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FT: Downward Drift

Author: Adam Thomson
June 30, 2010

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Ten years ago, Trinidad Hernández thought life in Mexico would change beyond recognition. Like most residents of Ecatepec, a poor and sprawling municipality on the outskirts of Mexico City, he was tired of the Institutional Revolutionary party (PRI), whose unbroken rule had defined his country's political system for 71 years. At the July 2, 2000, election, he voted for change.

"There was so much excitement in the air," recalls the 56-year-old musician, who scrapes a living playing in a local mariachi troupe of strolling musicians. "We thought that all the tiny things that made our lives difficult would suddenly improve."

It was a sense of anticipation that extended far beyond Ecatepec. Abroad, economists and businessmen thought Mexico's emergence as a full democracy would unleash an economic potential held back by a political system that Mario Vargas Llosa, the Peruvian novelist, once famously called "the perfect dictatorship". Ernesto Zedillo, the outgoing PRI president, had done much to improve economic stability, annual growth was above 7 per cent and Moody's, the credit rating agency, just before the election awarded the country its first investment-grade rating.

The only missing piece of the puzzle, it seemed, was the PRI's imminent defeat. "The feeling everywhere was that we were on the right road," says Jonathan Heath, a former chief economist at HSBC in Mexico City.

A decade on, such enthusiasm has all but disappeared. Latin America's second-largest economy is just emerging from its worst downturn since 1932, contracting 6.5 per cent last year. Average annual growth since 2000 has been a disappointing 1.9 per cent - considerably lower than the 3.2 per cent racked up by Brazil, Latin America's largest economy, or the regional average of 3 per cent. Instead of accelerating down the path of development, Mexico seems to have lost its way.

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