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Mexico's Burgeoning Economy Amid Drug Violence

Interviewee: Shannon K. O'Neil, Douglas Dillon Fellow for Latin America Studies, Council on Foreign Relations
Interviewer: Bernard Gwertzman, Consulting Editor, CFR.org
February 20, 2012

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Despite an escalation in drug violence and thousands of people killed in drug-related murders in Mexico in recent years, Mexico's economy and the tourism industry are thriving, says CFR's Mexico expert, Shannon K. O'Neil. "Mexico was the hardest hit in Latin America" as a result of the global financial crisis, she says, "but it's recovered quite quickly, and in part it's been due to a huge boom in manufacturing along the border tied to U.S. companies and to U.S. consumers."

On the contentious issue of Mexican immigrants in the United States, she says fewer Mexicans are immigrating to the United States because of a burgeoning economy and a demographic shift. More broadly, one reason the two countries have failed to find a solution, she says, is because while Mexicans see immigration as a foreign policy issue, the United States continues to treat it as a domestic one.

There have been reports about Mexico's thriving economy amid continuing drug violence. Does this sort of ambivalence truly exist in Mexico right now?

It is true. Mexico is a place that's seen a huge escalation in violence. Under President Felipe Calderon over the last five years, we've seen almost 50,000 people killed in drug-related murders. But at the same time, Mexico's economy has actually been doing quite well since the end of the global recession. Mexico was the hardest hit in Latin America but it's recovered quite quickly, and in part it's been due to a huge boom in manufacturing along the border tied to U.S. companies and to U.S. consumers.

We've seen a boom in tourism. There have been record levels of tourists over the last year in Mexico--to its beaches, to its colonial cities, and to Mexico City. And we've also seen the benefit of high oil prices as Mexico still produces a good amount of oil and much of it for the United States.

How much oil does the United States get from Mexico?

Mexico is the world's seventh-largest producer, so there's a huge oil output of over 2.5 million barrels a day. It is the world's third-largest oil exporter to the United States, behind Canada and Saudi Arabia. This benefits Mexico generally, and is a major source of revenue to the Mexican government. Nearly a third of the federal budget is based on oil revenue.

The biggest issue involving Mexico in the United States is illegal immigration. Are Mexicans concerned about people leaving Mexico illegally, or the U.S. comments about it?

There are different concerns. Mexicans are very concerned about the environment toward illegal immigrants in the United States because most of them--about half--are from Mexico. That concerns Mexico particularly because Mexico feels that many of these people come to the United States because of U.S. labor demand. They feel much of the U.S. economy is powered by Mexicans, and they are sensitive to the hostility expressed towards these immigrants.

Mexico itself has been struggling recently with illegal immigrants coming over its southern border. Central Americans are coming up into Mexico--some try to continue on and go to the United States--but some end up actually staying in Mexico. So they're struggling a bit with the same sorts of tensions [the United States] struggles with: How do you deal with and integrate or exclude a population that's entered your country illegally?

The U.S. Congress can't seem to get its hands on this issue. They tried in 2007 and failed to pass legislation. GOP candidate Mitt Romney has suggested "self-deportation." Will it work?

What we saw in 2011 was many fewer people coming to the United States, and the number leaving was about the same. We didn't see an increase in the people leaving the United States, the "self-deportation" that Romney talks about. But we saw many fewer people coming. And there are a few reasons for that.

In the United States, we see immigration as a domestic political issue, so we're quite hesitant to make it a foreign policy issue.

One is the economic pull and push. In Mexico, the economy rebounded somewhat so there was less of a push from there, and the U.S. economy's still quite weak, particularly in sectors that Mexicans would come to work in, so the pull of the U.S. economy is less. Another reason is U.S. border enforcement. There is some evidence that the increase in security and the hardening of the border has discouraged people from trying to come across. It's much more expensive and it's much more dangerous.

But third, one of the real reasons we're seeing this shift is a demographic shift. Given the falling birth rates in Mexico in the 1980s and 1990s, fewer Mexicans are turning eighteen and entering the labor force each year compared to, say, twenty years ago. There's somewhere between 100,000 and 200,000 fewer Mexicans turning eighteen today than there was back in 1990, when we saw the start of the emigration boom.

This is a presidential election year in Mexico. Does that get the same attention in Mexico as it does in the United States?

In Mexico, it's a very big deal. Right now, the three main candidates have been chosen from the three parties: the PRI, the old ruling party, has a man named Enrique Peña Nieto who's a very young, charismatic former governor, and he's leading in the polls; the PAN, which is the incumbent party and produced the last two presidents, has elected a woman, Josefina Vázquez Mota, who used to be a minister and then was head of the PAN within the lower house; and the PRD, the leftist party, has elected Lopez Obrador, who is the candidate from 2006 who narrowly lost to current President Calderon and he's looking to make his mark this time.

Does Mota have a chance?

She does have a chance. Peña Nieto, the PRI governor, leads right now, and he has somewhere between a fifteen- and twenty-point lead in the polls, so she has a lot of ground to make up. But she does have a chance, precisely because she can claim the mantle of change by being a woman, and as we know from our elections and in Mexico too, everyone wants change. They want something different the next time around, particularly with Mexico's security issues, with economic growth that's been growing but [is] weak. The idea of grabbing this mantle of change will probably be quite important as we look toward the polls in July.

Mexico's never had a woman president, right?

It's never had a woman president, but it would be following a series of women presidents in important countries in Latin America. Right now, Brazil, the largest economy in Latin America, has a woman president, Dilma Rousseff; Argentina has a woman president, Cristina Fernández de Kirchner; so if Vázquez Mota is elected in Mexico, the three Latin American economic powers that are in the G20 would all be led by women.

Should the United States have a favorite?

I don't think the United States should have a favorite. We should be ready to work with whoever comes in as president of Mexico, who'll be inaugurated next December, as the issues on the table are too important to be playing party favorites.

Have the two countries ever worked out a proposal on immigration that would satisfy everybody?

In the United States, we see immigration as a domestic political issue, so we're quite hesitant to make it a foreign policy issue. It obviously is a foreign policy issue because to have migrants, they have to come from somewhere. For Mexico in particular, given our closeness and given the integration of the populations and families, it is a serious foreign policy issue, but I wouldn't expect any U.S. politician to make it a foreign policy issue.

The United States and Mexico do have their differences on particular issues, but overall, both are market-based democracies and see the world in that view.

According to reports, there is an incredible increase in the number of hotels being built not only because of tourism but also business travels. Does that speak to the burgeoning economy in Mexico?

It does. It speaks to, one, the potential for growth in the economy. This is a country of 110 million people with a growing middle class, so a growing consumer base [is] quite attractive for those wanting to export. But the other reason is the United States and Mexican economies have increasingly integrated, and so as U.S. companies think about becoming increasingly globally competitive, you have to create global supply chains and we've done that increasingly with Mexico.

Is that a major result of the NAFTA treaty that President Clinton introduced?

Yes.

What are the big issues right now between the United States and Mexico?

There's immigration, there's worries about security and whether the drug violence would spill over to the U.S. side. This is obviously part of an illicit market that runs all the way from Colombia and Peru and Bolivia where cocaine is produced, through Mexico and up to the United States, so there's worries about security. There are always trade tensions or other issues that come up. We seem to work very well at resolving them, but there are a host of issues that can be problematic if not dealt with through diplomatic and cooperative means.

Do Mexico and the United States more or less see alike on hemispheric issues? A number of countries like Ecuador and Peru are causing problems for the United States.

The United States and Mexico do have their differences on particular issues, but overall, both are market-based democracies and see the world in that view. Mexico is one of the most open economies in the world now, and it has signed trade treaties all over the world, something the United States also pushes forward. And Mexico tends, within multilateral institutions, the G20, or climate change negotiations, to see things generally the way the United States does. So in many ways, Mexico can be an easy ally because we do approach many issues the same way, though some things obviously are different.

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