Free Markets and Price Stability: Opportunities for Mexico

By Jordan, Jerry L. | Economic Commentary (Cleveland), August 1, 1993 | Go to article overview

Free Markets and Price Stability: Opportunities for Mexico


Jordan, Jerry L., Economic Commentary (Cleveland)


Mexico has been making important progress on several economic fronts, moving toward less inflation, increased reliance on privately owned capital and companies, and greater integration of its economy with those of other nations. At times of transition such as this, there are many choices to be made. There is also less resistance to change. That puts Mexico in a position to select policies and shape institutions that will affect its prosperity for decades to come.

The key mechanism underlying this progress is the nation's increased reliance on market forces and institutions. This shift in economic philosophy has enhanced Mexico's attractiveness to foreign investors while unleashing more of the creative abilities of its own entrepreneurs. The result is that the country is now on a path toward greater economic efficiency and prosperity.

Mexico has also made important improvements in its approach to trade over the last few years. As a new member of the General Agreement on Tariffs and Trade, it is undertaking to comply with international standards for the conduct of foreign trade. Furthermore, the Mexican government has implemented a dramatic unilateral reduction of trade barriers and was a major catalyst behind the North American Free Trade Agreement (NAFTA).

Most recently, Mexican authorities have launched an initiative to provide autonomy for the nation's central bank. If their effort is successful, it will greatly improve the prospects for price stability and sustainable economic growth.

Thus, Mexico is standing on the threshold of decisions about international commerce and central banking that will have a profound effect on its future.

* OUTLOOK FOR NAFTA

I strongly support NAFTA and am hopeful that the U.S. Congress will enact the legislation necessary to implement it as scheduled on January 1, 1994. I believe that by encouraging free trade in goods, reducing barriers to trade in services, and easing limitations on international investment, the accord will enhance competition, efficiency, and productivity and thereby increase the prosperity of all three North America nations.

There are some groups in the United States that fear the additional competition NAFTA would bring about, and they are lobbying vigorously for its defeat. Opponents recently won a decision in a U.S. district court that requires federal officials to prepare an environmental impact statement estimating the agreement's likely effect on such things as air and water quality.(1) Initial reports said that the study would take months to compile and that it would have to be completed before NAFTA-related legislation could be sent to Congress --a delay that would represent a serious obstacle to implementation. More recently, administration officials have stated that the legislation can be submitted prior to completion of the study and that the study could be ready in 45 to 60 days.(2) Nevertheless, the administration plans to appeal the decision and believes that the lower court's ruling will be overturned.

Despite the current uncertainty surrounding NAFTA's fate in the United States, I believe that Mexico can be clear about what decision it will make. Reductions in barriers to trade and investment do not have to be reciprocated to be valuable. Most of the added prosperity Mexico is now enjoying stems from its recent unilateral moves toward a more open economy. Even if the United States fails to enact NAFTA, Mexico can, if it wishes, choose to implement the provisions on its own, setting an example for its neighbors in Central, North, and South America and reaping the rewards that are available to any nation with the wisdom and the will to reduce its interference with commerce.

Just as Mexico's decisions on NAFTA will have a substantial impact on the country's future prosperity, so too will its actions regarding the Banco de Mexico's charter.

* A CENTRAL BANK'S CHARTER AND NATIONAL PROSPERITY

The ability of a central bank to perform its functions depends on many things, one of the most important of which is the bank's charter. …

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Free Markets and Price Stability: Opportunities for Mexico
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