Mexico’s challenges and opportunities in light of a complicated international environment was the theme of the Seminar on Economic Perspectives that was held by ITAM as customary in its main auditorium. This event has been held for more than 25 years by ITAM and its Alumni Association at the beginning of each year to analyze what is expected from the nation’s economy given the worldwide panorama. The conference began when Ana Paula Ordorica, president of the ITAM Alumni Association, welcomed the speakers, thanking them for the time they set aside for the event and particularly for sharing the knowledge they have gained in their careers.

ITAM President Dr. Arturo Fernández spoke of the situation facing the Mexican economy due to the forthcoming inauguration of Donald Trump as president of the United States of America. He asserted that Mexico “should not negotiate on its knees or accept costly measures.” He said that if the North American Free Trade Agreement were annulled, the tariffs that Mexico would face would be less than 3 percent, which, although not ideal, does not mean a disaster for the nation.

Fernández asked: What would we have to do to minimize the impact? Reduce the tariffs that are registered with the WTO and apply the drawback scheme to avoid harming the production chains created within NAFTA. That way, the impact of NAFTA’s cancellation would be minimal. In addition, he said, if a 25 percent tariff were applied in the automotive sector, the United States would be abandoning its obligations to the WTO. If it did so, this would generate a trade war with serious damage to its economy and to the world economy. Fernández called on the various political forces to seek unity, to stop internal quarrels, and to fight together against the external threat.

Dr. Ángel Gurría, OECD secretary general, spoke about the challenges in the international environment, stating that this setting is complicated by a growth of 3 percent, which has not surpassed the 4-percent rate prevalent before the 2009 economic crisis. On the other hand, he said, there is a crisis of trust at the international level that has led to a low participation of young people in different democracies, resulting in cases such as the Brexit, the result of the referendum in Italy, the election in the United States, and the rejection of the peace agreement in Colombia. Mexico, he said, sees the path ahead very clearly, and finds itself at the stage of implementing structural reforms. To deal with the current global challenge, Mexico must rely on its range of assets, and press on with the implementation of reforms and with greater unity.

Mexico’s Finance Minister José Antonio Meade, speaking as part of the panel titled “2017 Macroeconomic Environment,” said the process of transforming the telecommunications and energy sectors will spur a large number of investments for the country in the near future. He said the biggest challenge is the redefinition of the relationship with the United States, noting that foreign trade is justified given the prosperity that it generates for both parties. As long as that continues, buyer and seller will stand up for the commercial space that fosters that relationship. Another major challenge, said Meade, is the liberalization of gasoline prices. He said Mexico should move toward a program in which price fluctuations are not based on public financing, since that has weakened that sector. He said the switch to a free market in gasoline should be accompanied by other policy measures, such as economic support by the federal government for families, and policies that preserve jobs in order to develop the market that Mexico needs.

Dr. Agustín Carstens, governor of the Bank of Mexico, spoke about the challenges facing the bank. He said that for much of last year, up through October, inflation was below 3 percent. The rate is determined by changes seen in the market basket and the underlying inflation regarding goods and services. He also noted, as did the finance minister, the difficult economic context facing the nation, ranging from Brexit to the election results in the United States. An important point, Carstens said, is the recent increase in interest rates, which previously had been low, close to 0 percent. He said the increase generates a balance in portfolios (bond prices) that yields financial stability. Carstens noted that given the institutional structure of the bank, he trusts that it will perform well after he leaves his post.

The panel titled “Economic and political aspects and the future of the Free Trade Agreement” was moderated by Edna Jaime, founder and general director of México Evalúa, who said the year has begun with surprises and unease over global changes that seem to go against a national transformation that is driven by reforms.

Jaime Serra Puche said free-trade treaties have proliferated, and competition now is between regions and not between countries. He said the position taken by the U.S. president-elect goes against the tide. Regarding NAFTA, he said that there has been a process of integration in North America with steady growth in trade since the treaty was signed, and a clear trend for economies to continue to be integrated. It is an intrinsic long-term force that is practically impossible to deter because it is linked to geoeconomic, demographic and deindustrialization factors of developed nations.

He said that the connectivity that has been achieved in North America will not likely be seriously impacted by the circumstances. He called energetically for avoiding an eye-for-an-eye trade war, which first would damage Mexico. On the contrary, Mexico must reduce the tariffs registered with the WTO to maintain the nation’s industrial competitiveness. If NAFTA is cancelled, he noted, the tariffs that Mexico would face would be minuscule, around 2.8 percent. He said he strongly opposes modifying NAFTA to make it into a managed trading system, which would create inefficiencies, corruption and favoritism.

Jaime Zabludovsky endorsed Serra Puche’s conclusions, and he said that the growth of the automotive industry in the last 22 years is explained by Mexico’s growth in this industry. In addition, Trump’s proposed increase in tariffs on the U.S. auto industry would mean not only getting out of NAFTA but breaking WTO rules. Zabludovsky said that the most important thing is to continue with a program of modernization and integration of Mexico that faces the global economy.

Luis de la Calle said the challenge now is not whether the Mexican economy is going to remain an open economy, but whether the United States is going to abide by the rules it thought it was imposing on a developing country through NAFTA, and if it will remain as an open economy. Given the threats, he said, Mexico must remain an open economy, implement structural reforms, reject treaty changes that are contrary to Mexico’s economic interests, maintain a treaty with Canada, and negotiate with countries like Australia and Brazil to exert pressure on the United States in areas such as the agricultural sector, one in which Mexico is the main export customer. He said Mexico is a young country that must embrace technological change and free trade because it desires a more prosperous future for its people.

Ambassador Andrés Rozental said Mexico should base its strategies on an overall perspective on the relationship between the two countries and not in a segmented way as it has been doing until now. That puts Mexico at a disadvantage with the United States, given that it has a more global vision. The appointment of Luis Videgaray, he believes, may be in line with that strategy of a world view within which Mexico must recognize its own facets, strengths and weaknesses in the bilateral relationship, and it should maintain the nation’s competitiveness in economic matters even without the United States.

José Antonio González, general director of Pemex, speaking as part of the panel titled “Sectorial Challenges and Opportunities in a New Economic Environment,” discussed the challenges and perspectives in the energy sector for 2017. He said PEMEX is the eighth largest oil producing enterprise in the world and the largest business in Mexico. One of its largest challenges is financial, given that the business strategy and structure have to be adjusted, and all energy reform elements have to be utilized. There is an under-investment in the country of about $15 billion dollars, which requires attracting investments and establishing alliances with other companies to obtain greater efficiency and productivity, especially in the areas of distribution (pipelines and rail), storage and gas stations.

Gabriel Contreras, president of IFETEL, discussed the digital era and the benefits as well as challenges of the telecommunications reform. He said the reform’s main goal is competition. Some of the benefits of the reform include the following: the rise of new business models; proposals for the creation of 148 new channels, 257 radio stations and 40 percent greater capacity in cellular phone service; a reduction of 29 percent in prices of telecommunication services; and an average annual growth of 5.7 percent in the sector, along with the creation of 43,000 jobs. The main challenge for Mexico in telecommunications is the digital gap; the intent is to provide connectivity at all times to everyone.

Luis Robles, president of the Mexican Banking Association, stressed the importance that banking represents for the development of Mexico’s economy. He said there is an abundance of capital and liquidity and a low level of past-due accounts. Thus, Mexico’s banking sector is in the healthiest, most sustainable and best growth cycle of credit expansion. In the past few years bank loans have become diversified, granting more than 2 million loans to the production sector.

Juan Pablo Castañón, president of the Business Coordinating Council, gave the seminar’s closing talk, saying that work should be aimed at a constructive bilateral relationship, despite the challenges that it presents. Internally, he said, policies should be developed that reduce inequality, battle poverty and generate domestic investment. What is needed, he said, is financing of small businesses so that they are modernized, which will generate formal jobs and a better worker’s network. Currently, he said, there is no industry that wants to be excluded from business treaties. The country has made strides and is on a platform from which to take another step up as a country, with a great deal of work and efficiency by way of the formal economy, rule of law, and solid bases.

Presentations

Opening speeches [Video]

Dr. Arturo Fernández, ITAM President

Ana Paula Ordorica, President of the ITAM Alumni Association

Benito Solís Mendoza, Coordinator of the Seminar on Macroeconomic Perspectives 2017

Challenges in the International Environment 2017 [Video]

Ángel Gurría, OECD General Secretary

Macroeconomic Environment 2017 [Video]

Dr. José Antonio Meade Kuribreña, Finance Minister

Monetary policy as an element of stability [Video]

Dr. Agustín Carstens, Governor of the Bank of Mexico

Challenges and Opportunities in a Complicated External Environment

Panel: Economic and Political Aspects and the Future of the Free-Trade Treaty [Video]

(Moderator: Edna Jaime)

Dr. Jaime Serra Puche

Dr. Luis de la Calle

Ambassador Andrés Rozental

Dr. Jaime Zabludovsky

Panel: Sectorial Challenges and Opportunities in a New Economic Environment [Video]

(Moderator: Carlos Rojo, DG GF Interacciones)

Strategic Projects: Abraham Zamora, Banobras General Director

Energy Sector: Dr. José Antonio González Anaya, General Director of Petróleos Mexicanos

Telecommunications Sector: Gabriel Contreras, President of IFETEL

Banking Sector: Luis Robles, President of the Mexican Banking Association

Industrial Sector: Guillermo Vogel, President of Canacero and Director of Tamsa

Closing remarks

Juan Pablo Castañón, President of the Business Coordinating Council