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Our ties with Mexico and its story of reinvention

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Andrew J. Masigan-125

Numbers Don’t Lie

At 2:30 a.m. on Sept. 16, 1810 in Dolores, Mexico, Father Miguel Hidalgo ordered the church bells rung as he gathered his congregation. There, he cried out against the abuses of the Spaniards and the many Criollos (wealthy Mexican mestizos) who oppressed the Mexican masses. He urged the faithful to revolt against Spain. That event, known today as “Grito de Dolores” (“Cry of Dolores”), marked the start of Mexico’s 11 year struggle to be a self-governing republic. On Aug. 24, 1821, Mexico’s fight for independence came to a victorious end with the signing of the Treaty of Cordoba. Mexico considers Grito de Dolores as its spiritual day of Independence.

The recorded history between Mexico and the Philippines goes back almost 500 years. Following Magellan’s demise, the first Spanish expedition to the Philippines was lead by Ruy Lopez de Villalobos. His 400 men sailed from Jalisco in November 1542, not from Spain, as many believe. Villalobos was responsible for naming our islands “Filipinas.”

Another expedition from Mexico set sail to the Philippines in 1565, this time lead by Miguel Lopez de Legazpi. Legazpi was a Spaniard who was then the Governor of Mexico City. Legazpi landed in Cebu to claim the Philippines as a Spanish colony.

In 1571, Legazpi designated Manila as the colonial capital of the Philippines under the Spanish crown. Interestingly, however, the Philippines was governed not by Spain itself, but through the Viceroy of Nueva España (Mexico). The Manila-Acapulco Galleon Trade was at the heart of Philippine-Mexican relations. Within a span of 250 years, both colonies thrived from a virtual monopoly of Pan-American trade. More importantly, a transfusion of cultures, ideas and customs flourished between the two.

The lucrative trading route ended in 1815 when the Mexican War of Independence ended Spain’s control over Mexican ports. But not even the termination of the Galleon trade could get in the way of the cooperation between Mexico and the Philippines. In fact, two Filipinos — Francisco Mongoy and Isidro Montes de Oca — fought alongside Vicente Ramón Guerrero, the leading revolutionary generals in the Mexican war for independence. Hence, it could be said that the Philippines helped Mexico gain its freedom.

After Mexico seceded from Spain in 1821, Spain tried to cut ties between the Philippines and Mexico lest the idea of revolution spread among Filipinos. It was only then that the Philippines was governed by Governor Generals coming directly from Spain. Sometime in the 1820s, Vicente Ramón Guerrero was quoted as saying: “Now that we have gained our independence, it is our solemn duty to help the less fortunate countries, especially the Philippines, with whom our country has the most intimate relations with.” The Philippines freed itself from Spanish colonial rule 67 years later.

Like a Mexican telenovela, Mexico’s journey towards economic prosperity came with peaks, troughs, and drama. It started with a policy of import substitution that took place from the 1930s to the 1970s. The policy worked and Mexico experienced an economic boom where industries rapidly expanded. The Mexican population doubled from 1940 to 1970 while GDP increased sixfold.

Mexico began to harness its oil reserves in the ’70s and readily became the world’s 4th largest exporter of the commodity. Wealth generated from oil allowed massive spending on infrastructure and social development programs.

The plunge in oil prices in the late ’70s and early ’80s resulted in a severe economic downturn for Mexico. In 1981, President Jose López Portillo suspended payments of foreign debt, devalued the currency and nationalized the banking system. Exacerbating the situation was the fact that import substitution and protectionism left many Mexican industries inefficient and unable to compete in the global marketplace.

Mexico needed to reinvent itself — it needed to build competitive industries and wean itself from dependence on oil. It was at this time that President Miguel de la Madrid opened the economy to free trade. Deregulation and the privatization of industries followed including the state-owned oil company, PEMEX. From an oil-driven economy, Mexico transformed itself into manufacturing and agro-industrial force through capital and technologies obtained from foreign investments. It was in this time that Mexico became a signatory to the General Agreement on Tariffs and Trade (GATT).

A turning point came when Mexico became a signatory to the North American Free Trade Agreement in 1992. Due to affordable wages and the high productivity of Mexican workers, Mexico was the preferred site for most Canadian and American manufacturing concerns. Throughout the ’90s, industrial outputs grew steadily as did exports despite political instability such as the Chiapas Uprising, the assassination of presidential candidate Luis Donaldo Colosio, and the massive devaluation of the peso. The Mexican economy grew by 5.1% from 1996 to 2000 as trade with the US and Canada tripled.

Throughout the administrations of President Vicente Fox, Felipe Calderòn, and Enrique Peña-Nieto, Mexico continued along the path of free trade. During Fox’ administration, several Free Trade Area agreements were signed with Latin American and European countries, Japan, and Israel. Mexico became one of the most open countries in the world to do business with.

Today, Mexico is an economic force to be reckoned with. It has the 15th largest global economy, almost equal in size to that of Spain. With a population of 127 million, each Mexican citizen has an average annual income of $9,807, establishing it as an upper middle income economy. Unemployment is at 3.4%, among the lowest in Latin America. It is the 46th most competitive global economy and the 54th (out of 190 countries) easiest country to do business in. In 2018, it spent $9 billion on research and development which established it as the 56th most innovative country in the world.

Mexico is the 9th largest export economy and the 21st most complex economy according to the Economic Complexity Index (ECI). Last year, Mexico exported $450 billion worth of cars, trucks, computers, smart phones, electronic products, aerospace parts, and agro-industrial goods, among others. The country is considered the manufacturing hub of the Americas.

Moreover, Mexico has the distinction of being one of two Latin American nations inducted into the exclusive group of OECD countries. For those unaware, countries belonging to the Organization for Economic Co-operation and Development (OECD) are high-income economies committed to democracy, free trade, and international cooperation.

But like any telenovela, more drama lurks on the horizon. The US is becoming increasingly protectionist and is pushing to replace NAFTA with a new trade pact called USMCA, or the United States, Mexico, Canada Agreement. USMCA comes with stricter labor and environmental qualifications and intellectual property protections.

Under USMCA, automobiles must have 75% of their components manufactured in Mexico, the US, or Canada to qualify for zero tariffs (up from 62.5% under NAFTA). Moreover, 40-45% of automobile parts must be made by workers who earn at least $16 an hour. Mexico had to pass new labor laws to adapt. Terms of copyright protection have also been extended from 50 to 70 years.

When ratified by all three countries, the shift in trading terms will have a tremendous effect on the Mexican economy. Mexico is economically dependent on the US, what with 80.3% of its exports sold to its northern neighbor.

Economic challenges at home coupled with US President Donald Trump’s nagging threat to slap a five to 25% tariff on Mexican imports are putting pressure on the 10-month-old administration of President Andrés Manuel López Obrador. Mexico needs to change its course yet again. It is now looking to pivot to South America, Europe, and Asia as its new export market. The Philippines is its preferred gateway to Asia.

Reinvention is not new to Mexico. As we have seen, it succeeded in evolving from an economy built on import substitution to one driven by oil. In just a few years, it morphed into a powerhouse exporter of industrial and agricultural products to the US and Canada. I have no doubt that it will succeed in its next stage of reinvention.

Mexico is a nation of strong resilient people. Just as Father Miguel Hidalgo cried for change and succeeded in his quest for independence from Spain, so will Mexico succeed in its quest for economic independence from the US. We wish Mexico all the best on its national day.

 

Andrew J. Masigan is an economist.





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