoyed growth rates of around 10% per annum. 3. N,exican development has been balanced in that both agriculture and manufacturing industry have been important contributors to the country's growth. Agricultural o.roduction ex;qanded at an average rate of 4% per year during 1950-57 despite severe droughts in the last two years. (See Table 4). Without these drought years agricultural production wculd undoubtedly have increased faster and might have exceeded the rate of exoansion of the economy as a whole. (e.g. the agricultural growth rate in 1950-54 was 8% per annum). The rise in agricultural outDut lwas due urimarily to an extension of acreage attributable both to governmental irrigation efforts and to the opening up of new rain-fed lands as transportation and credit facilities improved and the rural oopulation expanded. However, for some principal crops, such as wheat and cotton, higher yields accounted for half or more of the higher output. The expansion in agricultural production was greatest in export crops (cotton and coffee) and in im-port crops, particularly wheat. (See T'able 6). Exoorts of cotton went up from 40h,0oo bales per year in 1946-50 to 1.5 million bales in 1958 and of coffee from 642,ooo bags (1946-50 average) to 1.5 million bags (1958). Wheat production which had been supplemented by imports averaging 300,000 tons per year in 1946-50, exceeded domestic consumption in 1957 and 1958. 4. Mexico also provided a favorable climate for the rapid growth of manufacturing industries (See Table 5). Tax incentives, stable political and labor conditions, generally able management and skilled labor, technical help from abroad as well as ample foreign exchange resources for the purchase of the necessary machinery, has made possible an average increase of at least 6% per annum since 1950. In the consumer goods industries there are several examples of durable goods production having expanded many-fold during the last five or six years. In recent years, moreover, production of investment goods has shown a sharp upward trend. Steel production has doubled in the last five years, but even so has barely kept up with the growth of domestic demand. Advances have also been made in the production of special tyoes of steel and mechanical tools. Illustrations of investment goods now being  produced by hiesdcan industry include textile machinery, certain types of mining equipment, all types of eleetric motors up to 125 h.p., certain tpes of elec- tric transformers, all caroenting and mill work tools, agricultural imnlerlents (including tractors), irrigation nvums and transportation equipment (including trucks, buses and railroad cars as well as diesel and gasoline engines). 5. These developments have given M4exico a steadily rising level of foreign exchange resources available for importing capital goods abroad. The expansion of agricultural exports together with a growqing volume of tourist receipts made for a growth of foreign exchange earnings considerably greater than the growth of Gross National Product. On the import side, except in years of severe drought, Mexico no longer needs to import its basic foodstuffs. The development of consumer goods indLstries has made possible reductions in imports of most finished consumer goods except certain luxuries. These changes in the structure of foreign exchange earnings as well as in the corn- position of imports, have enabled Mexico to increase its imports of capital goods, and even considerably to increase the import component of domestic investment: Investment Goods Imports Percentage of 1948 1957 Total imports 39 46 Gross Fixed Investrnent 28.5 42 Changes in the Pattern of Future Development 6. The Mexican economy has achieved a strong fonward momentum. In 1956 and 1957 the growth rate averaged more than 5'' per annum. This wJas attained despite severe drought conditions, a downturn in agricultural production (employing about half of the worlcing force) and, since 1957, the recessionary impact of lower prices for metals and coffee. This forward momentum cannot be attributed to any single factor but rather is the result of a combination of forces which are now strongly established. Stable political conditions have, of course, benefitted all sectors of the economy. Efforts to reduce illiteracy and to improve educational facilities on both elementary and ad- vanced levels are beginning to bear fruit, among others in the form of an ample sur)ply of technicians as well as of skilled labor. Mexico's population is growing rapidly - not only in the sense of regular additions to the number of inhabitants (about 1 million per year) but also in the sense of a steady in- crease in the number of people able to purchase the products of industry. A strong feeling of confidence prevails in the manufacturing sector. Helped by generally peaceful labor relations and an ever-widening market, manufactuiring industry is enjoying a favorable investment climate. Moreover, direct foreign investment in Mexican industry has increased from $16 million in 1948 to 'v140 million in 1957 - from less than 4% of total private investment to more than 17%. These efforts in the private sector have, with increasing effectiveness, been supplemented by public investments. 7. During the next decade Mexico has the potentiality of maintaining a  - 3 - growth rate close to that achieved in the past 10 years - 5% per annum. The overall yield of investment in Nexico, i.e. its effectiveness in increasing total output, has been relatively stable in tne past decade. Although, over the next 10 years, no substantial decline in the overall yield of investment seerms likely, some moderate decline may well occur particularly as a result of reductions in the relatively high-yielding investments in agricultural export production. Thus if MYjexico is to maintain a growth rate of 5' per annum it will be necessary to step up gradually total investment from the average of lL.l> of G-P in the past decade to at least 15% in the next decade. This will be nossible only if the level of total savings is increased by 1.5-2CJ of GNP over the average for 1P57-58. (See Tabe 9). Continued efforts are necessary to .-te- up savings of the Trivate sector and to channel personal savings it-to nrJ<Llc iLe enterzise, whilich may be facilitated by further devel- opment of the dojres.tic capital market (see below). However, the bulk of the necessarv increase in total savings wvill have to be achieved in the public sector. Thus whether or not hexico' deVEelopmeht potential will materialize over the next years depends to an inportant extent on an increase in public savings, the problems and possibilities of which are discussed in the next section. 6. While H9xico's growth rate over the next decade may, on average, be the same as that of the past 10 years, several shifts in the pattern of devel- opment are likely. First, there will probably be important changes in agri- cul'tural develonTmo-nt. In the past decade the most pronounced increases in agr-cultural production occurred in the irrigated areas of the northwest. The considerable sucCess of irrigation in this area can be attributed to favorable climiatic conditions, the possibility of large-scale production with well- established techniques and, consequently, sufficient particination of private initiative. As the possibilities for new irrigation have declined, future land improvement is likely to shift emphasis toward the southwestern part of the country along the Gulf of Mexico, where the principal Problem is excessive water sunply rather than shortage. The technical, marketing and processing problems in this area are different fron those in the northwest. Thus far the development of the southeast, particularly tlhe multipurpose project Papaloapan where construction began in 11?47, has not resulted in any exten- sive production increases, and private initiative and capital have been slow to take advantage of governmental efforts. It is likely that intensified development efforts in this region will be more fruitful in coming years. On the otlher hand, the results in terms of large crops being brought to market will probably be less spectacular than those previously achieved in the north- west. In view of both domestic technical nroblems and external market con- ditions, IPexico cannot count on another rapid increase in export or import- substitution crops such as occurred with cotton, coffee and wheat. 9. Thus the change in the pattern of agricultural development w ll most likely be asscciated with a considerable slowdown in the rate of growth of current foreign exchange earnings - from 8% annually in the last 10 years to about 3.5, per annum in the comning decade. Even though 3.5% per annum is still favorable, this decline in the growth rate of foreign exchange earnings will reverse the relationship between the development of th.e danestic economy on the one hrtand and that of available foreign exchange resources on the other.  - 4 - This has, in fact, already been taking place in 1956-58 as current foreign exchange earnings have remairLed relatively stable while domestic output has increased steadily. As a result of the slowdown in the growth of foreign exchange earnings an increasing proportion of investment and consumption demand will have to be supplied by domestic industry. 10. Thus, instead of being able to increase the import component of domestic investment, both private and public, as occurred in the past decade - Yexico will itself have to produce an increasing proportion of capital goods requirements if its development is to continue at a pace of 5% per year and at the same time remain within available foreign exchange resources. In total, capital goods imports would have to decline gradually from 42% of domestic investment in 1957 to about one-third in 1968 - about the same pro- portion as in the late 40's. (See Table 10). In order to keep abreast of the needs of a growing Mexican economy, the capital goods industries, which are predominantly private, will have to accelerate their expansion of recent years. 11. An accelerated expansion of private industry producing capital equipment would not, however, by itself be sufficient to ensure continued growth of the Mexican econony while living within probable foreign exchange availabilities. In addition, it would be necessary for MIexican enterprise to expand "basic" industries producing industrial raw materials; in this field there is still ample possibility for iriport substitution -- for in- stance, imports still account for one-third of domestic steel consumption despite the doubling of production over the past five years. An expansion in basic industries would permit a deepening of the domestic industrial com- plex by facilitating simultaneous growth of secondary or intermediate indus- tries, where there is much scope for deveLopment of manufacture between the final stage of assembly and the production of basic materials. In the mechan- ical industries, for instance, many of the essential parts needed in the final stage of manufacture, i.e. in the assembly industries, are still imported. Similarly in the chemical industry where since 1951 there has been great increases in basic materials such as sulphuric acid, caustic soda and annonium sulphate, domestic industry is not yet fully supplying the market with such products as paint solvents, pharmaceuticals, explosives, plastics and nylon. Role of the Capital Market 12. In view of the rapid increase in population - which is expected to double over the next 20 years (from a present 32.5 million to 65 million) and the limited possibilities of increasing agricultural employment, the contin- ued expansion of manufacturing industry is a primary requirement for the growth output and employment. This will put a steady strain on Mtexico's finan- cial resources, and make necessary additional measures to increase savings and to attract them into manufacturing industries. This process would be facili-  - 5 - tated by furtier development of 4:hc: !cxican capital market. Although only a small proportion of indust; .1L investment is presently financed through new market issues, there are several ways in which the role of the capital market in channeling savings into manufacturing industry could be increased. There is a rapidly growing middle class interested in investing part of its savings in good industrial securities. It is possible that a larger share of personal savings is already being inve:,ted in industry as a result of changes in the interest rate structure and of the introduction of new types of securities. In cormparison with 8%o mortgage bonds or with Nacional Financiera's 5% Certifi- cates of Participation -- a form of savings deposits which in practice has developed into an expensive kind of call money -- industry has been offering peso bonds with interest rates between 10 and 12%. Nacional Financiera has, in addition, introduced "certificates of industrial co-ownership,," based on a portfolio, half in bonds and half in industrial shares, which give an 8.5% return. The Government is stimulating the trend torard higher bond yields by offering the public Pemex bonds yielding 7.6% on a par value which has been tied to the wholesale price index. 130 ihioreover, the stock market may broaden gradually as some of the companies presently closely held "open up." Cne way in which this has been happening is by the development of mutual funds, based on thte Investment Companies' Act of 1955. The most successful fund -- with a portfolio of almost 50 million pesos at the end of 1957, is run by an investment bank w;aich has used it to sell shares of companies previously held exclusively by this bank. 14. Thus far the relatively high rates of return on investment in ccm- panies with favorable liquidity and earnings records have not attracted a large amount of foreign investment in peso securities. In fact, international movement of securities hias been mostly in dollar securities and has resulted in a negative balance for Iiexico. The most important form of foreign par- ticipation in 1iexican industry has been direct investm.ent, providing technical help and incentive for diversification and, expansicn, including promotion of export and imeport substitution industries. Cn a gross basis it averaged $127 mtillion per year during 1955-57, of which '.107 million was again remitted abroad as profits, etc. 15. In coming years foreign investment in peso securities could well become more important. However, even if peso securities offer attractive yields, they will induce greater savings at hcme and attract an increasing amount of foreign investment only if h7exico manages to maintain stability of the peso. This is an essential reason for avoiding domestic price inflation and devaluation of the peso. As long as people continue to have little con- fidence in the peso, it is difficult to manage a monetary system and a capital market based on the peso. The monetary system becomes subject to violent changes such as happened last year when the public moved som.e 500 million pesos into dollar deposits with Mexican banks. Lack of confidence in the peso also tends to have a disturbing effect on the domestic capital market. Domestic companies have for instance experienced difficulties in placing peso bonds and have sometimes issued (dollar bonds instead. Lack of confidence in the  peso has made it necessary for both the Government and business to offer higher yields in order to attract funds for netu issues. But such higher yields, instead of inducing a greater flow of savings raay have the effect of orly re-directing existing savings. Thus both for increasing domestic savings and for attracting foreign investment, stability of the peso is essential. II. TIME FEDERAL GOVEAM'l2FNT BULGEGT DEFICT Recent Financial Developments 16. Mexico has, in the last twrJo years, exnerienced a reasonable degree of overall stability. Upward -rice and cost adjustments, unavoidable after the :IP5L devalu.