Magazine article Business Credit

The Role of Credit in the Global Economy

Magazine article Business Credit

The Role of Credit in the Global Economy

Article excerpt

European Community GATT. NAFTA. Who would have thought, a few short years ago, that these trade agreements would become household words? I want to thank you for the opportunity to share what I see as tremendously encouraging developments, not only for business, but for the credit profession.

What is economic globalization? It started a long time ago, but the major thrust was after World War II when corporations pursued new investments as a way to enter markets. The multinationals emerged from that market approach--the trend lasted 20 years or so.

Exports also grew steadily in most areas following World War II. Europe was much further ahead, with perhaps one hundred years of experience. But in many markets exports were only 10 to 20 percent of what they are today

Financial institutions followed trade and eventually over-expanded in the '80s. In addition, trade and multinational expansion matured and restructured, with very few new markets to conquer.

During this time, Japan invested heavily worldwide as its, exports became imbalanced, particularly in Asia and the U.S. It became a dominant force in world trade.

To be more competitive, Europe conceived of a united market, and the European Community emerged in 1992, although many of its goals have yet to be achieved.

The U.S. and Canada also recognized an opportunity and structured an alliance with Mexico through NAFTA. Asia created ANAPEC agreement seeking ways to build trade among ASEAN partners.

Latin America, in seeking to improve its lot, watched the successful recovery of Argentina in the late '80s as it opened up its markets through privatization. Others soon followed. Europe had its own market in Eastern and Central Europe as the USSR came apart.

In 1993, GATT benefitted by some of the trade treaty movements as countries made some progress in removing barriers. Mini-trade agreements proliferated among smaller countries anxious to do what their economies could financially achieve. Cross-border treaties proliferated.

Is this globalization? Yes, it is, but like a corporation's development, its structure and changes are not straight lined. It's in a new phase of development and will, in time, impact the economic structure of many countries. More trade access borders will bring changes.

The first of these is the one closest to home--the North American Free Trade Agreement. Mexico is the fastest growing U.S. trading partner. Total imports and exports between the two countries, for example, grew 18 percent between 1991 and 1992. U.S. exports to Mexico grew from $33.2 billion to $40.6 billion, while imports from Mexico grew from $31.8 billion to $35.9 billion. NAFTA should enhance this relationship even further, as it will trade with Canada and throughout Latin America. NAFTA is another step toward what will be a trading bloc extending throughout the entire western hemisphere.

The Mexican government took a number of steps both in anticipation of, and following NAFTA, which are particularly encouraging to those businesses wishing to increase their presence here. Mexico changed its investment laws to permit majority ownership of Mexican business by non-Mexicans, reduced import licensing requirements from more than 11,000 products to approximately 200 product categories, reduced duties on goods imported from the U.S. to a current average of about 10 percent, and improved border services.

Reforms aimed at increasing the safety and soundness of Mexico's financial institutions and designed to give "national treatment" to foreign financial institutions operating in Mexico, are also well received. Financial services will open up gradually, and the law grants the National Banking Commission the ability to establish norms and bring practices in line with international standards, as well as establish a basis for estimating institutions' assets and liabilities.

Other economic news from Mexico is good on a number of fronts, including:

* An expected 2. …

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