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Beyond NAFTA: Raising Cross-Border Competitiveness

Speakers: Jorge Mariscal, Partner and Director of Investment Research, Rohatyn Group; Adjunct Professor of International Affairs, Columbia University, Shannon K. O'Neil, Douglas Dillon Fellow for Latin America Studies, Council on Foreign Relations, and Juan E. Pardinas, Director of Public Finance, Mexican Institute For Competitiveness (LMCO)
Presider: Ana Paula Ordorica, Journalist, Televisa/Grupo Imagen
November 10, 2010
Council on Foreign Relations

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ANA PAULA ORDORICA: Well, welcome to this final session on this day at the Council on Foreign Relations. Well, just a few introductory reminders. This is on the record, and we would ask all of you to have your cell phones off, as they have interference with the microphones. And we will now begin this discussion on competitiveness between Mexico and the U.S.

Jorge Mariscal is a partner and director of investment research at Rohatyn Group. This is a New York-based management asset.

And then Shannon O'Neil, you know, is at the Council on Foreign Relations, a Douglas Dillon fellow.

And Juan Pardinas, from the IMCO, Instituto Mexicano para la Competitividad -- competitiveness institute in Mexico.

So thank you all, and thank you for this invitation by the Council on Foreign Relations. First, we will be talking about the economy, and we know the economy is a very important issue. And for those of us who might have doubt -- doubts about this importance, well, we can ask Barack Obama what he thinks just finishing last week midterms election.

Starting with this subject, I would ask Shannon O'Neil what she thinks are the perspectives or the panorama for the following two years, basically, in the U.S. We always say that if Mexico -- that if the U.S. gets a cold, Mexico gets pneumonia. And last -- the last big shake that the economy had in 2008 was Lehman Brothers. I think the Mexican government forgot all about this, and they were saying that the U.S. had had pneumonia, and we were only going to have a cold. But that was not true.

So, Shannon, I would start with you, asking you what you think are the perspectives for the next two years in the U.S. and how that will affect Mexico.

SHANNON K. O'NEIL: Well, obviously, anybody who's been here in New York or in other places, it's been a tough couple of years and it looks like it'll be enough -- another tough couple of years in terms of the way the U.S. economy moves.

And coming back to the midterm elections, which you just alluded to, this is also going to be tough, particularly with how Mexico relates to the United States. The new Congress in particular I think will be less amenable to many of the issues that are on the table for Mexico, and we've talked already today about security issues. And there -- I think it will be hard to continue at the level that we've seen in the past, and particularly because this is a Congress that's going to want to cut spending where it can.

And as we all know, many of the big parts of the U.S. budget are really untouchable, whether it's Social Security, whether it's Medicare, some of the other entitlement programs. So where will this Congress look to show results? Where can they cut? Well, often programs that go abroad, where the monies seem to go abroad. So Mexico, where it's ramped up in the last several years -- or the last few years under the Merida Initiative may -- there may be difficulties in continuing that level of aid going forward in terms of at least the amount of the money, if not the cooperation that we've talked about.

Also, with this new Congress, as been said already today, I think immigration is an incredibly difficult issue to put on the table. And any sort of comprehensive reform, or even smaller reforms, getting it through the new Congress will be difficult.

But on the economic side, there may be some room to work with this new Congress and then also bipartisan space for an economic side. In part, we may see with more Republicans a bit more openness to free trade and some of those issues putting on the table. This doesn't affect Mexico, but there's a Colombian, there's a Panamanian, there's a Korean free trade agreement waiting in the wings, perhaps some of these might move forward under the new -- under the new Congress.

But for Mexico, on the economic side, as was brought up a bit here, but as Barack Obama has put forward exports are the way we are going to try to grow our way out of the recession -- or at least the slowdown in growth. And for the United States to increase its exports, Mexico is going to be a fundamental part of that. And part of this is because Mexico is one of the largest recipients of U.S. exports -- second-largest destination after Canada. And also because, as Ambassador Pascual mentioned in his talk, Mexico and the operations that are in Mexico are fundamentally important for the competitiveness of U.S. companies.

And it boils down -- do you want to have -- export jobs in the United States. Often, some aspects of it, to be competitive, to have the products be globally competitive, some aspects have to go to places with cheaper labor. And if they go to Mexico, you're much more likely to be able to keep some jobs in the United States, or even grow jobs in the United States, on some part of the production chain, than if those jobs are sent to China or Brazil or other places where much more of the production, the whole line of production moves abroad.

So looking forward, the next few years are not going to be easy years, I think, for either country on a host of issues, but perhaps the economic side is an area where we may see a bit more optimism than pessimism.

ORDORICA: Going further on this one, you know that if the U.S. wants to have more exports, that it's probably a window of opportunity -- or presents a window of opportunity for Mexico.

We heard Ben Bernanke's announcement -- recent announcement where he wants to have $600 billion flow -- put into the U.S. economy that will make it possible for the U.S. exports to grow and for the U.S. jobs -- the job market to be bigger.

What do you see there as an opportunity in specific terms for Mexico?

JUAN PARDINAS: I think it's a huge opportunity. Just last week, President Obama published an op-ed piece in the New York Times, as Shannon was saying, and the main idea that President Obama put forward there was that the U.S. has to double its exports in the next five years. That would, in a way -- to find export its way out of recession.

What I was sorry about -- it was that this article was published before his trip to Asia and not before his trip to Mexico because I think Mexico has a huge role to help the U.S. achieve this goal of becoming a country which imports a lot and to -- in transforming its economy into a country that exports a lot.

I think the speech that President Calderon gave to -- before the U.S. Congress in Washington in May, it was a missed opportunity in that sense because it focused too much in security issues. We talked before about weapons, and I always see the perception of a good sector of American society towards weapons possession as in the same regard as we see in Mexico.

They invest private investment in Pemex. For a U.S. American citizen, they think that freedom is to have a weapon in their pocket. For a Mexican, the fact that just -- the Mexican government has the monopoly over oil, we confuse that with the essence or the soul of our country. So instead of the -- the president went to -- before Congress asking things that cannot be changed in the short term -- it's hard to affect demand on drugs; it's hard to affect -- reduce the flow of weapons from the U.S. to Mexico.

But there is -- was a huge opportunity to start seeing the North American continent as an economic entity, as a competitiveness entity. And I think that message (didn't went ?) through. And that kind of message would have played an (indication ?) of President Obama's message of doubling the export of the U.S, and there's a lot that Mexico could do to help the U.S. achieve this goal.

ORDORICA: Jorge, whenever we talk about security, Mexico compares itself to Colombia. And when we talk about the economy, we compare ourselves to Brazil. I don't know if this is something that happens in many -- in many other countries. It's something that for many, it's already very tiring whenever we think that we are worse off economically than Brazil or we are worse off in security than Colombia.

What do you see in comparison between Mexico and Brazil? What -- how do you see the Mexican economy? And why, for example, are we excluded a very important -- (word inaudible) -- in the economy sector as are the BRICs?

JORGE MARISCAL: Well, you know, it -- the first reason is that if you put Mexico -- it's very difficult to come up with a word that is easy to pronounce in "BRICs" with an M. (Soft laughter.)

But the -- let me -- I just wanted to touch on the impact of the elections on the short-term future of the -- of the U.S. I think one (south-side) strategist put it very interestingly. He said QE2 plus GOP plus ISM is good. And that means the Fed did a new round of liquidity injections through quantitative easing, the Republican Party won and the data in the United States, over the last six weeks or so, has been turning up. Jobs numbers were better. And the Republican victory, I think, means that there's probably a higher likelihood that the tax exemptions that the Bush administration implemented are going to be extended for a larger group of people. And that at least in the short term reduces in our minds the chances that the U.S. is going to slip into a -- perhaps a double-dip or a slow down. And that is huge for Mexico. As we know, Mexico and the U.S. economy are very tight.

On the BRICs, you know, it's -- I think it's a -- it's an interesting question. I think the -- if you think about the size of the economy -- of the Mexican economy, it's roughly about a trillion dollars, a little over. It's very similar to the size of the Russian economy. The population of Mexico is about 110 million. It's the lowest of all the BRICs. Clearly, China would be about 10 times that; India would be 10 times that; Brazil would be twice that.

So -- but per-capita income has been more or less about the same as Brazil and a little higher than Russia. So there are a number of metrics that potentially would say Mexico should have been at least considered with Russia in that (plot ?).

What is missing in Mexico is growth. And if you look at their track record of growth, especially in the last 10 years, Brazil has been growing much faster. Interestingly enough, if you look longer, if you take from 1980 through 2010, the real growth on Brazil, on an annual basis, has been about 2.7 percent; Mexico has grown 2.6 percent. So very similar.

What is different is the last 10 years. And here I would argue that Mexico made the wrong bet, if you wish. Brazil made the bet of going with Asia -- with Asia and China; the U.S. (sic), for historical reasons, made a bet of going with the U.S. And the U.S. has not been growing; it has not been growing, and doesn't look like it's going to be growing very fast.

So I think it's great that the U.S. can get into the -- into the maquiladora mind-frame for this export boom that hopefully will happen in the U.S., but I don't think it's going to be enough. I think it's going to need Mexico to find a way to connect with Asia (and/on ?) the areas of growth around the world that are going to be more dynamic.

ORDORICA: Well, there is -- there are other economies that are growing fast. I -- we talk here about Russia, we talk about Brazil. But there are other world economies that are growing, and it seems like Mexico's economy is stagnant. We sometimes see a good -- a good forecast, but basically things have been very -- have been very stagnant for the past decade.

MR. : Yeah.

ORDORICA: I would like all three of you to comment on this. Why do other countries grow while we remain put?

Shannon?

O'NEIL: Well, there are a lot of things that are put out there why Mexico hasn't grown. One is, you know, they were some of the -- one of the first countries, at least in Latin America, out of the gate in terms of putting forward economic reforms, opening up their economy, creating a more stable macroeconomic environment. And all of that was good, but they didn't go far enough. There were many reforms that were left still on the table, whether it's labor reform, whether it's reform of PEMEX, of the -- of the oil industry, whether it's opening up markets beyond just one company or other companies, and how some of the reforms or privatizations were done that then slowed down the growth and overall competitiveness. And that's one aspect that's out there.

I mean, another aspect which touches on what Jorge just focused on was sort of the bets that Mexico has taken. Mexico took a bet with the United States, but it also was hit much harder by China and by the rise of Asia. And so while Brazil benefits greatly from China's growth, Mexico often is hit by China's growth. It becomes a competitor, not a supplier, to this boom that's coming from the other side of the Pacific. So both of those sides hit Mexico.

And then there's other, longer-term structural factors that may not have to do with just today's growth or the growth of the last 10 years but where Mexico, when you look at some of the rankings, the World Economic Forum and the way they put things forward, Mexico -- while other countries have finally started moving forward, Brazil's started moving forward or Peru or other emerging markets have started working on their institutions and their corruption, improving their educational systems, increasing their inequality, some of these things -- Mexico, while it was first out of the gates, has been much slower this decade and then hasn't reaped the benefits that these other nations that it competes with in the emerging-markets base have.

ORDORICA: Well, it seems that -- Lewis Carroll, writing "Alice in Wonderland," he said that -- well, there's a phrase where Alice says that she -- even though she's -- tries to be running, she feels like she's standing in the same place. So maybe that's something that is happening to Mexico.

Juan.

PARDINAS: Well, yeah, we are kind of running to stand still. And "stand still" meaning we are not doing the things we should do, and we are -- keep on doing things we shouldn't. For example, in the energy sector, we are basically the closest (sic/most closed) economy in the world, preventing foreign or national investments to take out Mexican oil. Even the communist regime in Cuba has a more open investment framework for energy. So when Fidel Castro could teach you something about how the market economy works, maybe there you have a problem. (Laughter.) The thing is that we still -- or at least our political leadership -- have not realized the depth of the problem.

In this case, it's a legal obstacle to invest in the energy sector. But, for example, in telecommunications, just at the beginning of the year, there was an opening; the government -- I don't know exactly the terms in English, but a new opportunity for investment in cell phones for -- to -- a new frequency, yeah, frequency to -- and they gave at what was considered a very good price for investment in this -- in this frequency. And then the investment was opened for the whole world. Any telecommunication company in the world could go to Mexico and invest and buy these frequencies lots in order to have a share of the -- of the market of cell phones.

Basically, no one came. No one was interested. And it was funny, because in the Mexican press there was a huge riot: how were -- we were giving away a very priced -- high-priced commodity of these frequencies, but no matter we were giving it at -- (inaudible) -- prices; no one was interested. Just Nextel and Televisa, the big TV network in Mexico, decided to make a joint venture to invest in these slots and start becoming like the fourth -- (inaudible) -- the fourth-largest company in the cell-phone sector in Mexico.

But then, all the process -- the legal process started, and now there are like 70 different judicial procedures in order to stop this measure. So basically, Televisa broke with Nextel and said we cannot go on.

So from one side in the -- in PEMEX example, you have the constitution and the law preventing investment in the energy sector. In the -- in the example of Nextel and Televisa, you have a whole judicial structure benefitting the current players, the big players in the cell phone industry, stopping competition and stopping investment.

So yeah, we're basically running to stand still because things are not changing. It's quite frustrating. I write in a newspaper back home in Mexico, and sometimes I read articles I wrote like seven years ago, and I could publish them next week, and they could still be timely due to the lack of reform in Mexico. And I think that's the big difference between Brazil and Chile.

As Ambassador Pascual was saying this morning, Brazil has 25 murders per 100,000 inhabitants. Mexico has around 14. But in the global media, who -- which country has the perception to be more violent? Well, Mexico is, because Brazil has managed to get a different narrative. Despite all the killings that happen in the favelas in Rio and ordinary crime in the big cities of Brazil, they have managed to construct this narrative of a country that is changing. And that's what Mexico is not doing, effectively running to stand still.

ORDORICA: Jorge, do you think this is all a problem of narrative?

MARISCAL: No. I don't think it's only a problem of -- the fact is -- you know, I just came from a presentation by the Mexican Stock Exchange at a -- at another event. And they were very proud that if everything goes well and an IPO that was going to happen today happened -- I think it was already priced, a 1 billion IPO, for an infrastructure company in Mexico -- they were very proud that if that happened, the total amount of IPOs in Mexico is going to probably be around 5 billion for all of 2010. Petrobras placed 60 billion less than a month ago for an IPO that is going to fund its investment program. It's a big difference.

You know, I think energy is central to this debate. Mexico still -- the Mexican government gets 40 percent of its revenues from taxing oil, oil revenues from PEMEX. That starves the company from investment.

Mexico has more probable reserves than Brazil does, but not more proven reserves than Brazil does because it hasn't invested in it. If Mexico were to do what Brazil did, simply float the company in the stock exchange and allow it to fund itself through the capital markets, you could save 40 percent -- potentially 40 percent of revenue that could invested in education, that could be invested in infrastructure.

It is not just rhetoric. It's not just narrative. It is happening. In Brazil, it's happening. And that's generating a phenomenal amount of foreign direct investment. The problem in the short term in Mexico could be solved by increasing foreign direct investment -- has been stagnating. And a lot of that is because there's no incentive to invest in telecommunications. There is no incentive to invest in oil. In Brazil, it's happening. There is incentives. There is a premium to be there. The growth is occurring.

Yes, and that's why crime, while important, takes on a relative perspective. In Mexico, unfortunately, we don't have the kind of growth, we don't have the interest, and we also have the crime.

ORDORICA: Well, it seems like somehow we've come back to a crime and insecurity issue, although we don't want to. For example, the Ministry of Finance in Mexico has been giving numbers of how things are going in the country, where we have a very stable interest rate, the most stable in decades; where we have big reserves in the central bank; and somehow other ministries say that insecurity is starting to cost in Mexico.

What do you think, Shannon? Is there any cost in crime or -- with crime and insecurity that takes a toll on the Mexican economy?

O'NEIL: Sure, there has to be a cost. And I think even the Finance Ministry's coming around. There is a cost. I mean, there's a cost in the day-to-day, you know, revenue lines of companies. You know, they either have to pay for increased security and preventative measures, and/or they often have to pay extortion fees to those -- to keep their businesses open. And these costs hit disproportionately on small enterprises. They're less able to buy armored cars. They're less able to protect their employees than the larger corporations, where it's still a cost, but it's a percentage of their operating expenses. It's not, you know, an overwhelming cost that perhaps companies -- smaller businesses, you know, microenterprises or small enterprises, can't deal with. So there's definitely a cost on that side.

There's a cost we see in foreign direct investment, in people making decisions: Am I going to put a plant here? Am I not? It's not that they don't come to Mexico, but all of those executives that are thinking about coming to Mexico have a discussion about security now. So there's a cost there.

And there are longer-term hidden costs that I think are developing, particularly in places that are quite violent, whether it's Ciudad Juarez or others, in that it disrupts housing markets, mortgage markets. Those have just started to develop in Mexico in the last 10 or 15 years, where mortgages have become more available, credit is starting to expand, which has been a good thing for Mexico. But if you have thousands and tens of thousands -- perhaps hundreds of thousands -- of people fleeing the area, obviously, mortgage markets and housing markets decline. And so can you pick up that fabric again? That hurts the economy -- and not just for today or tomorrow, but for the long time. So there are costs there.

What perhaps the finance ministry is suggesting -- which may be right -- is that the costs are not yet as drastic as one might think when you read the bloody headlines.

MARISCAL: Let me just add, you know, in a dark-humor kind of way, there's also a benefit. As you know, the majority of the killings happen among the bad guys, and that, by logic, increases per capita income, by reducing the capitas and increasing the quality of the capitas. (Laughter.) Just -- but there is a -- there is a study that has been done by Bancomer recently, BBVA Bancomer, that estimates all the costs of tourism, people not going out to eat at night, which is something we were discussing before, the lack of (FBI ?), all the costs of protection -- the cost of police effort and the army effort. And the estimate's about 1 percent of GDP. They also did a cross-sectional study that said if Mexico is able to bring down their rate of homicide by 10 percent, then the per-capita income would grow by .5 percent.

So it is -- it is very real. There are numbers out there that are being estimated. And when you think about compounding that 1 percent or that half a percent over the next 20 years or, in the Goldman Sachs projections for BRICs, the next 30 years, Mexico could -- just that 1 percent could put Mexico above Russia or Brazil easily, you compound those numbers.

So it's a very real cost today, and -- (inaudible).

ORDORICA: One always likes to think things the other way around. That's how I see it. Maybe catering companies are starting to grow because you now have to have meals at your house and not go out to restaurants, or security companies are doing better off, it seems. I mean, I -- we -- I mean, I do see in Mexico companies where they armor your car, and that is something that we didn't see before. And now you see them in Masaryk, in the main streets in Mexico City.

So I just wanted to see if you can go out of the obvious and think of something -- (chuckles) --

PARDINAS: Not this time, I'm sorry. I think it's having quite an impact, especially regionally, in the places that have been mostly affected. And obviously there are new sectors breeding out of the crisis, but in general I think it's affecting the economy. And there are some other costs. We would never be able to measure, with no metric or method, which are the decisions that are being -- taking place right now in a board -- I mean, a meeting in a -- in a big company here in Manhattan, or in India or China, investment decisions that are being canceled and never happen. But that's still not reflected in the big numbers of the economy. And -- but maybe at one point it will.

One message I want to get through is that we are becoming a federal country in this -- in this war crisis, because in Mexico City it really has a very different perception, and the feeling of living there and wanting my small baby to grow there and seeing that there's a possibility to have a happy and prosperous life in Mexico City really gives a different perspective of what's happening in other regions of the country. So I think it will affect the nation as a whole, (maybe in ?) foreign direct investment. But in some other places of the country you don't really feel the pain and the anguish that other co-nationals are having, like in the north part, in Tamaulipas, in some places in Nuevo Leon. So it's really having regional impact, and -- but from the world perspective it's a nation as a whole.

ORDORICA: We were talking before about this article that Thomas Friedman wrote about Mexico. He was down in Mexico mid-year this year, and he said he -- what he saw was that the future of Mexico depended on one of three Ns: the NAFTAs, the narcos or the "no"s. The NAFTAs are the people that have benefited because of the North American Free Trade Agreement, the middle class that Ambassadors Sarukhan and Pascual spoke earlier today. The "no"s are the people that benefit from the status quo in Mexico, where they benefit from things working the way that they sometimes, more often than not, work, where there is bribes involved and where politicians get high revenues from working things not through the rule of law. Those are the "no"s. And the narcos, we all know who they are.

So one of these three might prevail, or has to prevail. All three are probably today clashing between themselves. I wanted to see what perspective you three have on who will prevail or how we can make the NAFTAs be the ones that prevail in Mexico.

Shannon.

O'NEIL: I think an untold story about Mexico, or at least the way that people in the United States, a perception of Mexico that you see, is the NAFTAs, as he puts it, but this middle class. And depending on how you measure who's in that middle class, it's anywhere from 30 million to 45 million people. And so while we talk a lot, and we have today, that, you know, poverty levels are quite high there, that nearly half of the nation can be considered in poverty there, there is this huge, vibrant middle class. And that has grown particularly since NAFTA was put in 15 years ago.

And this is really a potential future for Mexico on the positive side, and for the United States, frankly, in that relation. This is a group that politically led to change there, in the opening up of democracy in Mexico. They pushed first Vicente Fox and then Calderon over into power and changing the system there. They are also those that have created, you know, small, medium-size enterprises, those that employ the most number of people there. And they are also the ones that when we talk about poll numbers on security, they're the ones that are pushing for rule of law. They're pushing for -- and civil-society organizations that they support and they originate are pushing for -- these changes that obviously Mexicans want, but the U.S. and those who focus on Mexico want as well.

So this to me is -- I mean, it's the optimistic scenario of the three. But I think there's a real force there. And I think if we turn around and look at Mexico 15, 20 years from now, or 2050, as the BRICs like to do, there's a -- there's a strong possibility that we will see a nation transformed, and transformed in the ways that we want it to transform -- that it will be BRIC-worthy.

But these other options are there, but I think this is a forgotten story. And often when you see the headlines that are the negative headlines, you forget this class that is -- that is growing, that increasingly has political power and has economic power. Important for Mexico, but important for the United States as we try to grow our exports going to Mexico, these are consumers too, and they will help us as much as they help their own country.

ORDORICA: Jorge.

MARISCAL: I'm optimistic medium term, I think for part of the reasons that Shannon mentioned. The middle class demands will, over time, percolate through the institutions and the political system. And we're -- I think we're seeing still the early stages of Mexico's democracy. I think they -- you know, they got (free vote ?) and the respect for the vote, but there are a lot of things that haven't happened and are still being discussed, like the reelection of the congressman, potentially having a second round.

A number of things that I think will increase the accountability of the politicians -- they're beginning to reform the courts so that they have, you know, the juries, the trials are open, like in the United States. I think a lot of what allows this regime to continue is impunity, and the impunity is based on this rule of law, and the rule of law is based on the accountability of the legislative powers that are behind it. And that is changing; it's just changing very slowly. It's changing in generational terms rather than in a couple of years or three years, and it's very painful and it's very difficult to watch. But it is changing.

So I think in, you know, 10 years' time, I do think the levels of criminality will go down, the rule of law will be stronger, I think Mexico will have overcome a lot of these issues. But it's going to be -- take time, it's going to take a lot of perseverance, and of course, with a political change coming, and most likely the PRI winning the next elections, there's a question mark of whether there is going to be a temptation to go back and sort of work out a deal with the bad guys and (the noes ?) gaining a little more power in that. And I think the -- we need to watch that carefully. There's always that risk.

ORDORICA: Juan?

PARDINAS: Well, the average Mexican could measure its life like in years or in soccer World Cups. For example, I was born when Brazil won the World Cup in 1970. I went to high school when Spain held the World Cup and Italy won.

But we could also measure our lives in financial crisis. So I went to elementary school in '76 with the crisis of Echeverria. Then six years later we had the crisis of Lopez Portillo. Every presidential term finished with a crisis. It was like first the summer, then autumn, then winter, then the presidential term ends, and then comes a crisis.

Well, for the first time in 15 years, we haven't had a financial crisis, and that's -- that, with NAFTA in parallel, has created a new generation of Mexicans.

And I would let myself the freedom to tell a short personal story. My sister-in-law, she just finished university. She's 23. And she told me the other day: I'm going to start my own company.

And my reaction is like, are you nuts? (Laughter.) You should get a job, do something real, get -- how would you come risk your life? And you just have a computer and a degree in math -- mathematics. How are you going to start your own company?

Well, she started it. Two years later now she has 15 employees. That's something someone in my generation -- I'm not -- the time difference between her and me is not that big, but I would never dare to start my own company because I was used to seeing my dad seeing every six years having a huge personal crisis of paying the mortgage. I'm the first member of my family of having a mortgage in two generations.

So this -- the story of my sister-in-law, my mortgage, is that the building of a new ground of this middle class that Shannon was talking about. And I'm really positive that that would be a force of change, that that would be the kind of civil society that would demand institutional changes that we need to improve security, to improve economy.

Sad to say is that this middle class has not yet become a critical mass to pressure our political leadership in order to take the changes and reforms we need to broaden this middle class not just to 40 million people, but to make it happen 60 (million) or 80 million people. But if 15 years ago you would tell me that a young professional that just finished university, their first choice of career would be to start a company, I would say that would not happen in Mexico.

So in -- if in 15 years you tell me Mexico would be a stable, peaceful country, now I think that it would be possible, as this -- as I have seen and experienced in personal basis this social and economical change as a consequence of economic stability and also open markets with the U.S.

ORDORICA: Well, I think one more subject would be interesting to touch in this economic cycle, and that would be transparency.

Shannon, you usually talk and write about the importance of institutions, of strong institutions in Mexico. And one thing that the federal government has been working is transparency, but it has stayed at the federal level. What is your intake on Mexico's course or Mexico's way of working through more transparent and more solid institutions?

O'NEIL: I mean, that -- we've been talking about a lot of things today, whether it's rule of law on the security side or here, on the economic side, sort of opening up and making these markets more transparent and competitive. It comes down to that sort of transparency and accountability and where the government fits in there.

I mean, as you said, Mexico's federal government has taken several steps in that direction. Sometimes it's two steps forward, one steps back, but you can say it's going forward.

Where it comes down on the state level, you are starting to see it, and you do in -- and Juan, you have data on this. Those places that seem to be more transparent and more open and more competitive are doing better. And so you see a difference between particular states and others, between particular regions of Mexico and others.

And so looking at Mexico going forward, that seems to me to be a crucial issue. And in part, it's because it's just more transparent. It's much harder to have the corruption, much harder for the -- (inaudible) -- to insert themselves and take their piece of the cut, or for the narcos, frankly, to get in there and put themselves into the economic equation or the political equation.

But it's also an issue -- one of the big challenges Mexico faces -- and many emerging markets around the world, but Mexico faces -- is the issue of a very large informal sector. In particular, with the recession, we've seen more and more companies move into the informal sector -- people, at least, working in the informal sector. How do you move people out of the informal sector into a formal economy? And formal economy is quite important, because then you know where they are; you can -- you can tax them. But you also can set up a much more transparent, open system, and a more even playing field in terms of competitiveness. And that is something Mexico needs to strive for. And how do you do that?

Part of it is openness and transparency. Part of it, which we haven't talked about as much here, but I think is quite important for Mexico -- and I think there's some optimism here -- is the issue of credit, and how credit flows and financial flows throughout an economy.

Mexico has a, you know, quite strong formal banking system, with a lot of big international players there. But it doesn't penetrate lower levels of the economy. And you look at countries like Brazil: credit is much, much more available. And in part, that's how you get small companies, medium-size companies, that provide economic growth and provide jobs. And if that's what we're worried about, jobs in Mexico -- for issues in the United States, like immigration and others, but for Mexico it's growth -- you need to increase credit which also can bring companies into the formal sector.

Now, I do think there's some -- actually, some positive signs in Mexico on the credit side. Mexico in the last 10 years has moved from just the big traditional banks to allowing new banking licenses for companies that weren't traditionally bankers but that appealed to lower middle classes. You know, one is one of the main sort of appliance and other type of stores, where you can go and buy your washing machine on layaway plans; was given a banking license eight, nine years ago. And so now you go into their stores, you can also open an account. And it appeals particularly to working classes. Wal-Mart in Mexico, a large player, also now has a banking license.

And just a year ago, there was a law passed that will allow banking activities to go on not just in brick-and-mortar banks, but in places like supermarkets or pharmacies or your local stores. So all of a sudden, rather than having, you know, eight (thousand) or 10,000 banks, you could see a doubling of that number, making it much easier for people to get into the system and get small loans they need to get the computer to start their company, then grow.

So I think there are positive signs here. But some of this comes back to the transparency, accountability, that you started off in the question with. If it's more open, then you see some of this competitiveness be able to rise up, and the flows of money that allow economic activity to grow, to increase.

ORDORICA: Okay. Before we open -- we are open for questions, I would ask you a final question: if you think this transparency is an issue that you, as a Mexican living in the U.S. and working for a -- for a foreign investment company -- is transparency -- is this an issue that you get asked questions about concerning Mexico?

MARISCAL: Definitely. You know, there's -- there are two layers. So there is, I shall say, the big, world-class Mexican companies we all know about and -- you know, media, Televisa, Walmex, SAMEX -- world-class, a lot of transparency. And then, there is a layer of a lot of small -- small-in-size companies that are run more like family -- in the family, like, where the books are, you know, a little difficult to understand; where, as Shannon said, there's very little credit at all, and so there are ways in which they fund themselves.

But the (process ?) to GDP in Mexico is only about 20 percent, compared to 40 percent in Brazil. Funding credit -- bank credit to companies in Mexico is about 7 percent, against about 18 percent in Brazil. So there is -- the reason I link this to transparency, like Shannon, is because if you don't have the means to finance an accountant, because you're very constrained, and the rate of interest you have to pay, and have to figure out a way to grow up from cash flow, it's very difficult to move up and to have -- to get the standards and the structure and the setup to be -- to have world standards. So I do think it plays a big role -- certainly, when it (wicks ?) down to the layers.

Now, you could argue that's where the opportunities are, you know, because if you can decipher those books, you probably can make a lot of money. But it is indeed something that -- very few companies in Mexico really can deliver that. You know, there is only about 170 companies listed in Mexico stock exchange -- (inaudible) -- like, over 500 in Brazil. And of those 170, only about maybe 70 are liquid enough and transparent enough and -- that you could consider world-class. So transparency -- big issue. It's getting better, but I get asked a lot of questions about transparency when we put money to work in Mexico.

ORDORICA: Well, now we're open to questions from the audience.

QUESTIONER: This is a fairly specific question, although there's a back question behind it. A couple years ago, we thought a lot in Mexico about a double strategy that would see many businesses move from China to Mexico. As wage rates rose in China, transportation costs increased, it seemed ideal that Mexico would benefit. This was tied into a very large transportation infrastructure strategy. Both of these were connected with new ports and so on.

So the first question is what happened with this. And second, the back question is, is Mexico thinking about strategies for the 21st century? Is it -- unlike the United States, where we seem not to be -- or Canada, for that matter -- is there thinking on what Mexico would look like in North America, for example, for the 21st century? So first question: Is that happening? And what's the bigger meaning?

PARDINAS: Yeah.

ORDORICA: Juan, you want to take that?

PARDINAS: Yeah. I think we are thinking what Mexico should do in the 21st century, but the problem in my area of work is that we are sick of diagnostics. We have so clear the picture that it's so boring. The problem is that changes do not happen -- not because lack of ideas or lack of vision, but the problem is that there's huge sectors of the country and the economy that knows that -- Ana Paula was mentioning on the -- on the Friedman article -- that benefit from the status quo.

So there's no -- not only reform in PEMEX, because we confuse PEMEX with the souls -- the soul of the nation, but, because there's a very powerful union which can only function the way it has functioned the last 50 years, if there are -- if there is no transparency, as a company listed in the stock market will expect. So there's a vision, but I think there's a very efficient kind of status-quo lobby to prevent Mexico for -- from changing.

And (Rick ?), I think the "transparencia" and the last question of Ana Paula -- just wanted to say that I think organized crime is not the biggest challenge for Mexico. It's federalism, to make it work as a federal democratic country. Why -- I say this regarding the issue of transparency. But it will work also for public security or basically any problem we have regarding authority in Mexico.

Just two weeks ago, the state of Nuevo Leon decided that its public debt was a state secret; it was confidential. I have never seen it anywhere else. It's quite appalling. This 20 years ago would haven't been possible, because the president would have flown the governor of Nuevo Leon -- would say, "Are you crazy? That cannot happen," the markets will say -- they will not like it, and the governor of Nuevo Leon will make the public debt transparent.

The things have changed so much that the -- this structure of control, this structure of accountability, this pyramid of -- chain of responsibility has been broken, due to the positive change of democracy, and you also, too, we have a federalist constitution, but we never pay attention to it. It was just in that word inside the book of the constitution. Now that it's taking strength, it's becoming very difficult to govern the country that just 20 years ago was centralized in the -- in the figure of the president.

So transparency or having -- pushing ideas forward -- now you have to convince the -- for example, the doing business in Mexico, which we have improved a lot. The federal government has made a lot of efforts to improve the doing-business environment. But then you have to convince the state governor, and then you have to convince the municipal president, which doesn't have reelection, and its term finish(es) every three years.

So you -- once you have (settled ?) a business environment and rules to make it easier to open a new business, the new municipal president changes and changes the rule that affect the whole change of command, up to the top. So, yeah, there is a vision, but I think there's no coordination to put forward that vision.

ORDORICA (?): (Inaudible.)

QUESTIONER: Yeah. Okay. Well, thanks. Just a very quick question. It's about NAFTA. I mean, some years ago, everybody was talking about NAFTA and the integration of North America, and they were very optimistic. President Fox even talked about NAFTA Plus. And now nobody talks about it. I mean, I don't know -- because the perspectives are not so good.

So what do you think is going to -- are we going to see some integration of North America at some point? What kind of integration?

What's the role of Canada? Nobody has mentioned Canada. It's still part of NAFTA? I don't know. (Laughter.)

Well, I mean, how do you see the future? I mean, are you thinking that this idea is really possible or maybe was just something that Salinas invented to -- I don't know, to make an economic word or something like that? I mean, how do you see that?

ORDORICA (?): (Inaudible.)

O'NEIL: Well, NAFTA, in the end -- and Salinas's -- what he wanted out of it I think he got out, which is that it was an investment treaty, in many ways. And it was limited to that.

I mean, the speeches that were given on both sides of the border of what NAFTA would do in the -- in the time of the NAFTA, you know, being passed were, you know, the critics said it was going to destroy everything and the -- and the proponents said it was going to make everything better; it was going to be a panacea for everything.

But in the end, it was an investment treaty, and it brought investment to Mexico and it brought investment and integrated supply chains from Canada to the United States to Mexico. But the issues that were left out of NAFTA, which are, as we've talked about, the oil industry and PEMEX -- as we've talked about today, immigration was left out, those markets were left out -- those, as we can see from our conversation today, we're still struggling with.

And I don't see those -- I'm not sure where the solutions for those are in and of themselves. But definitely I don't see any political will to try to link them back to a NAFTA-type structure, to try to bring them all together. If PEMEX is dealt with in Mexico and opened up in some form, it will be on its own terms. If immigration, some sort of reform either large or small happens, it will be done as an immigration reform.

But it won't be part of a -- they won't -- it's politically not helpful to tie it to these larger issues, because then you get in the "noes" that we have on both sides of the border. Not just in Mexico are there "noes," we have our own, you know, plethora of them up here. And so taking them apart is probably the best political strategy. But that's where NAFTA was left.

MARISCAL: I agree. I think NAFTA did what -- let me put it this way. It could have been a lot worse without it. I think that it generated a huge boom in FDI for quite a while, and it brought Mexico a level of competitiveness that I don't think otherwise it would have had. But it's incomplete.

It's -- I would also add, in addition to the integration of the labor markets, the financial markets were never really integrated fully. It is very difficult for an American bank to lend -- give a mortgage to a Mexican.

Now -- (inaudible) -- maybe would have a subprime problem with Mexico otherwise, but that financial integration did not happen either. So it's going to take leadership and it's going to take a healthier U.S. economy to potentially push NAFTA to a higher degree, which these issues of labor integration -- gradual labor integration through temporary workers programs or greater financial integration, rule of law across the three countries will happen. You need the political environment. We don't -- I don't see it in the next couple of years, certainly.

And Canada is linked to -- Canada is interesting, because it's a natural-resource country. It's now much more linked to the Asia cycle, much less to the U.S. cycle, interestingly enough. It has benefited from this commodity resource base.

ORDORICA: Are you saying there are "noes" on both sides of the border? But I think the "noes" in the U.S. start with a "T", right?

MR. : (Laughs.)

ORDORICA (?): A "T" in the --

O'NEIL (?): Tea party?

ORDORICA (?): The tea party? (Soft laughter.)

(Cross talk.)

MS. : Back there.

QUESTIONER: My question is related to NAFTA. Yes, it seems that Mexico tied itself to the maquiladoras and the United States has slowed down. That's impacted it. I got the impression that if Mexico perhaps focused more on energy sector and petroleum, it might be a bonanza there. But the Russians have done that, their overdependency on oil exports. Depends, of course -- if the oil price goes down, then they've seen recessions. And the Venezuelans are also impacted by the oil price.

But my question is specifically addressing the -- one of the historical aspects of Mexico, which is the campesino, the ejidos, and we == of course it's -- they've always played an important part in Mexican history.

What is Mexico or the Mexican government doing to support the agricultural sector and agricultural exports within the NATO -- excuse me -- NAFTA framework? Excuse me.

O'NEIL: That's probably one of the biggest failings, and where you see the critics of NAFTA come out is on the agricultural side. And so NAFTA has had its winners and its losers overall. I think almost all mainstream economists agree that there have been more winners than losers. But the losers have been on the agricultural side, and there are some 3 million people that, you know, are pushed off of their farms, are no longer involved in that. And the government in Mexico did not take the steps to help ease that transition.

I mean that, in fact, you know, the government did of course create big programs that were supposed to help those people, but that money -- back to our transparency issue -- doesn't seem to have gone to the poor, you know, corn farmer or other farmer that it was supposed to help and that sort of transitioned to a different type of job or a different type of life, and instead went to relatives of large politicians and, it seems in some cases, to narcos themselves and their relatives.

So there has been a disconnect there, particularly on the agriculture side; that's where the weak point is. I mean, given that the -- what's interesting is, you look at some of the polling data -- and you know, if you listen just to political leaders, you would think, on both sides of the border, if you read some of the headlines, that everybody hates NAFTA, right? When you look back at the Democratic primaries back before our last presidential elections, you know, Democrats were tripping over themselves to talk about how bad NAFTA was for U.S. workers. And on the Mexican side, you see the same. You see politicians come out and say how much they dislike NAFTA.

But if you look at polls of Mexicans, about how they feel about globalization and free trade, they're overwhelmingly in support of free trade and globalization. They see it as benefitting them. It benefits them perhaps on the producer side and as labor, but it benefits them particularly as consumers. And they recognize that.

The things that they like less, when you look at these polls -- NAFTA they like, openness and globalization they like. Some of the privatizations, they're less fond of, because it's raised the prices of their phone calls, of their -- you know, well, they haven't privatized electricity yet -- (laughter) -- but of some of the other basic services there. And so those are the things that they're less comfortable with. But overall the opening, in things like NAFTA, there's actually a lot of support, at least on the other side of the border.

MARISCAL: This is the only one I'm going to come out in support of Carlos Slim. Telephone rates have plummeted in Mexico since telephones were privatized. It's not just --

O'NEIL: You can get telephones, too, now; (you can get telephones ?).

MARISCAL: You can get telephones in one day. It used to be six months.

QUESTIONER: (Six years ?).

O'NEIL: (Laughs.)

MARISCAL: That was a little before. But that's a global phenomenon of technology -- but yeah.

PARDINAS: One thing of defending NAFTA, it's more or less like President Obama defending his rescue plan, because the message is, well, the things would be much more worse without it, but it was not as good as we originally expected. And it's more or less the same feeling.

The problem with NAFTA, it's not the tradable goods. There has been a revolution in Mexico. If you see the amount of homes that now own a refrigerator, the amount of people that own a car, that has been changed by NAFTA. The problem is the non-tradable sectors, especially banking, telecommunications, some sector of telecommunications. There there's much more to -- there's so much potential and so much to do, but nothing is happening. That could be a bit frustrating.

MARISCAL: I'll just add one quick thing, then. The banking sector in Mexico also made kind of the wrong bet. Most of the banks are now owned by Spanish banks in Mexico. And the one large one is Citibank. (Laughter.)

ORDORICA: Over there.

QUESTIONER: I'm Bob Lifton, Braden Technologies. One of the things in today's competitive world that countries find they need to be is entrepreneurial and innovative and educated, in that direction.

To what extent is Mexico moving forward in those areas? How many patents have Mexicans filed, for example? What kind of small companies are being created that are going public in Mexico? What kind of education for entrepreneurial activities are they getting?

It's wonderful that your sister started a business, but the very fact that you can talk about that as something unusual is frightening from the point of view of the country's future.

PARDINAS: Not as frightening as your question, actually. (Laughter.) Samsung, the Korean company, produced more patents in a year than Mexico as a country as a whole. We are losing a huge edge on that -- on that race.

A big part of the problem is related with the education system, the public education system, the teachers' union. I would not exaggerate if the -- I would say that the biggest power broker in Mexico is the lady that heads the teacher union. Actually, she was a key factor to make President Calderon president of Mexico, but she also -- it's a huge obstacle in reforming the education system in order to create and offer the Mexican children the basic tools to compete in an economy that you need to create patents, you need to have a basic knowledge of math just to get educated to work in a factory, in a car plant. And I think that's maybe the weakest point of whole Mexico competitiveness, but that's why your question is so painful in a way.

ORDORICA: Jorge.

MARISCAL: If I may just add, I -- you know, this is one unfortunate cost of the war on crime, I think has consumed a tremendous amount of political capital on the administration. And that has -- fights like that have been much more difficult to fight, the fight on energy and PEMEX -- when you're constantly, you know, fighting this war, and having so much of the press on top of you. And so it's unfortunate. So it's another real cost that probably adds to the 1 percent of GDP that we needed to talk about before. But it is a real -- it is a real cost.

QUESTIONER: Ray Suarez from PBS. I asked the head of Volkswagen if Mexican workers could make a Volkswagen with as few manufacturing defects as they do in Wolfsburg, would they ever be able to live as well. And I said, "Well, when?" And he said, "Never." And while I appreciated his honesty, "never" is a pretty discouraging answer for fans of globalization.

When Zenith left the western suburbs of Chicago and headed down to the border states of Mexico, the men who were left behind when Zenith left bought houses and sent their children to college on what they made from Zenith, while the women who now work for Zenith on the other side of the border made $8 a day and built their own homes out of packing materials.

I'm wondering how, in a world awash in overcapacity, where capital gets more and more mobile all the time, how a low-wage country can compete itself into the global middle class when, if you make any wage demands that reflect your productivity, companies can just easily find someplace cheaper and pick up and leave.

ORDORICA: Jorge, I think that would be a good question for you.

MARISCAL: Thanks. The easy one, huh? (Laughter.) I think you're looking at one side of the equation, which is the cost. What I don't think you're factoring in is the benefit that the American consumer, who -- you know, whenever he finds another job -- or the ones that didn't get unemployed is going to get from being able to buy cheaper goods that come from China.

The purchasing power that Wal-Mart has afforded the American population by virtue of having a large percent of goods made in China, because the factories move there, is a huge benefit that has to be taken into account. So I think you have to think about the two things.

In terms of -- in terms of the -- it is a starting point. (I hope ?) -- capital moves obviously to where the returns are bigger. And wages is one factor, but it's not the only one. It's education. It's infrastructure. It's transportation. And it's not clear that, you know, China with much lower wages than Mexico is competitive in some areas. So it's a much more complex situation, in my mind. But I think poor countries that are able to attract capital and generate employment and obtain a transfer of technology and a way of doing things will benefit in the long term, even if at the beginning the wages are much lower than what they are in the U.S. or Japan or Europe.

O'NEIL: Let me just add to that. And it's basically reiterating what you've said, but no country that starts at low wages wants to stay there. I mean, it's sort of -- globalization, it's like the immigrant story, right? Your parents come here, and they work hard at these jobs, and then they send their kids to college, and then their kids go on and become, you know, professors or take much more value-added jobs.

And countries are the same way. You start off as the low-wage producer. But you see, even with China and its ambitions in the world, it doesn't want to remain the world's low-wage producer forever. It wants to move up the value chain. It wants to have its own R&D, and it wants to move up and to create these things. And that is the challenge for Mexico, is how do you move from that low-wage producer and keep going up the ladder.

MR. : (Inaudible.)

QUESTIONER: Yeah, picking -- sorry. Picking up on the question and the comments and the integration of labor and the upward mobility over time, one of the pieces of course historically of the upward mobility over time has been organized labor in every industrial democracy. And I'm wondering about the place of organized labor in this conversation, both generally and like -- in a conference like this. And I'm thinking integrated labor, guest worker, for example, someone like Baldemar Velasquez organizing the guest workers, and the -- where that piece fits in.

PARDINAS: We need labor reform in Mexico to transform unions in organizations that defend the rights of workers. Now, unions in Mexico do a lot of things, but defending the rights of workers is not their biggest priority. They are good for political mobilization. They are good for -- for example, just a couple of weeks ago, the Comision Federal de Electricidad, now our single electricity monopoly producer in the whole country, said that the union takes 3 percent of every contract made with a company, with -- it's like a bribe, like a flat rate. Three percent of every contract made by the Comision Federal de Electricidad, this 3 percent goes to the union.

So we need a labor reform to focus unions in what they should do, which is defending labor rights. But now being a member of a union in Mexico has really bad press because all these associations that we have with corruption, with lack of productivity. And, sadly, the unions do not do their basic job, which is guarantee that -- the right of workers, no?

MARISCAL: He's been raising his hand here in the second row for a while.

QUESTIONER: Hi, Dan Wilson. Looking at the bilateral economic relationship and maybe leaving aside the big ticket on page items, what economic reform initiatives would be done on either side of the border, or on both sides of the border that would be most contributing to the prosperity of both countries?

MARISCAL: That's a good one. I think energy is up there in Mexico, if they were able to allow for greater competition. And private-sector investments in the energy sector, it would free a tremendous amount of resources that could be devoted to other things. So I would put that number one.

And I think -- you know, it's much more indirect in its benefits. But the completion of the political reform in Mexico, political -- the judicial reform, that it's so -- such a key part of the legal system.

On the U.S. side -- you know, there is -- clearly you can say it would -- you know, guest worker's program, amnesty, all these things that are politically very infeasible. But I think one that would in theory should be pretty easy is simply controlling guns a lot -- the sale of guns in the United States.

You know, drugs don't kill people. It's guns that kill people. And so if the guns -- I don't know the exact numbers, but north of 80 percent of the guns that get confiscated in Mexico are traced directly to the southern states of the United States because it's so easy to sell them. And a lot of it has to do with the ending of the ban on assault weapons and the high-powered weapons there.

You know, it just makes no sense that something that apparently is so simple to do with it would have such a dramatic impact on the human cost on the Mexican war on crime cannot be done in this country. I mean, it seems like it's a lot less of a tall order than immigration reform.

QUESTIONER: Going back to an earlier question, can Mexico compete with China? I mean, we've seen wages in China rising. The Mexican currency has depreciated significantly against the dollar over the last couple of years, so wages in Mexico in U.S. dollar terms are much cheaper. So, thinking specifically in terms of export competitiveness and manufacturing.

PARDINAS: Maybe the question is, we would like not to compete with China, but do business with China. How we can achieve that, well, going back to another question, raising the level of education and the quality of education of our workforce, that would be one.

Guaranteeing the property rights in Mexico in order that -- well, China offers very cheap labor, but Mexico has this other advantage.

And another factor that's really relevant there is the price of oil. If bringing goods from China, it's costly, then Mexico has an opportunity to make it more efficient and more competitive. But hopefully we would not like to compete with them, but become sort of a business partner. As Jorge was saying, that's what Brazil did and very successfully.

ORDORICA: I don't know. Jorge, do you want to answer that?

MARISCAL: Mexico has been able to compete with China recently. The market share of Mexican exports in the U.S. has been rising, while the Chinese market share has been declining. And I think Mexico has an opportunity. China is -- you know, the world wants China to focus more inwardly. They want it to become more of an importer than an exporter.

Now, China is very afraid of going that route. You know, they -- interestingly, they have done studies in China where they look at Mexico, they look at Brazil, and they know that when per capita income reaches somewhere around 7 (thousand dollars), $8,000, economies tend to stagnate. So this idea of fostering a middle class, in their mind, is a dangerous game. And the countries that have maintained very high rates of growth, interestingly enough -- Korea, Singapore, Hong Kong -- have been extremely open economies where the middle class took a long, long, long time to create.

So -- but I think it's -- I think China has no other way to go than to become more inwardly. And I think that will create an opportunity for the Mexican industry to be more competitive vis-a-vis the U.S. And, incidentally, I think the dollar, QE and everything we know about monetary policy in the U.S. suggests that the dollar should continue to weaken. This should -- for a currency that is very tied to the U.S. dollar like the Mexican peso should over time mean more competitiveness and greater market share gains with Europe and with Asia as well. So I think Mexico has a shot. It just has to pick its spots.

ORDORICA: We have one more question.

Okay, over here.

QUESTIONER: Andy Huszar. A question about -- there was mention of an expansion of NAFTA in the past. But I'm just wondering, to what extent does Mexico look south, and think about southern partner countries as partners for free trade and sort of leveraging the regional strength, rather than just looking north? Thank you.

PARDINAS: Well, there is a lot of room for improvement. Just to give an idea, Mexico has more trade with the state of Michigan than with the rest of the world. (Laughter.) So there's a lot of room for improvement. There are thousands of speeches and summits of Mexican president with Latin American -- the fact is that our economy, it's obsessively focused on the north. And there are obvious reasons for it.

One of the not-so-obvious reasons, I think, would be lack of credit. If you manage to improve credit and infrastructure in our ports in the Pacific and the Atlantic, we would manage to get more diversified partners in commerce in the world. Nothing against Michigan, but -- (laughter) -- the picture should be a bit larger than it. (Inaudible) -- credits for exports and infrastructure.

ORDORICA: I agree. Your concluding remarks, Shannon. Ladies first.

O'NEIL: My concluding remarks are, as we started off, it's been a tough time for the U.S. and particularly tough for Mexico. And we -- they haven't de-linked or, you know, the cold has spread. But there are these positive signs in Mexico.

And so, yes, Mexico, they know the diagnosis. They haven't yet taken the medicine in many cases. But there are aspects of the economy and things growing within it, be it the middle class, be it sort of nontraditional sources of credit, be it some grassroots entrepreneurial efforts from cultural changes, from generational changes that lead to some positive aspect there.

And the other aspect we haven't mentioned, let me just throw out there is Mexico right now is hitting what they call a "demographic bonus." It has few children, few old people, a lot of people in this economically active population. So for the next 20, 25 years, if they can harness that effort, their economy -- into their economy, you could see it take off. But it is a short window when it doesn't have the obligations to the older and to the younger generation. So it's -- now is the time for Mexico.

ORDORICA: Jorge.

MARISCAL: I would say, first of all, don't underestimate the United States. The United States has proven over time to be extremely flexible and adaptive. And rebound, I think, is a real possibility in the U.S. And a vibrant economy coming back here, I think, is a real possibility maybe not next year, maybe not the following. But, number one, I wouldn't underestimate the U.S., which means don't underestimate the impact for Mexico.

Second, I don't think you should underestimate Mexico. Right now everybody's enamored with Asia and China, but a rate of growth of 10 percent for a long time cannot be sustained. And China is bound to see its curve of growth decline. And I think countries that will foster more a diversified, settled domestic drivers of growth will look a lot better.

Brazil has a lot of problems that people don't think about now. It has a much more bloated fiscal problem, a much larger government, a huge social security problem down the road. And people are -- don't see that right now because of this cycle in which Brazil has stayed. And I think that in that there is, I think, a little bit of idealization of the breaks in Brazil, and a little bit of underestimation of Mexico.

ORDORICA: Juan.

PARDINAS: I'm an optimist. This is not the best time to be an optimist in Mexico, so I look for my optimism in the history of the United States. I think of myself having a conversation with an African-American in 1950, and telling him, like, before the civil rights movement and everything that in 60 years your country will have an African-American president, and he will tell me, "Well, you're nuts. There so many history, it wouldn't be possible."

So I would like to think that in 50 years, someone could me tell me the -- how impossible it was to think of Mexico as a stable, safe and prosperous society. And I think it's possible. We have the potential. We have the will. There's a huge route and desire to change things in society, not as much in political leadership. So there are some good reasons to be optimists in the long term for the Mexican future.

PARDINAS: Hopefully, that happens before 50 or 60 years -- (inaudible) --

ORDORICA: In our lifetime.

PARDINAS: Exactly. Thank you very much to our guests and members. Thank you. (Applause.)

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