Impact of Globalization on Emerging Markets
Mr. Julio Millan Bojaltl
Chairman and CEO
Coraza Internacional, S.A. de C.V.
First of all, it is a pleasure and a privilege to be with you all once more at the 33rd International General meeting of the Pacific Basin Economic Council.
The key motive of my remarks is the defining of a particular position concerning the impact of globalization on emerging markets such as Latin American and specifically, the Mexican economy.
This topic is quite symbolic and has been addressed by several eminent speakers. I would only like to share with you some thoughts about this globalization process vis-a-vis its impact in our region. I will do so by id of data regarding Mexican trade.
Prior to the opening of international trade in 1986-86, Mexico maintained a commercial relationship with the Pacific Region, with a volume amounting to approximately USD$2.0 billion dollars in 1980 and representing 9.0% of our total trade. In 1999, Mexico's international trade with Asia has increased in value to approximately USD$16.2 billion dollars; however, this now represents 5.8% of our trade. The above implies that, twenty years ago, Mexico sustained a much higher participation in its international trade with Asia than the one we have today.
This data leads me to conclude that the opening of the world economies and globalization have not constituted a positive factor in our trade relationships with the Asian Pacific Region for it has not achieved the expected results. Quite the contrary, globalization has actually diminished our participation in the Asian markets, as compared to our total trade with the world markets, even though we see that the value of this trade with Asia has increased. It is a fact, however, that the North American Free Trade Agreement (NAFTA) has completely transformed the world's perception of Mexico and that our trade with the NAFTA countries, namely the United States and Canada, has grown considerably.
Thirty years ago, Mexico's total trade amounted to $3.60 billion dollars. By the end of 1999, it grew to $278 billion dollars, ranking Mexico as the eleventh (11th) country in terms of international trade worldwide. According to information available from the United Nations, Mexico's economy is open in 70%, which makes us one of the most liberalized economies in the world. This has consequently been a great incentive for further and greater development.
Globalization and the opening of the world economies have also derived beneficial outcomes to our economy. The process of opening our market has committed us to establish a more serious economic policy, with a long term perspective that has allowed our country to decrease its public deficit to 1%; to maintain a more stable exchange rate and to keep inflation and interest rate under control and declining, although not yet abated so as to foster further economic development.
Most people would feel proud of these accomplishments and there are good reasons to feel that way. However, it is also necessary to analyze the negative aspects in connection therewith. The keen emphasis on globalization and trade liberalization has also caused some countries to put aside the necessity of developing their own internal markets, which in turn has adversely affected the rate of employment and destroyed previously integrated productive chains. Furthermore, the opening of the world economies exposes countries to financial speculation and more sensitive debilitation of the banking systems, as evidenced by the Mexican crisis of 1995 and the economic crises in Brazil, Russia, and South Asia, among others.
Our experience tells us that we are facing an upcoming open regionalism, subject that I discussed during the 24th International General Meeting of the Pacific Basin Economic Council (PBEC) held in Guadalajara, Mexico. The topic on regionalism is quite vivid and valid today.
It is my belief that globalization is of great importance, since it is not only now primarily an economic phenomenon, nor shall it be confused with the overall world economy. The process is here to stay. Globalization means a transformation in time and space of human conglomerates interconnected by a diversity of activities, which prompts a continuous and ever increasing value through a productive framework that tends to make work interrelations more and more efficient. Additionally, globalization has an inherent obligation to compensate with social equality those individuals, societies and countries that incorporate themselves into this process.
I certainly agree that the first part of the above statement is true. However, I do not consider that globalization is compensating individuals and societies with equality. Something tells me that globalization is actually generating more poverty as well as a greater distance between the rich and poor countries and societies amongst themselves.
Should we not take the necessary measures to shorten these gaps, the megatrends of unemployment will certainly affect world stability in the years to come.
I see some risks that are worthwhile taking into consideration. The larger companies that are leading international trade should make great efforts to transform their leadership status into a process of transfer of technology towards the productive chains, in order to favor the small and medium enterprises and therefore avoiding, as much as possible, intra-company trade.
It is of utmost importance that the emerging economies, such as the Latin American countries, identify the relationship between industrial development and foreign trade programs. The above, in order to mitigate the risks of becoming solely in-bond companies or "backyard maquiladoras" which value added to the exported output is a low single digit percentage. For instance, the contribution of Mexican inputs to the in-bond industry only accounts to 3.0% of the total inputs required by this industry. The industrialized countries should also support the development of the internal markets in the emerging economies.
One of the more relevant issues is that a preferential tax treatment exists which supports local enterprises in emerging markets. This policy should not be considered an insult or an attack, nor should it be rejected by the more industrialized nations. Unfortunately, on the one hand, and although we discuss free trade frequently, and we wish to establish a free trade region in the Pacific rim by the year 2010, the truth of the matter is that industrialized nations will seek any excuse to limit the volume of our exports. This is certainly the fact if a free trade agreement has not been signed. On the other hand, our markets continue to absorb highly processed goods, thereby decreasing, as time goes by, our possibilities to grow in global terms.
I believe that Mexico has done a good job in terms of stabilizing the main macroeconomic variables, as it has been demonstrate through the recent investment grade granted to the Mexican debt. And without disregard to the risks of the near future political transition, and notwithstanding the best of our efforts, if there are no clear world financial regulations, the world financial markets may unfairly hinder the development of the emerging economies.
This is exactly the reason why industrialized economies must agree to build a global monetary environment that allocates resources and establishes consistent rules for unequal countries, in hopes of reaching a more human and social development that, instead of increasing, will bridge the gap between the great underprivileged and the few rich. As Ernesto Zedillo Ponce de Leon, President of Mexico, pointed out during the last APEC meeting in September 1999, "...if we do not consolidate functional proposals, we may face the risks of causing more damages than benefits to the emerging markets...".
Many people will think that I am speaking as a traditional socialist or that I may be pursuing a third way direction. Nothing is further from the truth. I am truly concerned about the stability of the emerging economies such as Mexico and I share the same feelings of many of my Latin American sister countries.
I would like to conclude with the statement that we need to open our economies further to intra-regional investments, in order to foster our trade relationships and to undertake solid and sustainable programs for the development of infrastructure, for instance, highways, bridges, warehouses, and telecommunications, among others. The above efforts will allow us to make our industrial and commercial activities more efficient.
We need to develop a real marketing campaign for the tourism sector and promote more solid technology and cultural exchange programs. In this line of thinking, I believe Mexico should promptly sign a free trade agreement with Japan.
I truly hope that these International General Meetings of the Pacific Basin Economic Council, in which I have participated since 1989, will continue to focus more clearly on the notion of a fair and balanced globalization process.
Thank you very much.