United States immigration policy may not be very keen on welcoming Mexico’s huddled masses, but it has few qualms with Mexican entrepreneurs. E- and L-series visas offer a relatively quick path to legal immigration for Mexicans—provided they are willing to front the cash to open their own businesses. Capital investments of several hundred thousand dollars, and possibly requirements to hire a given number of workers, are usually sufficient to procure a visa.

This path to residence has proven increasingly popular as Mexico’s business community has become mired in the country’s escalating drug violence. Kidnapping for ransom has spiked over the last decade and targeting the wealthy has been supplanted by another strategy: targeting those with known relatives in the US. Hence, the exodus north is now considered more of a one-time move for families.

Exacerbating the trend is President Felipe Calderón’s war on drugs, which has notched large seizures and disrupted transit routes. Faced with lower revenues, Mexico’s drug gangs are diversifying their activities—extorting money from business owners is helping to fill the void.

From 1998-2008 the number of E-1 or E-2 visas awarded to Mexican entrepreneurs almost tripled. The State Department hasn’t disclosed last year’s figures for visas issued to Mexican investor-immigrants but the number likely passed the 2008 tally, and was perhaps more than 2,000 visas. (In 2008, a wealthy Mexican businessman had his son kidnapped and then killed, even after paying a significant ransom, adding to the sense of insecurity among the business class.)

San Antonio, Texas, is situating itself as the unofficial capital of Mexican expateurs in the States. It is far enough away from the border cities to buffer against the bleeding violence and creeping reach of the drug gangs, but in other respects it is, “Very Mexican, very friendly. Quiet,” says Ricardo del Rio, an insurance agent who got an E-2 visas for himself and family in 2006.

In fact, the City of San Antonio runs an international affairs agency that seeks out Mexican entrepreneurs for relocation.

Luckily for the expateurs—and the US economy—many Mexican business enterprises deftly negotiated the recession. Some are looking to expand. The headline of a recent article in the Christian Science Monitor: “Who’s Creating U.S. Jobs? Mexicans.” Sounds like they are the true San Antonio Spurs.

Photo of the Market Square in San Antonio, from the Fairmount Hotel.

After a bruising 2009, Mexico’s economy should return to positive growth of around 3% this year, but the path to sustainable development remains uncertain. Reforming state-owned industries risks massive political backlash, but improving Mexico’s trade regime offers promise without the peril.

What trade strategies can boost Mexico’s growth? Several prospects have been bandied about. Talk of “deepening” Mexico’s commitment to the North American market was common before the recession, but diversification, not concentration, has proven more popular of late. To this end, President Calderon recently called for Mexico to “diversify its trade and investment (and) reduce its dependence on the United States.” His comments were made with an eye toward Europe, but he made similar statements regarding Brazil last August.

Inducing European investment, notably in the automotive industry, would surely benefit Mexico, but Europe is likely to prove a weak market for Mexican exports. Given the particular nature of its consumers Europe will offer few opportunities for Mexican cultural exports, a surging industry in Mexico. Meanwhile, Eastern Europe competes in the same class as Mexico when it comes to many goods, leaving Eastern Europe at a competitive advantage when proximity and cultural ties are taken into account, not to mention Western Europe is already saturated with most durables of Mexico’s forte.

Cozying ties to Brazil, on the other hand, offers significant economic—and strategic—potential for Mexico. Mexico’s oil reserves have been declining since the 1980s because PEMEX’s gross inefficiencies and lack of deep sea drilling capacity. Petrobras not only has the capacity to aid PEMEX in tapping the estimated 30 million barrels of crude deposited below the Gulf of Mexico, it can invigorate Pemex’s refining capacity—Mexico must import 40% of its oil—and expand Mexico’s presence in the biodiesel market. Drilling is the first-step, and through the creation of a separate Brazilian-Mexican company it can be done in a way that steers clear of the legal and political protections afforded to Pemex.

Also, Brazil’s growing middle class is ripe for Mexican durable goods. Home ownership is expanding rapidly in Brazil, the number of credit card holders nearly doubled from 2002-2006, and consumer credit has grown by more than 28% annually over the last three years. Unlike Europeans or Americans, Brazilian consumers were undaunted last year. Hitching to a second large consumer market would diversify exports, and likely engender a positive cycle if FDI settles into Mexico in order to target the Brazilian market.

A pact with Brazil could also prove a strategic coup for Mexico. Brazil’s opposition to US agricultural subsidies is currently the biggest barrier to a regional free trade agreement between the Americas. Not wanting to be left out of a trade pact between Latin America’s two largest economies may entice the US to negotiate on its agricultural subsides as a means of re-launching a hemispheric trade deal (currently the US is only offering to negotiate on agricultural subsidies via the Doha talks at the WTO). Opposition by populist leaders will impede a regional free trade deal in the short-term, but if America reconsiders its subsidies Mexico stands to benefit regardless.

Trade cannot cure all ills, as NAFTA attests. With right trade strategy, one that builds on competitive advantages, Mexico can, however, boost growth and insulate its economy from undue reliance on the American market, providing the breathing room for more painful structural reforms.

World Politics Review previously published an expanded version of this post.

Overview Mexicans could be forgiven for thinking they were in hell on earth last year. The economy skidded into recession while drug violence ravaged Juárez and other major cities, leaving more than 5,000 dead. North of the border there was scuttlebutt of Mexico becoming a failed state.

Turns out 2008 may have only been purgatory, this year things have actually gotten worse. As the federal government redoubled efforts to break the back of Mexico’s drug syndicates a crescendo of violence ensued. January was bloodiest month of drug-related violence since President Felipe Calderón came to office in 2006—over 1,000 were killed.

Concentrated crackdowns offered hope of leashing the gangs. The deployment of 45,000 federal troops to 18 locales teetering on chaos, coupled with the arrival of US security aid in the form of the Merida Initiative, produced a sizable drop in violence over the first quarter a year on.

Unfortunately the respite proved seasonal. Several high-profile arrests of drug kingpins this summer spurred a backlash of grisly beheadings and coups de grace. Off-duty policemen, prosecutors, and rival gang members were the usual victim profile. While the scale of the killing had been seen before increasingly innocent bystanders were victimized.

As of this writing, news is emerging that one of the biggest fish of them all, Arturo Leyva, the “boss of bosses” of Mexican drugs, has been killed in a raid by Mexican commandos. The likelihood of indiscriminate gang reprisals certainly has officials waiting to exhale, but the elimination of such a kingpin, as opposed to his arrest, may prove a shrewd tactical, as well as legal, move. Without the chance of bailing out a crime boss there will be less incentive to amp up the violence. And the command structure of the gangs may well be disrupted as result. On a legal front, while Calderón has done a commendable job of organizing raids, the rate of successful prosecution of suspected traffickers in Mexico is lackluster.

The Great Recession The severity of economic contraction stands in marked contrast to the rest of the region. A recent study by the Brookings Institution begins: “With the exception of Mexico, many large Latin American economies have shown a respectable resilience to the global financial crisis.”

The vast majority of government revenues come from the state-owned petroleum industry, remittance payments from Mexicans working in the US, and tourism. All depend heavily on consumption north of the border. As the American consumer went on hiatus, Mexico’s economy went into tailspin, contracting by over 10% from July ‘08-’09. Economic performance for 2009 will likely be the worst of any sizable economy.

Heaped atop these ongoing crises, Mexico’s grand surprise this year came in the form of a new infectious disease, the H1N1 strand of influenza. Swine ’09 trained the world’s worries on Mexico. Other nations proved quick to overreact, further ostracizing Mexico in the midst of its woes.

Mexico received latent praise by the CDC and WHO for its handling of the H1N1 outbreak, scarce consolation for the tourism industry no doubt, which saw revenues drop by over 30%. An estimated 100,000 tourism-related jobs were lost as a result. As spring turned to summer and the flu season headed south of the equator, the hysteria around H1N1 gave way to insouciance. By the time the WHO declared H1N1 a pandemic in August, global worries had turned to anticipating the illness’ return in the fall.

Mexico held mid-term elections in July. Apparently what’s old is new again; the centrist PRI that governed Mexico for seven decades, until 2000, staged a death-defying comeback. Beyond the headline of a privival, the election underlined the non-ideological nature of Mexico’s political parties. The ranks of the two major parties, the PAN and PRI, are filled by a precarious group of technocrats and political opportunists. The PRD, the major leftish party in Mexico as recently as 2006, is quickly unwinding. The ‘Green’ party, which gained some 10% of the seats in the July election, has a platform that shies away from environmental advocacy in lieu of supporting a death penalty. This may offer the hope of pragmatic governance in the future, but just as easily may point to a trend of bald party opportunism as opposed to platform coherence.

As a result, it seems professionalization, rather than persona-based politics, is taking hold of the highest echelons of government. For all the hardships Mexico has endured over recent years, a whopping 69% of Mexicans approved of the president’s performance going into the election. This should have helped President Calderón’s PAN. Still the PAN was roundly defeated. If caudillo politics are alive and well in Mexico, as many insist, the phenomenon no longer reaches as deeply into national politics.

The most likely explanation is that while the president is viewed as a politician acting in good faith, the PAN is just as riddled with corruption as Mexico’s other main parties. A well-publicized round-up in the president’s home state of Michoacán led to the arrest of 28 officials suspected of having ties to La familia, a notorious crime syndicate. Two of the ten mayors arrested were PAN members.

In other realms, social policy has oscillated between greater liberalization and conservative retrenchment. Personal drug use of everything from marijuana to heroine was decriminalized in August, a stark response designed to more directly target traffickers. Yet state abortion bans have become so widespread that a federal ban may be in the offing. The fits-and-starts character of social liberalization in Mexico is broadly representative of much of the region.

2010 promises more challenges for Mexico. The economy will almost surely return to positive growth by mid-year and there are already signs that exports to the US are ticking up. The major economic concern is the strength of recovery. Recent statements from high-level policymakers indicate Mexico’s commitment to growth through NAFTA is being redoubled. In my opinion NAFTA promises diminishing returns for Mexico for several reasons, chiefly because the US will plausibly remain an unreliable partner, as Congress’ refusal to allow Mexican trucks on US highways indicates. Instead Mexico should look southward, seeking closer trade ties with Brazil. This would provide Mexican exports a second large market and possibly spur Brazilian FDI to Mexico.

The major security challenge will be localizing drug violence. Extirpating the drug gangs is hopelessly naïve given America’s huge appetite for drugs. A realistic goal should be to decrease the number of gangs operating in Mexico, and try to insulate civilians from the gang’s ire. Seemingly frustrated by haphazard US cooperation, President Calderón signaled a strategic shift in his efforts to reform last month. In a mid-term address he spoke of the need to alleviate Mexico’s poverty. A fight against poverty seems likely to be the hallmark initiative of the president’s last three years in office.

Reforms will need to be strategic and structural in order to put Mexico back on track. Not just to produce signs of recovery next year, but for the economic and security challenges of a new decade.

The peso has strengthened this week amid signs that the Dubai World crisis will not transmit contagion throughout emerging markets. The Mexican currency has rallied more than 7% against the dollar over the past two months, leading the 16 major currencies tracked by Bloomberg. At 12.85 pesos to the dollar, the peso is now up 21% over its March lows.

Recent data showing increased factory orders and a mild recovery in the US housing sector promise a recovery in Mexico’s battered export industries. As the US is the recipient of the vast majority of Mexico’s exports, economic recovery in the US is a prerequisite for Mexico to return to positive growth.

While turnaround in the States has contributed to the peso’s recent climb, the Mexican economy faces an uncertain 2010. Congress has approved tax hikes that analyst’s feel may lead to accelerating inflation next year. To stave off inflationary concerns the central bank may be forced to raise interest rates, tempering the economy as it tries to pull out of recession.

Add to this Fitch downgraded Mexico’s credit rating last month. Reduction to BBB status hasn’t prevented Mexico’s short-term rebound, but the particulars point to structural economic problems. Flagging revenue from state-owned oil sector isn’t likely to recover, and given oil is the largest source of government income a fundamental reorientation is needed.

The government needs to recognize the heyday of easy oil money probably will not return. The peso’s strength could possibly rise over recent months based on little more than the fact that it has been so pummeled over the last year. Let that not be taken as signal of lasting economic recovery. Without change, the Mexican economy may muddle along for years to come.

Overdue reform was swiftly executed last Saturday night when federal troops descended on Luz y Fuerza del Centro, a state-owned electric company serving central Mexico. The plant was closed, operations were handed over to a larger state-run utility, and 44,000 workers were jobless come Sunday morning. The president’s decree cited inefficiency and ongoing operating losses that required large transfers—$16 billion between 2003 and 2008—from the government.

Severance packages are on the whole generous; the average employee will receive more than 2.5 years of salary. Still, the decision is generating widespread protests, and thousands have balked at the offer. Some critics claim the tactics were a throwback to the authoritarian days of PRI rule, while others say the decision was retribution for the utility’s support of opposition candidates.

This was an audacious move by President Calderón, but not because of the terms. Sure, firing 44,000 without notice may seem harsh, but with such hefty pay offs, the terms would make most Detroit line workers salivate. Rather the timing is suspect. Mexico is in the midst of its worst recession since the “lost decade” of the 1980s, and, unlike Brazil, it isn’t clear the end of the recession is at hand. No matter the size of the severance package, such a move is brashly pro-cyclical. The government should mark time, or even hire more workers to help address Mexico’s unemployment. Inefficient industries should be targeted once the economy is growing again. Keynesianism is enjoying a revival elsewhere, why not in Mexico?

I have been strongly supportive of Calderón’s past reforms. Recent news warrants serious circumspection. Laying off state employees in times of recession requires gumption or lunacy. Or maybe this was just a sage political maneuver. Having lost Congress to the PRI in July’s election, Calderón can now spread the blame if Mexico’s recovery is retarded or tepid. Mr. Calderón is right to pursue economic modernization, but does he have to do so right now?

Thomas Friedman wrote an intriguing article in last week’s NY Times on how immigration for highly-skilled workers could save the American economy.  He said the following:

“All you need to do is grant visas to two million Indians, Chinese and Koreans,” said Shekhar Gupta, editor of The Indian Express newspaper. “We will buy up all the subprime homes. We will work 18 hours a day to pay for them. We will immediately improve your savings rate — no Indian bank today has more than 2 percent nonperforming loans because not paying your mortgage is considered shameful here. And we will start new companies to create our own jobs and jobs for more Americans.”

“While his tongue was slightly in cheek, Gupta and many other Indian business people I [Friedman] spoke to this week were trying to make a point that sometimes non-Americans can make best: “Dear America, please remember how you got to be the wealthiest country in history. It wasn’t through protectionism, or state-owned banks or fearing free trade. No, the formula was very simple: build this really flexible, really open economy, tolerate creative destruction so dead capital is quickly redeployed to better ideas and companies, pour into it the most diverse, smart and energetic immigrants from every corner of the world and then stir and repeat, stir and repeat, stir and repeat, stir and repeat.”

But what about Mexicans?  Few aside from pro-Hispanic groups are advocating to bring more Latinos into the United States.  Indeed, just the opposite is occurring.  The US government hired a consulting firm in Georgetown, Elevacion, which created an album called “Migracorridos” that tells of the real-life dangers of crossing the borders in an attempt to reduce undocumented migration.

I found the songs genuine and would never know their source unless I had read this article (follow the link to listen).  Apparently they are playing on certain Mexican radio stations, including La Zeta in Morelia (site of a terrorist attack earlier this year and birthplace of President Calderon) who had no idea the song came from the US.

While the majority of Mexicans that wish to emigrate to the US are unskilled compared to East/South Asian migrants that Friedman writes about, it’s important to make distinctions between documented and undocumented immigrants.  In particular, my Mexico co-blogger Alejandro is one of those highly skilled immigrants who just happens to come from Mexico.

With the global economic crisis still dominating headlines following inconclusive results from Davos, I’d like to focus on two effects on Mexico’s economy.

One indicator is remittances.  Worldwide, remittances bring in several times more money than foriegn aid.  In Mexico, these bring in the second-largest amount of foreign money after oil.  In 2008, remittances slowed 3.6% to $25 billion (BBC World News).

Second is trade.  With reduced US consumption, Mexican exports are declining.  Interestingly, NAFTA’s duty-free access to the US market caused the Big Three Auto makers to move production to Mexico.  Consequently, exports over the last decade have moved up the value-added chain, with automobiles and textiles being the two largest gainers.  Since the American auto industry has been granted a temporary lifeline by the US government, this will keep the auto industry in the border regions above the water.

To be honest, few know the scale of the crisis.  But Mexico’s coupling to the US market will ensure that most movements in the American market will affect the Mexican market.  Fortunately, the country is in a much better position than during the 90’s, but will nevertheless feel the effects of the current downturn.

Wednesday begins the annual World Econonic Forum in Davos, Switzerland.  With the global credit crunch continuing to worsen, this year's meeting is of utmost importance.  In 2008, Mexico hosted the World Economic Foreign in Latin America in Cancun.  This year the government's senior people will be in Davos, including:

• Agustin Carstens, Secretary of Finance
• Felipe Calderon, President
• Georgina Kessel, Secretary of Energy
• Guillermo Ortiz, Governor of the Central Bank
• Luis Téllez Kuenzler, Secretary of Communications and Transport
• Patricia Espinosa Cantellano, Secretary of Foreign Relations

Read more details about the forum here.

By now you surely have seen the headlines about the historic election of Barack Obama as the next President of the United States.  As an American, I’m thrilled to have Obama as our next President, and to know that the race and class barriers have been shattered by his victory.

Naturally, his election will have implications for US policy toward Mexico.  When President Bush came to office in 2000, his first visit with a head of state was to then President of Mexico, Vicente Fox.  The two pledged to work together on immigration reform.  Sadly, the terrorist attacks of September 11, 2001 drastically changed American life and government priorities.

That said, there is now another chance to renew dialogue with Mexico on immigration reform.  Though the headlines are now dominated by the financial crisis, the issue will surely come to the forefront within the next two years.  Since immigration reform focusing particularly on Mexico was last blocked by Conservative Republicans, this change of power will present a new opportunity of political capital to work on immigration.

This begs the question: how will an Obama administration's policies on Mexico differ from the Bush administration's? First, I believe a Democratic administration will largely continue a bipartisan approach toward Latin America in general and specifically toward Mexico.  The recently signed Merida Initiative to fight organized crime and drugs in Mexico will continue to have Presidential and Congressional support.  The difference I foresee with that accord may be to place more emphasis on human rights from Congressional Democrats.

While Obama talked tough on NAFTA and free trade to win votes during the primary election, it is highly unlikely that the free trade agreement with Mexico will be modifided.  During the Presidential campaign Obama slipped a comment to a Canadian official that anti-trade rhetoric was “political positioning.”  What may change with regard to trade is whether or not Congress will renew Presidential “fast-track” trade authority which allows a yes-or-no vote by Congress instead of a lengthy process with amendments.  With free trade low on the Democratic agenda, it seems unlikely that the authority will be renewed.
The change of power in the US will be exciting and have important implications for Mexico.  In the next few weeks I intend to read through Obama's position papers and attend events in Washington on the implications for policy change.  Like the Obama campaign says, “Si se puede!”

During the past two weeks my mid-term exams at Georgetown University have consumed nearly all my time.  After several papers, I’ve nearly finished my mid-terms with only one more to go in Economics for Latin American Studies…  That said, I should be back on track writing frequently for the Mexico blog, along with Alejandro.

In this time I’ve had the opportunity to meet two heads of state that spoke about issues that can be applied to Mexico.  First, President Jose Maria Aznar of Spain (pictured) spoke about common bonds between countries with Christian heritages and democratic values.  In Spain, this centered primarily around immigration of African migrants.  In the US, this would apply to Mexican migrants as well.

Second, newly elected President Fernando Lugo of Paraguay (below) spoke about cleaning up corruption and bringing honest reform to government.  Lugo's case is particularly interesting, since he resigned as archbishop in one of Paraguay's poorest districts to run for President and clean up the country which is currently ranked #138 on Transparency International's Corruption Perception index.  Mexico ranks 72 on this list.

As you’ve gathered, a lot is going on in the world of Mexico and more broadly Latin American Studies in Washington, DC these days.  For example, one of my professors at the School of Foreign Service who teaches Latin American States and Societies, John Bailey, was interviewed in two major Mexican newspapers this week, Excelsior and El Universal.  The first article in El Universal discussed how the Tec higher education system in Mexico is a reflection of “social warming”, that is, global interconnectedness and also the need to expand access to higher education within Mexico. The second article in Excelsior (featured in print, unfortunately not online) addressed the fact that narcoterrorism is now entering the media when describing the situation of organized crime and drugs, resembling an Aghanistan.  Professor Bailey also touched on the need to create a political consensus to fight organized crime in Mexico, and that either President-elect in the US will support this initiative.

Mentioning the American Presidential campaign, I find intriguing that the issue of immigration reform has been put on the back burner for what I believe is more than a month.  Surely this will be one of the pressing issues the next President faces, and I would have liked to see substantive discussion during the Presidential debates.

However, the two issues which are now dominating in Mexico are the financial crisis and organized crime.  With the financial crisis pulling down markets worldwide, Mexico is surely to be affected.  However, the degree to which the economy will suffer is difficult to determine at this point, and I believe very unlikely that it would approach crises seen in 1994 and 1997-8. So far the Mexican Central Bank (Banxico) believes the effects will be mixed.  See commentary with the bank chief Elizondo Almaguer in Spanish here. Feel free to post a comment to see my further thoughts.
Organized crime continues to dominate the headlines in Mexico.  Alejandro's last post noted that drug cartels have infiltrated senior levels of the government, and the gap between action and rhetoric seems to be widening.  In connection with the scandal, the top Federal Police Commissioner, Victor Gerardo Garay, resigned.  This week policemen were gunned down in Michoacan.  Next Wednesday the Mexican Ambassador to the US will be coming to my department for a roundtable, and I am eager to hear his take.

Until then, we’ll wait for tomorrow's exciting US election news!