The success of Mexico's economy depends on its exports. The country is praised for its tourism and oil production. Although tourism has been good economic activity in Mexico due to mountains, ancient ruins, beaches, and large cities, Mexico's production of petroleum and tourism counts about forty percent of the GDP resulting from high corruption rates. For over forty years, Mexico has experienced a state of stagnation, leading to poverty and excessive inflation. As a result, the country's government began seeking remittances from its migrants in the US and other countries. Moreover, it acquired international debts leading to another more extensive problem. The paper describes how and why Mexico struggles with huge debts, drug wars, high dependence on remittances, and inflation.
The five decades of economic stagnation have set Mexico into a condition of financial strain. In 2019, Mexico's inflation rate was 3.6 % based on the Consumer Price Index (CPI). The exportation of oil products at higher prices feed through higher costs through cost-push inflation ( Garriga & Meseguer, 2019 ). Besides, Mexico's government increased the cost of imported products to boost the domestic demand causing further inflation, devaluation. Moreover, the country's predictions expected the current inflation before its occurrences, which lead the workers to demand salary increases, which altogether influenced inflation.
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With the rising inflation rates, Mexico sought remittances from other countries to withstand the world's economic changes. Fortunately, the government had previously participated massively in world trade; hence, the country had many financials from other countries, mainly in the United States. A recent study shows that most households in Mexico depend on remittances (Contreras, 2019). Over percent of annual remittances are paid directly to banks for debts, while the rest is distributed to non-banking organizations and households, including drug stores. Although remittances determine consumption for some states, the distribution is not homogeneous but rather follows particular migratory patterns.
In addition to remittances, Mexico acquired loans from other organizations and countries to run the activities. In 1973, Mexico's foreign currency revenue was credited for the tripling of petroleum prices. Contrary to economists' expectations, Mexico borrowed sharp loans from the World Bank due to corrupt leaders who wanted to develop their projects in the name of ‘Mexico's developments’ (James, 1996). By 1982 the loans had multiplied six times from other banks in the UK, Japan, Germany, France, Canada, and Switzerland. Moreover, Mexico's Government acquired ten times more loans from private financial institutions. The majority of these financiers expected that Mexico's exportation would increase from financing Mexico's projects, but the exact opposite occurred.
Mexico has the most developed means of exporting commodities, which is a great contributor to increased and powerful drug cartels. The Us-Mexican borders span ten states, more than twenty commercial railroads, over three hundred entry ports allowing illegal drug trucks to cross with ease. Also, the majority of Mexican leaders are highly corrupted, inducing great power to drug cartels. Some cartels have already won seats in the government, making it challenging to cease the drug war. The war passes through the porous, remote, dangerous, and urban geography, reaching many other nations worldwide ( De La Fuente, 2020 ). Long ago, the US invaded the Mexican territories damaging the inter-country relationship; hence, they no longer offer any assistance to Mexico, including implementing drug prohibition policies. Therefore, attempts to eliminate trafficking remain mathematically conspired.
Conclusively, the Mexican legal production cannot meet their standards of living and governance management. The aspect has led the country to high inflation in attempts to meets exportation demands and prices. The country has portrayed a high dependence on remittances and other financial assistance. Hoping and expecting an increase in export production, Mexico borrowed huge corrupt loans from numerous financial organizations. When their expectations were not met, Mexico was left in huge debts. Corruption has contributed a lot to the ongoing drug war since it has empowered the trafficking crimes and processes.
References
Contreras, F. (2019). Mexican citizens rely on US remittances for economic survival. America CGTN. https://america.cgtn.com/2019/11/23/mexican-citizens-rely-on-us-remittances-for-economic-survival
Garriga, A. C., & Meseguer, C. (2019). Remittances, monetary institutions, and autocracies. Oxford Development Studies , 47 (4), 452-467.
James, H. (1996). Chapter 12: The debt crisis.” In International Monetary Cooperation Since Bretton Woods. USA: Oxford University Press. https://doi.org/10.5089/9781475506969.071
Saucedo De La Fuente, D. (2020). The Effect of Drug-Related Violence on Mexico's Economy: Labor Productivity, Greenfield FDI Projects, and Household Remittances. A Spatial Econometric Approach (Doctoral dissertation). https://utd-ir.tdl.org/handle/10735.1/8919
