Mexico City– sometimes a trip to another country helps you get a better perspective on things going on in your own. That happened to me last week during four days in Mexico City.
Organized by the New York City-based CEO Institute, the trip featured four days of non-stop meetings with leaders of Mexican business and government, including a breakfast meeting with President Carlos Salinas de Gortari.
The punchline: Mexico is surging with optimism about the future. Mexican leaders I met couple clarity of vision with self-confidence about their culture, self-discipline in their policy and unusual political and technical skill. The Mexican people have hope — from taxi drivers to business executives.
Mexico City has much the same upbeat, things-are-about-to-happen “feel” that Brussels had in 1986, as Europeans were inspired by the vision of single unified market by 1992.
The optimism in Mexico, of course, is partly driven by expectations that the U.S. and Canada will join Mexico to complete the North American Free Trade Agreement (NAFTA) later this year or early in 1993. Once NAFTA is in place, it will be the world’s largest, richest and most multicultural trade bloc — and the most well-endowed with natural resources.
The importance Mexicans attach to the NAFTA was underscored by the front-page treatment by Mexico’s media of President Bush’s State of the Union address. One headline screamed “Bush Sidesteps Free trade in State of the Union.”
But Mexico’s optimism is about more than NAFTA. Mexico has found its stride again. As finance minister Pedro Aspe Armella reminded us, between 1945 and 1970, Mexico’s economy was one of the world’s fastest growing (average: 6.6%), with one of the lowest inflation rates (average: 4.4%). Mexico’s economic performance exceeded that of Japan, Korea, Taiwan and other “miracle” economies in Asia. What happened? Mexico lost control of its finances. It began borrowing and guzzled at the hydrant of foreign oil sales to cover its mounting deficits. Political corruption spread.
Following the collapse of Mexico’s economy with the plunge in oil prices in the early 1980s, Mexico’s leaders put in place a series of economic reforms — and stuck to them. These included first and foremost monetary stability and fiscal integrity. As one Mexican political leader said, “People had to learn: There are no quick fixes. Instead, we had three simple priorities: Cut the deficit; cut the deficit; cut the deficit.”
Less than 10 years ago, Mexico’s budget deficit ran as high as 17% of GNP. That’s equivalent to a $900 billion deficit in the U.S., where this year’s $399 billion deficit is already considered grotesque. This year, Mexico will have a budget surplus. Inflation should be down to single digits from more than 200% per year. External debt is under control.
It all sounds so simple. No quick fixes. Go back to the basics. Reform politics. Do what people want; not what the bureaucracy wants. And establish priorities: You can’t pursue social justice without jobs. Jobs, environmental clean-up and social justice all require economic growth, which is driven by investment. Investment demands fiscal integrity; fiscal integrity requires a balanced budget.
As the U.S. approaches a key national election, the lessons from Mexico’s economic turnaround are worth heeding. Public leaders need vision, courage and a sense of priorities to win public support for a three-point, no-gimmicks program to revive the American economy: Cut the deficit, cut the deficit, cut the deficit.