Mexico WT/TPR/S/195 
 Page 1 
 
 
I. ECONOMIC ENVIRONMENT 
(1) OVERVIEW  
1. Following a period of relative stagnation in 2001 and 2002, Mexico's economy has once again 
grown.  While GDP rose at an annual rate of ju st 0.7 per cent during the period 2001-2003, partly 
reflecting the economic slowdown in the United States during this period, the momentum of domestic 
demand since then and a favourable external setting boosted growth to an annual average of 3.9 per 
cent from 2004 to 2006. 
2. Per capita income reached a level of around US$8,000 in 2006, but only rose at an average 
real rate of 1.7 per cent from 2001 onwards.  To raise the growth rate on a sustainable basis, 
additional reforms are needed to overcome problem s such as inadequate infrastructure, lack of 
competitiveness in the domestic market and the low educational level of the workforce.  Current 
economic conditions provide a good oppor tunity to address these challenges. 
3. During the period under review, prudent fiscal  management has resulted in progressive 
consolidation of the Federal public sector budget, which was in balance in 2005 and 2006; and the 
public debt has shrunk as a percentage of GDP.  Measures are also being taken to reverse public 
finance's increasing reliance on oil revenues.  Me xico has been successfully implementing an 
inflation-targeting regime, maintaining inflationary expectations around the target of 3 per cent, while 
lending to the private sector has increased. 
4. The deficit in the balance-of-payments current  account has narrowed, thanks mainly to 
burgeoning family remittances, despite a large deficit in  the balance of trade in services.  The share of 
merchandise trade in GDP amounted to around 60 pe r cent in 2006, accompanied by changes in its 
composition and direction.  For example, oil exports have increased, reflecting the rise in international 
prices, although manufactures continue clearly to dominate Mexico's export basket.  The United States remains Mexico's main trading partner by a wi de margin; but imports from Asia, particularly 
from China, have also been growing rapidly. 
(2) M
ACROECONOMIC TRENDS  
(i) Structure, growth and employment 
5. Mexico's GDP grew by an average of 2.3 pe r cent annually in real terms between 2001 and 
2006, which is less than in the previous six years (4 .1 per cent).  The economy practically stagnated in 
2001 and 2002, but growth resume d in 2003 and gathered pace to 3.9 per cent per year during the 
period 2004-2006.  Between 2001 and 2003, the econom y was hurt by a slump in external demand 
following consecutive contractions in industrial out put in the United States and by very sluggish 
private investment, partly caused by a lack of pr ogress in the regulatory reforms needed to modernize 
the Mexican economy.1  The economic recovery recorded since 2004 was based on increases in 
private consumption and investment (domestic de mand), supported by a more favourable external 
climate, in particular stronger demand in the United States (Table I.1). 
                                                      
1 Bank of Mexico (2003 and 2004b). WT/TPR/S/195 Trade Policy Review 
Page 2 
 
 
Table I.1 
Structure of GDP by expenditure, 2001-2007 
 2001 2002 2003 2004 2005 2006 2007a 
As a percentage of real GDP         
Total consumption 81.3 80.9 82.1 81.7 82.4 82.6 81.6 
 Private 71.6 71.4 72.4 72.7 73.5 73.6 73.1 
 Public 9.7 9.5 9.7 9.0 8.8 8.9 8.5 
Total investment 19.7 19.3 19.0 19.8 20.7 21.8 22.1 
 Private 16.7 16.2 14.6 15.8 16.9 18.1 .. 
 Public 3.0 3.1 4.4 4.0 3.8 3.7 .. 
Changes in inventory 2.2 3.1 1.4 0.8 0.5 -0.3 0.1 
Exports of goods and services 33.5 34.2 34.1 36.9 38.4 40.9 40.9 
Imports of goods and services 36.7 37.5 36.6 39.2 42.0 45.0 46.5 
Real percentage change         
Total GDP -0.2 0.8 1.4 4.2 2.8 4.8 2.7 
Total consumption 1.9 1.4 2.1 3.6 4.6 5.1 3.4 
 Private 2.5 1.6 2.2 4.1 5.1 5.0 4.1 
 Public -2.0 -0.3 0.8 -0.4 0.4 6.0 -2.8 
Total investment -5.6 -0.6 0.4 7.5 7.6 10.0 5.9 
 Private -5.9 -4.1 -1.6 8.8 9.7 11.5 .. 
 Public -4.2 17.0 8.5 2.5 -0.6 2.9 .. 
Changes in inventory  .. .. .. .. .. .. ..  
Exports of goods and services -3.6 1.4 2.7 11.6 7.1 11.1 4.0 
Imports of goods and services -1.6 1.5 0.7 11.6 8.6 12.2 6.6 
.. Not available. 
a Preliminary annualized figures at June 2007. 
Source: Bank of Mexico and Instituto Nacional de Estadís tica, Geografía e Informática  – INEGI (National Institute of 
Statistics, Geography and Information). 
6. The faster growth of private consumption dur ing the review period has been driven among 
other things by more widely available financing, an increase in the number of persons employed, and 
robust growth in family remittances.  The expans ion of gross capital formation, amounting to 22 per 
cent of GDP in 2006, stemmed mainly from an in crease in private investment (machinery and 
construction), which outpaced GDP growth during th e period 2004-2006.2  Despite this, the National 
Infrastructure Programme for 2007-2012 recognizes th at additional investments will be needed to 
increase productivity in the economy at large (see Chapter IV(4) and (5)).3 
7. The manufacturing industry is a key contributor to the Mexican economy, accounting for 
18 per cent of GDP.  Most of its output (which in cludes maquila plants) is for export, with roughly 
86 per cent of exported manufactures going to the United States market.4  The scale of intra-sectoral 
trade in intermediate and finished goods betw een Mexico and its northern neighbour makes the 
performance of the manufacturing industry, and of the Mexican economy as a whole, particularly 
sensitive to business cycl es in the United States.5 
8. The industrial sector in general grew at an average real rate of 1.1 per cent annually during 
the period 2001-2006, accounting for one quarter of GDP in the latter year (Table I.2).  The services sector expanded at an average of 3.0 per cent per y ear in real terms between 2001 and 2006, slightly 
increasing its share of GDP.  This reflects a bove-average performance by the transport, 
                                                     
 
2 Gross capital formation consists of "total investment" plus the change in inventory. 
3 National Infrastructure Programme 2007-2012.  Consulted at:  www.infraestructura.gob.mx. 
4 WTO Secretariat, on the basis of data from th e Bank of Mexico and the United Nations Comtrade 
database. 
5 Robertson (2007), Bank of Mexico (2004a and 2003). Mexico WT/TPR/S/195 
 Page 3 
 
 
communications and financial services sectors.  The agricultural sector expanded at an average real 
rate of 2.1 per cent over the same period, and as a result its GDP share fell back slightly. 
Table I.2 
Main economic indicators, 2001-2007  
  2001 2002 2003 2004 2005 2006 2007a 
I. Gross domestic product (GDP)              
GDP at current prices (Mex$ billions) 5, 809.7 6,263.1 6,892. 0 7,709.1 8,366.2 9,155.5 9,650.6 
GDP at current prices (US$ billi ons) 621.8 648.6 638.8 683.1 767.7 839.9 888.1 
Per capita GDP (current US$) 6,268.4 6,428.4 6,262.7 6,631.7 7,388.7 8,006.4 .. 
GDP share (%)         
Breakdown by sector          
Agriculture 5.2 5.1 5.3 5.2 5.0 5.0 5.0 
Industry 25.6 25.3 24.8 24.9 24.7 24.8 24.5 
Services 64.0 64.4 65.0 65.1 65.7 65.6 66.8 
Taxes less imputed bank service charges 5.2 5.2 4.9 4.8 4.6 4.6 3.8 
Real growth rates (%)         
Total GDP -0.2 0.8 1.4 4.2 2.8 4.8 2.7 
Breakdown by sector         
Agriculture, forestry and fisheries 3.5 0.1 3.1 3.5 -2.1 4.8 2.0 
Industrial sector -3.5 -0.1 -0.2 4.2 1.7 5.0 0.7 
 Mining 1.5 0.4 3.7 3.4 2.1 2.2 1.0 
 Manufacturing -3.8 -0.7 -1.3 4.0 1.4 4.7 0.2 
 Construction -5.7 2.1 3.3 6.1 3.3 6.9 1.6 
 Electricity, gas and water 2.3 1.0 1.5 2.8 1.7 5.0 4.1 
Services 1.2 1.6 2.1 4.4 4.0 4.9 3.7 
 Commerce, restaurants and hotels -1.2 0.0 1.5 5.5 2.7 3.7 1.9 
 Transport, storage and communication 3.8 1.8 5.0 9.2 7.1 9.1 7.3 
 Financial, insurance and real estate  services 4.5 4.2 3.9 3.9 5.8 5.4 4.8 
 Community, social and personal services -0.3 0.9 -0.6 0.6 1.8 2.8 2.0 
 Imputed bank service charges 6.5 7.6 7.1 7.5 10.9 8.5 .. 
Product taxes net of subsidies 0.0 0.8 1.4 4.2 2.8 4.8 .. 
II. Employment         
Open unemployment rateb (%) 2.4 3.0 3.4 3.9 3.6 3.6 3.9c 
Population (millions) 99.2 100.9 102.0 103.0 103.9 104.9 .. 
.. Not available. 
a Preliminary annualized figures at June 2007. 
b Unemployed population as a percentage of the economically active population (EAP) at year end;  i.e. the percentage of the EA P 
that was unemployed in the reference period, but wh ich had searched for work in the final month. 
c At September 2007. 
Source: Bank of Mexico and INEGI. 
9. The stronger pace of economic activity since 2003 has been accompanied by an increase in 
employment (about 10 per cent mainly in the formal sector of the economy).  Nonetheless, this has 
not been fully reflected in a lower rate of open unemployment because a larger number of individuals, 
mostly women, entered the economically active population.6  It is estimated that about 27 per cent of 
the employed population is working in the informal sector.7  A report by the Organisation for 
Economic Co-operation and Developm ent (OECD) suggests that the decision by entrepreneurs not to 
set up formal businesses is a result of excessive regu lation and the high costs imposed by mandatory 
social welfare contributions.8 
                                                      
6 Bank of Mexico (2004b and 2006a). 
7 First Government Report of 1 September 2007.  Consulted at:  http://www.informe.gob. 
mx/pdf_excel/M100-105.pdf. 
8 OECD (2005). WT/TPR/S/195 Trade Policy Review 
Page 4 
 
 
10. Per capita GDP (in United States dollars) grew at an average real rate of 1.0 per cent over the 
period 2001-2006, to reach a level of US$8,007 in the latter year.9  Nonetheless, roughly half the 
population was still living in poverty, and 17 per cent in  conditions of food pove rty in 2004 (the latest 
year for which figures are available).10 
11. In its most recent study of the Mexican economy,  the OECD notes that while the country has 
made significant progress towards macroeconomic stab ility, potential GDP growth has been too low 
either to close the living-standards gap with resp ect to the more advanced OECD countries, or to 
address the persistent problem of extensive poverty.11  The study therefore considers that additional 
reforms are needed over a wide range of areas in order to move the economy towards a higher and 
sustainable growth path (Box I.1).  Another study by the International Monetary Fund (IMF) proposes 
a number of changes needed to secu re the transition to faster grow th, including reforms to improve 
access to credit, promote a more efficient and d ynamically functioning ma rket, and strengthen the 
business climate.12 
Box I.1:  Reforms recommended by the OECD  
The OECD notes that the reform process, which has lost  momentum in recent years, should gather pace as a 
result of a number of measures, including greater economic openness to make the most of international 
integration.  The OECD suggests prioritizing the following reforms: 
• Further liberalize international trade by lowering the most-favoured-nation (MFN) tariff so as to give firms 
better access to competitive inputs and restrict possi bilities for corruption and fraud at the country's 
borders.  Also, further reduce non-tariff barriers, e.g. complex customs pro cedures and complicated 
technical requirements. 
• Further encourage investment, by reducing restrictions on foreign direct investment (FDI) in sectors such 
as telecommunications, land transport, coastal shippi ng and airports;  and support that openness with 
improvements in the business climate and ad ditional strengthening of the rule of law. 
• Strengthen public finances by taking steps to increase the efficiency of public spending;  facilitate the fight 
against tax evasion;  replace oil reve nues with more stable income source s;  reduce the subsidies that still 
prevail in areas such as water, electricity and gaso line;  restrict the numerous exemptions or special 
regimes;  and analyse fiscal relations between the various levels of government. 
• Increase competitiveness and enforce competition policy so as to promote productivity and growth in 
services such as natural gas, electricity , airports, railways and telecommunications. 
• Raise the low level of human capital and labour market adaptation capacity by taking steps to reduce 
inefficiency in the education sector , strengthen incentives for teachers  to perform more effectively, and 
make renewed efforts to develop skills among adults. 
Source :  WTO Secretariat, information based on OECD (2007). 
(ii) Fiscal policy 
12. The non-financial public sector (NFPS) saw a gra dual improvement in its financial indicators 
over the period 2001-2006 and achieved a balanced budge t in 2005 and 2006 (Table I.3).  During this 
period, spending rose in nominal terms and in relati on to the GDP, but at a lower rate than income.  
Some of the spending that increased the most we re other current expenditures (mainly outsourced 
services), public investment in infrastructure and contributions to stabilization funds (such as the Fondo de Estabilización de Ingresos de las Entidades Federativas (Federative Entity Income 
                                                     
 
9 The growth of real GDP per capita was calculated by  the WTO Secretariat on the basis of 1993 prices 
and population data published by the INEGI. 
10 Conditions of food poverty means living with less than what is needed to acquire minimally 
acceptable nourishment.  Consulted at:  http://www.sedesol.gob.mx/ar chivos/70/File/2 as_ Docu24.pdf. 
11 OECD (2007c). 
12 IMF (2006c). Mexico WT/TPR/S/195 
 Page 5 
 
 
Stabilization Fund), the PEMEX Fondo de Estabilización para la Inversión en Infraestructura 
(Infrastructure Investment Stabilization Fund), and the Fondo de Estabilización de los Ingresos 
Petroleros (Oil Revenue Stabilization Fund).  In addition,  the fastest-growing income categories were 
those linked to petroleum, mainly reflecting the risi ng price of oil on world markets; and value-added 
tax (VAT) as a result of more vigorous growth in private consumption.  Oil revenues accounted for 
34 per cent of total Federal public sector income  on average between 2001 and 2006, reaching a 
maximum share of 38 per cent in the latter year. 
Table I.3  
Balance of the Federal non-fina ncial public sector (NFPS), 2001-2007  
(% of GDP) 
 2001 2002 2003 2004 2005 2006 2007a
A.  Budgetary income 21.9 22.1 23.2 23.0 23.3 24.7 24.8
 Oil revenues 6.7 6.5 7.7 8.3 8.7 9.4 8.2
  PEMEXb 1.8 2.4 2.5 2.5 2.2 3.5 3.3
  Federal Government (taxes and duties) 4.9 4.1 5.2 5.8 6.5 5.9 5.0
 Non-oil income 15.2 15.6 15.5 14.7 14.6 15.3 16.6
  Federal Government 11.3 11.6 11.2 10.7 10.4 11.1 12.6
   Tax income 9.8 9.8 9.8 9.3 9.5 10.1 11.5
    Income tax (ISR) 4.9 5.1 4.9 4.5 4.6 4.9 5.9
    Value-added tax (VAT) 3.6 3.5 3.7 3.7 3.8 4.1 4.3
    Import duties 0.5 0.4 0.4 0.4 0.3 0.3 0.3
    IEPSc 0.4 0.4 0.4 0.4 0.4 0.4 0.5
    Other 0.4 0.4 0.4 0.3 0.4 0.4 0.5
   Non-tax income 1.5 1.8 1.4 1.4 0.9 0.9 0.6
  State-owned enterprises and entitiesd 3.9 4.0 4.2 4.0 4.2 4.2 ..
B.  Budgetary expenditure 22.6 23.3 23.9 23.2 23.4 24.6 22.4
 Programmable expenditure 15.9 16.9 17.6 17.1 17.4 18.1 15.8
  Current expenditure 13.3 13.8 14.6 13.5 14.0 14.4 13.5
   Personal services 7.3 7.6 7.3 6.7 6.7 6.7 ..
   Materials and supplies 1.5 1.3 1.7 1.6 1.7 1.7 ..
   Subsidies and transferse 2.1 2.2 2.3 2.3 2.4 2.4 ..
   Other current expenditure 2.4 2.6 3.2 2.9 3.3 3.6 ..
  Capital expenditure 2.6 3.2 3.0 3.5 3.4 3.7 2.3
   Physical investment 2.4 2.4 2.7 3.0 2.8 3.0 ..
   Financial investment and other expenditure 0.2 0.8 0.3 0.6 0.6 0.7 ..
 Non-programmable expenditure 6.6 6.4 6.3 6.2 6.0 6.5 6.6
  Financial expenditure 3.2 2.8 2.8 2.7 2.5 2.7 ..
   Interest payments 2.9 2.5 2.3 2.3 2.0 2.1 ..
    Federal Government 2.2 1.8 1.9 1.7 1.7 1.7 ..
    State-owned enterprises a nd entities 0.7 0.7 0. 4 0.6 0.3 0.4 ..
   Subsidies and assistance to debtors 0.4 0.3 0.5 0.4 0.5 0.6 ..
  Revenue sharing with states and municipalities 3.4 3.4 3.3 3.1 3.3 3.6 ..
  Arrears and other expenditure 0.0 0.1 0.2 0.4 0.1 0.2 ..
Table I.3 (cont'd) WT/TPR/S/195 Trade Policy Review 
Page 6 
 
 
 2001 2002 2003 2004 2005 2006 2007a
C.  Budget surplus/deficit (A - B) -0.7 -1.2 -0.7 -0.3 -0.1 0.1 2.4
Memorandum item:       
Total public sector funding requirementsf -3.8 -3.2 -3.2 -2.5 -1.9 -1.3 ..
Total net debt of the public sectorg/GDP 36.6 40.2 37.9 34.9 32.4 33.4 ..
Net external public debt (US$ m illions) 74,743 73,423 74, 723 76,304 69,501 48,592 ..
.. Not available. 
a Preliminary figures at June 2007 (calculated on th e basis of half of annualized GDP at June 2007). 
b Petróleos Mexicanos. c Special Tax on Production and Services. 
d Excludes contributions to the Instituto de Seguridad y Servicios Socia les para los Trabajadores del Estado  – ISSTE (Institute of 
Social Welfare and Services for State Employees). 
e Includes subsidies and transfers apart from those recorded under other headings. f Excludes exceptional or non-recurrent income. 
g Includes net liabilities of the Federal Gove rnment, the parastatal sector, official financial intermediaries (development ban ks and 
official trust funds), IPAB, PIDIREGAS projects and debtor suppor t programmes;  but excludes the financial balance of the Bank 
of Mexico. 
Source : WTO Secretariat, on the basis of data from the Ministry  of Finance and Public Credit (SHCP) and the Bank of 
Mexico. 
13. The Bank of Mexico has commented that th e increasing reliance of public finances on oil 
revenues reflects both the additional revenues obtaine d from higher oil prices and weak tax collection 
in the non-oil sector.13  It has also pointed out that this reliance reveals the vulnerability of public 
finances, highlighting the following risk factors:  (i) while public expenditure has grown, non-oil tax 
revenue has not shown any significant increase;  (ii) additional oil revenues have mostly been used to 
finance higher levels of expenditu re, particularly current spending;  (iii) the PEMEX crude oil 
production platform has started to shrink as a result of a lack of investment in exploration (see 
Chapter IV(4));  and (iv) the volatility of oil prices means that public finances could be facing 
uncertain scenarios in years to come. 
14. The total public sector funding requirement gr adually decreased during the review period 
(Table I.3).  This broad indicator mainly in cludes the NFPS budget ba lance, liabilities of the Instituto 
para la Protección al Ahorro Bancario – IPAB (Institute for the Protection of Bank Savings), and 
liabilities generated by PIDIREGAS-funded investment projects (see Chapter IV(4)). 
15. The net total debt of the public sector decreased  by almost seven percentage points in relation 
to GDP between 2002 and 2006, to reach a level of 33 .4 per cent by the end of that period.  According 
to the IMF, while this level is not high by intern ational standards, it would be prudent to lower it 
further given the instability of oil revenues.14  Since 2002, when international risk rating agencies 
accorded investment grade to Mexico's sovereign de bt profile, the authorities have consolidated the 
process of replacing external borrowing with domes tic debt, while also lengthening the average 
maturity on its debt securities. 
16. Fiscal policy in Mexico is formulated by the SH CP. In 2006, the country's tax legislation was 
reformed through the Federal Budget and Treasury Accountability Law (LFPRH)15, which requires 
the SHCP to submit the Revenue and Expenditure Budget Law for approval by Congress each year.  
While this should generally aim to maintain a balanced NFPS budget, excep tionally and depending on 
the circumstances, the SHCP may propose a defic it (or surplus) budget, provided it explains to 
                                                      
13 Bank of Mexico, Inflation Repo rt, October-December 2006, and M onetary Programme for 2007.  
Consulted at:  http://www.banxico.org.mx/document s/{4B1E8447-E248-5DCF-7E81-966E58D 178E7}.pdf. 
14 IMF (2006c). 
15 The most recent reform was published in the Offi cial Journal of the Federation of 1 October 2007. Mexico WT/TPR/S/195 
 Page 7 
 
 
Congress the exceptional reasons justifying this and indicates the number of fiscal years and actions 
required to restore fiscal balance. 
17. The LFPRH requires each Revenue and Expenditure  Budget Law to specify the value of oil 
revenues for the fiscal year in question.  It establis hes that surplus revenues,  e.g. those resulting from 
higher-than-projected oil prices, should be used  to cover non-programmable expenditure, shared 
among the different stabilization funds and infrastruct ure projects.  Should petroleum revenues prove 
less than expected owing to a fall in oil prices during the fiscal year, the appropriate stabilization 
funds may be drawn down;  but when these run out , expenditure cuts become necessary.  The LFPRH 
also provides for adjustment mechanisms should non-oil income drop below the programmed level. 
18. To reduce the reliance of public finances on oi l revenues, a fiscal reform was approved in 
2007 that seeks, inter alia, to reduce current expenditure by the Federal Government and increase tax 
revenues that are more stable than oil income.  It is hoped that such incomes will grow by roughly 
2.1 per cent of GDP until 2012, as a result of:  collection of the new flat rate business tax (IETU);  application of the Special Tax on Production and Services (IEPS) on gasoline and diesel sales;  and more efficient collection of income-tax (ISR) and VAT.
16  The authorities also intend to reduce ISR 
and VAT tax evasion, which was estimated at 3 per cent of GDP in 2003, by strengthening auditing 
processes and introducing a new tax on cash deposits - the latter with the aim of detecting and discouraging informal activity.  The reform also ma de further alterations to the PEMEX fiscal regime, 
reducing the tax burden on this company a nd consequently its tax contributions.
17 
(iii) Monetary and exchange-rate policy 
19. The Bank of Mexico is the authority responsible  for formulating monetary and exchange-rate 
policies in Mexico.  The Constitution gives the Bank autonomy to exercise its functions and 
establishes that its prime objective is to mainta in the purchasing power of the local currency. 
20. Up to 2004, the Bank of Mexico used the "corto" mechanism as the main instrument for 
altering its monetary stance, under which it would de fine the amount of credit to be auctioned to 
banks each day, so as to attain the target balance pre-established in the "corto".   This represented the 
cumulative daily balance of accounts held by othe r banks with the Bank of Mexico.  In the second 
quarter of 2004, the latter introduced amendments to  complement the announcement of the level of 
the " corto " in its monetary policy communiqués, and thus  provide more precise signals to markets on 
domestic monetary conditions and the desired monetary position. 
21. The Bank of Mexico has announced that the "corto"  will be replaced in January 2008 by a 
target rate for overnight bank funding operations.  Th e move to an operational interest rate target will 
be implemented without altering the inflation targeting regime or th e way the Bank of Mexico carries 
out its operations.  The change seeks to make mone tary policy actions easier to understand, and bring 
their implementation into line with that  of various central banks around the world.18 
22. The Bank of Mexico conducts monetary policy so as to attain an annual inflation rate of 3 per 
cent as measured by the national consumer price inde x (INPC), and to keep it within a range of plus 
                                                      
16 SHCP Press Communiqué No. 081 of 16 September 2007.  Consulted at:  http://www.shcp.gob.mx/. 
17 SHCP (2007a). 
18 Bank of Mexico, Monetary Policy Regime and Inflation Report, July-September 2007.  Consulted, 
respectively, at:  http://www.banxico.org .mx/polmoneinflacion /didactico/regimen 
PM/RegimenPoliticaMonetaria.pdf and http://www.banxico.org.mx/publicaci ones/JSP/b_informe Inflacion.jsp. WT/TPR/S/195 Trade Policy Review 
Page 8 
 
 
or minus one percentage point of that level.19  The IMF considers that the inflation targeting regime 
has been successfully implemented20;  although the inflation target was surpassed in 2002, 2004 and 
2006 (Table I.4), the Fund argues that the monetary  authority's credibility has increased, and since 
2003 inflationary expectations have remained around the 3 per cent target.21 
Table I.4 
Main monetary indicators, 2001-2007 
  2001 2002 2003 2004 2005 2006 2007a 
Monetary aggregates         
Monetary base (Mex$ millions) 225,580 263,937 303,614 340,178 380,034 449,821 412,441 
Monetary base (% real annual variation)b 5.4 11.4 10.7 8.8 7.9 12.4 -8.3 
M1 (% real annual variation)b 8.2 12.9 7.0 8.8 6.9 11.6 .. 
M4 (% real annual variation)b 7.0 6.1 6.6 7.5 10.4 10.6 .. 
Interest rates  (annual average %)          
Cetes at 28 daysc 11.31 7.09 6.23 6.82 9.20 7.19 7.13 
TIIE at 28 daysd 12.89 8.17 6.83 7.15 9.61 7.51 7.93 
20-year Treasury bond rate (fixed rate) n.a. n.a. 8.39 10.45 9.81 8.55 7.77 
 Inflation  (12 month %  rate of change, end of period) 
 Inflation targete 6.50 4.50 3.00 3.00 3.00 3.00 3.00 
National consumer price index (INP C) 4.40 5.70 3.98 5.19 3.33 4.05 3.79 
National producer price index (INPP)f 2.61 6.29 6.24 7.97 2.46 7.12 3.22 
Exchange rates         
End of period exchange rate (Mex$/ US$) 9.14 10.31 11.24 11.27 10.77 10.88 10.87 
Real effective exchange rate (1990=100)g 62.8 61.1 71.8 77.3 73.9 73.0 .. 
n.a. Not applicable. 
.. Not available. a Preliminary figures at September 2007. 
b Calculated on the basis of average balances at the end of each month. 
c Annual average of rates on 28-day Federation Treasury Certificates. 
d Annual average of 28-day Equilibri um Interbank Interest Rates. 
e Plus or minus one percentage point of variability. 
f Excludes oil. g Estimated on the basis of consumer prices and with respect to  a basket of 111 countries weighted by their respective GDPs. 
Source:  Bank of Mexico. 
23. The authorities pointed out that the rise in pri ces recorded in 2004 was the result of external 
shocks, particularly the surge in energy prices,  whereas the increase in 2006 was caused by supply 
disturbances affecting a small group of goods  and services, including tortillas and sugar.22 
24. The monetary base expanded at an annual aver age rate of 14.8 per cent over the period 2001-
2006, largely reflecting the acceleration of economic growth (Table I.4). 
25. Between 2001 and 2006, interest ra tes tended to fall, albeit with fluctuations (Table I.4);  and 
since 2004 the spread between short and long-term ra tes has narrowed.  Since 2003, there has been a 
sharp increase in lending to the private sector, which grew by roughly 162 per cent in real terms 
between 2003 and 2006, expanding its GDP share from 2.1 per cent to 4.6 per cent in that period.  
                                                      
19 Bank of Mexico, Monetary Policy Regime.  Consulted at:  http://www.banxico.org.mx/ 
polmoneinflacion/didactico/regimenPM/RegimenPoliticaMonetaria.pdf. 
20 IMF (2006c). 
21 Ibid. 
22 Bank of Mexico (2004b and 2006a). Mexico WT/TPR/S/195 
 Page 9 
 
 
Nonetheless, access to private sector credit for priv ate individuals remains relatively weak, amounting 
to no more than about 14 per cent of GDP in 2006.23 
26. Exchange-rate policy is the responsibility of  the Foreign Exchange Committee, which 
consists of officials from the SHCP and the Bank of  Mexico.  In late 1994, the Committee decided to 
allow the exchange rate to be determined freely by  market forces; and under this regime, between late 
2001 and mid-2004, the exchange rate depreciated by up to 26 per cent.  Since late 2004, however, it 
has appreciated slightly, reaching a level of around Mex$10.9 per United States dollar in late 2006 (Table I.4).  The real effective exchange rate beha ved in a similar way during the period under review. 
27. In March 2003, the authorities defined a mechan ism for managing international reserves for 
the purpose of stabilizing and reducing the rate at which these are accumulated by the Bank of 
Mexico, without affecting the free flotation of the exchange rate. 
(iv) Balance of payments 
28. As in previous periods, the balance-of-payment s current account was in deficit throughout the 
period 2001-2006, although it was clearly decreasing (Tab le I.5).  The current account deficit shrank 
from 2.8 per cent of GDP in 2001 to 0.2 per cent in 2006, reflecting a narrowing of the trade deficit 
and, particularly, a substantial increase in family remi ttances.  Growth in oil exports is the main factor 
driving the two balance-of-payments improvement cycles.  Nonetheless, the first cycle (2001-2003) 
was also assisted by flat domestic aggregate demand; and the second  (2004-2006) was supported by an increase in ex ternal demand for Mexican non-oil products. 
29. The deficit in the services balance is consider ably larger than the overall trade deficit 
(Table I.5), having remained broadly stable during the review period, albeit with a fall in 2004 and a 
rise in 2006.  The former was mainly due to growth  of "Other factor income".  The 2006 increase in 
particular reflected slower growth of domestic t ourism and a continuous increase in imports of freight 
and insurance services (see section (3)(ii) below). 
30. The value of family remittances registered excep tionally strong growth, averaging 21 per cent 
per year between 2001 and 2006.  Preliminary data  for 2007 indicate a slowdown, however.  Growth 
in the amount of family remittances recorded by the Bank of Mexico is mainly explained by an 
increase in the number of Mexican immigrants in  the United States;  but additional contributory 
factors were lower costs and government measures encouraging the use of formal fund transmission 
channels (e.g. electronic transfers).  Although remittances only represented 2.8 per cent of GDP in 
2006, they are important for the current account balance and for the growth of Mexico's economy.  
The IMF has noted that various studies show that  remittances have helped to reduce poverty in 
Mexico as resources of this type seem to be channe lled towards consumption and, to a much smaller 
extent, to investment in microenterprises.
24 
Table I.5  
Balance of payments, 2001-2007  
(US$ millions) 
 2001 2002 2003 2004 2005 2006 2007a 
I. Current account -17,683 -14,109 -8,851 -6,690 -4,897 -1,771 -3,395 
I.1 Trade balance -9,617 -7,633 -5,779 -8,811 -7,587 -6,133 -5,007 
 Exports of goodsb 158,780 161,046 164,766 187,999 214,233 249,997 127,945 
 Imports of goodsb 168,396 168,679 170,546 196,810 221,820 256,130 132,952 
Table I.5 (cont'd) 
                                                      
23 Bank of Mexico (2004b, 2005 and 2006a). 
24 IMF (2006b). WT/TPR/S/195 Trade Policy Review 
Page 10 
 
 
 2001 2002 2003 2004 2005 2006 2007a 
I.2 Balance of trade in services -17,404 -16,744 -16,930 -14,922 -17,795 -19,090 -10,457 
 Factor services, net  -13,846 -12,696 -12,329 -10,315 -13,082 -12,990 -7,985 
 Income 5,366 4,099 3,942 5,708 5,938 6,691 3,590 
 Interest 4,075 2,835 2,343 2,211 3,011 4,444 2,658 
 Factor services, other 1,292 1,263 1,599 3,497 2,927 2,247 932 
 Outflows 19,213 16,795 16,271 16,024 19,020 19,682 11,575 
 Interest 12,693 11,966 11,670 11,222 12,260 13,700 7,247 
 Profits remitted and reinvested 5,544 3,909 3,593 3,584 6,100 5,006 3,774 
 Other 976 920 1,008 1,217 661 976 554 
 Non-factor services, net -3,558 -4,048 -4,601 -4,607 -4,713 -6,099 -2,472 
 Income 12,660 12,692 12,533 13,955 16,066 16,265 8,873 
 Outflows 16,218 16,740 17,134 18,562 20,779 22,364 11,345 
I.3 Transfers 9,338 10,268 13,858 17,044 20,484 23,452 12,068 
 Family remittances 8,895 9,814 13,396 16,613 20,035 23,054 11,859 
 Other, net 443 454 462 431 449 398 209 
II. Capital account 26,000 27,018 22,254 11,835 12,692 1,834  
 Liabilities 29,835 15,175 14, 790 23,600 26,884 14,928 22,563 
 Loans and deposits 1,256 -4,213 -1,334 -1,372 543 -10,488 3,334 
 Public sector -1,294 -4,464 -4,332 -4,440 -10,093 -22,027 313 
 Private sector -870 -5,021 -3,205 -2,881 1,887 4,514 2,324 
 PIDIREGAS 3,420 5,272 6,203 5,949 8,749 7,026 697 
 Foreign direct investment 27,487 19,342 15,345 22,301 19,643 18,938 13,244 
 Portfolio investment  1,092 46 779 2,671 6,699 6,477 5,985 
 Assets -3,835 11,844 7,464 -11,765 -14,193 -13,094 -15,444 
 In banks abroad -1,512 10,773 7,457 -5,579 -4,403 -7,889 .. 
 Direct investment by Mexican nationals -4,404 -891 -1,253 -4,432 -6,474 -3,897 .. 
 Other assets 2,081 1,961 1,261 -1,754 -3,316 -1,308 .. 
III. Errors and omissions  -993 -5 ,820 -3,965 -1,087 -630 -1,067 -1,467 
IV. Variation in net reserves 7,325 7,104 9,451 4,061 7,173 -989 2,260 
Memorandum item:         
International reserves 40,880 47,984 57,435 61,496 68,669 67,680 69,939 
International reserves (months of merchandise 
imports) 2.9 3.4 4.0 3.7 3.7 3.2 3.2 
Current account as a percentage of GDP -2.8 -2.2 -1.4 -1.0 -0.6 -0.2 -0.4 
Total gross external debt of the public and 
private sectors (as a percentage of GDP) 25.3 23.9 24.7 23.7 21.5 19.0 14.0 
.. Not available. 
a Preliminary figures at June 2007. 
b F.o.b. values, including maquila enterprises. 
 Source:  WTO Secretariat, on the basis of data from the Bank of Mexico.  
31. Capital account items that have made a net pos itive contribution to the balance of payments 
include FDI flows and funding through the PIDIREGA S schemes (see Chapter IV(iv)).  Net negative 
contributions include flows generated by  external public debt amortization. 
32. Capital account surpluses were more than suffi cient to finance the current account deficit 
during the period 2001-2005, so there were consecutiv e increases in the international reserves held by 
the Bank of Mexico.  The IMF considers the level of  international reserves to be reasonably adequate 
for the Mexican economy;25 and in 2006 these were broadly unch anged as other items in the balance 
of payments were practically in balance. 
33. Mexico's total gross external debt aver aged around US$160 billion over the period 2001-
2006, but fell steadily in relation to GDP to reach a level of 19 per cent at the end of that period 
                                                      
25 IMF (2005). Mexico WT/TPR/S/195 
 Page 11 
 
 
(Table I.5).  The main reason for this decrease was a reduction in the gross external debt of the public 
sector, while gross private external debt remained at around 12 per cent of GDP.26 
(3) DEVELOPMENTS IN TRADE AND INVESTMENT FLOWS  
(i) Trade in goods27 
34. Mexico's total trade in goods (imports plus exports) expanded from 52.6 per cent of GDP in 
2001 to 60.3 per cent in 2006 – a relatively high pro portion compared to other economies of similar 
size.  In 2006, imports accounted for 30.5 per cen t of GDP while exports represented 29.8 per cent. 
(a) Composition of trade in goods 
35. Exports of goods were valued at US$250,256 million in 2006 (T able AI.1), having grown at 
an annual average rate of just 2 per cent betw een 2001 and 2003, but accelerating to 15 per cent 
between 2004 and 2006.  Although oil exports saw th eir value and share of total merchandise exports 
double between 2001 and 2006,  to reach a level of 15 per cent in the latter year, exports of 
manufactures continued to be the most important  category, representing on average 80.5 per cent of 
the total.  Although the value of exports of ma nufactures grew from 2004 onwards, their percentage 
share of the total declined from 2001 to 2006.  Th ese include categories encompassing television sets 
and motor vehicles for passenger transport. 
36. Data from the Bank of Mexico show that maquila enterprises accounted for 55 per cent of all 
exports of manufactures, while the automotive sect or was responsible for most non-maquila exports.28 
37. Imports of goods amounted to US$256,086 million in  2006 (Table AI.2), having grown at an 
annual average rate of 0.6 per cent between 2001 a nd 2003, but at 14.5 per cent between 2004 and 
2006.  Imports of products from the extractive industr ies, mainly non-ferrous metals and fuels, grew 
faster than the average for imports generally, to ga in an 8.8 per cent share in 2006.  The manufactures 
category includes imports of aluminium parts and ar ticles, and other motor vehicle spares and parts. 
38. The Bank of Mexico reports that intermediate  goods accounted for an average of 75 per cent 
of all imports during the period 2001-2006, of  which 45 per cent were imported by maquila 
enterprises.29 
(b) Direction of trade in goods 
39. Mexico's exports of goods are mainly to the United States market, which absorbed 87.5 per 
cent of the total on average between 2001 and 2006.  During that period, the nominal value of Mexico's exports to the United States increased by  51 per cent, although their share of the country's 
total exports fell from 88.7 per cent to 84.8 per cen t.  Between 2002 and 2006, the share of Mexican 
exports in the United States' total imports also fell,  from 11.6 per cent to 10.7 per cent, owing to the 
rapid expansion of United States purchases from countries such as China.
30  In addition, the relative 
importance of Mexican exports to  Europe, particularly the European Communities, and Asia, has 
increased, although as a whole they accounted for just 7 per cent of total exports in 2006. 
                                                      
26 Bank of Mexico (2006a). 
27 The data reported in this section come from the United Nations Comtrade database and are classified 
according to the SITC (Rev 3). 
28 Bank of Mexico (2006a). 
29 Ibid. 
30 Ibid. WT/TPR/S/195 Trade Policy Review 
Page 12 
 
 
40. The available statistics may not fully reflect the real importance of certain partners in 
Mexico's trade, mainly because of the large proportion  that is transported through the United States.  
For example, using data on imports from Mexico  recorded by third countries, instead of those 
registered as exports by Mexico, suggests that th e value of Mexican sales to Canada, China, the 
European Communities, the Republic of Korea and Japan could each be underestimated by between 
30 and 180 per cent. 
41. The origin of the goods imported by Mexico h as diversified considerably, with the leading 
source, the United States, dropping from 67.7 per cent in 2001 to 51.1 per cent in 2006 (Table AI.4).  Although the share of other countries on the Ameri can continent and in the European Communities 
grew from 2001 to 2006, the share accounted for by Asian countries expanded faster.  Imports from 
China and the Republic of Korea, in particular, grew  at an average nominal rate of 43 per cent and 
25 per cent, respectively, during that period.  Impor ts from China are mainly concentrated in product 
groups corresponding to telecommunications and o ffice parts and equipment, and other electrical 
machinery.  The authorities have pointed out that most of these represent intermediate inputs that 
enhance the competitiveness of the Mexican production sector. 
(ii) Trade in services 
42. The services balance maintained its traditiona l deficit between 2001 and 2006.  Despite 
natural phenomena that affected some of Mexico's  tourist regions, the tourism balance remained 
positive in that period, growing cumulatively by about  50 per cent (Table I.6).  Imports of freight and 
insurance services expanded at an average annual rate of 10 per cent between 2001 and 2006, 
reflecting the total predominance of the foreign merc hant fleet in providing international transport 
services in Mexico, together with the growth of Mexico's external trad e (see Chapter IV(5)(v)). 
Table I.6 
Trade in services, 2001-2007 
(US$ millions) 
  2001 2002 2003 2004 2005 2006a 2007b 
Balance of non-factor services -3,558 -4,048 -4,601 -4,607 -4,713 -6,099 -2,472 
Non-factor income 12,660 12,692 12,533 13,955 16,066 16,265 8,873 
Transport services, various 1,282 1,143 1,113 1,362 1,753 1,947 .. 
Tourism 8,401 8,858 9,362 10,796 11,803 12,177 6,861 
Other non-factor services 2,978 2,691 2,059 1,798 2,510 2,142 2,012c 
Outlays on non-factor services 16,218 16,740 17,134 18,562 20,779 22,364 11,345 
Freight and insurance 4,643 4,408 4,493 5,450 6,494 7,418 3,917 
Transport services, various 2,105 1,990 1,930 2,127 2,716 2,744 .. 
Tourism 5,702 6,060 6,253 6,959 7,600 8,108 3,936 
Other non-factor services 3,767 4,283 4,457 4,025 3,969 4,094 3,491c 
.. Not available. 
a Preliminary figures. 
b Preliminary figures at June 2007. 
c Includes the category "Transport services, various".  
Source:  Bank of Mexico.  
(iii) Foreign direct investment 
43. Foreign direct investment (FDI) flows behave d irregularly throughout the period 2001-2006, 
in which FDI flows to Mexico totalled just over US $124 billion (equivalent to an annual average of 
US$20.667 billion, or 3 per cent of GDP).  Of  that amount, roughly 45 per cent went to the Mexico WT/TPR/S/195 
 Page 13 
 
 
manufacturing sector, with 29 per cent and 9 per cent ch annelled to the financial sector and the social, 
professional and tourism services sector, respectively (Table I.7). 
Table I.7  
Foreign direct investment (FDI) by sector, 2001-2007  
(US$ millions) 
Sector 2001 2002 2003 2004 2005 2006 2007a 
Total 29,431 21,097 15,007 22,470 19,881 16,119 9,444 
Agriculture and fisheries 64 93 11 17 4 19 -9.6 
Mining and oil extraction 22 248 80 146 69 323 676 
Manufacturing industriesb 5,789 8,651 6,821 12,756 11,565 9,270 4,170 
Electricity and water 333 398 322 202 192 -97 -28 
Construction 108 349 81 390 282 351 159 
Commerce 2,250 1,778 1,398 1,211 2,680 344 838 
Transport and communications 2,782 1,593 1,631 1,254 1,427 385 364 
Financial servicesc 16,424 6,740 2,830 5,575 1,148 2,725 2,736 
Social, professional and tourism servicesd 1,659 1,247 1,833 918 2,513 2,799 539 
a Preliminary figures at June 2007. 
b Includes maquila enterprises. c Financial services, administration and rent al of movable and im movable  property. 
d Community and social services;  professional, tec hnical and personal services;  hotels and restaurants. 
Note: As from 1999, includes items of new investment other than  equity, reinvestment of profits and inter-company accounts that  have 
been notified to the Registro Nacional de Inversiones Extranjeras – RNIE (National Register of Fo reign Investment).  Excludes 
estimated FDI undertaken but not yet notified to the RNIE. 
Source:  Directorate General of Foreign Invest ment of the Ministry of the Economy. 
44. The main FDI sources during this period were  the United States, which accounted for around 
59 per cent of total FDI flows, and the European  Communities (33 per cent), led by Spain and the 
Netherlands (Table I.8). 
Table I.8  
Foreign direct investment (FDI) by country of origin, 2001-07  
(US$ millions)  
Country 2001 2002 2003 2004 2005 2006 2007a 
Total 29,431 21,097 15,007 22,470 19,881 16,119 9,444 
United States 21,385 12,919 9,615 8,291 10,240 10,280 5,730 
EC (25) 6,171 6,722 4,303 11,870 6,008 5,915 2,352 
Spain 2,716 2,545 1,296 7,434 1,454 614 1,311 
Netherlands 2,598 1,475 692 3,325 2,325 2,991 357 
United Kingdom 132 1,249 1,074 138 968 775 42 
Germany -109 596 463 399 347 82 36 
France 393 350 535 157 452 693 279 
Canada 992 221 258 475 301 516 78 
Switzerland (176) 462 286 1,124 160 356 22 
Japan 188 166 122 363 88 (1,496) 58 
Other 1,420 1,115 699 472 3,479 1,290 1,204 
a Preliminary figures at June 2007. 
Note: As from 1999, includes items of new investment other than  equity, reinvestment of profits and inter-company accounts that  have 
been notified to the RNIE.  Excludes estimated FDI undertaken but not yet notified to the RNIE. 
Source:  Directorate General of Foreign Invest ment of the Ministry of the Economy.  WT/TPR/S/195 Trade Policy Review 
Page 14 
 
 
(4) OUTLOOK  
45. The SHCP is forecasting real GDP growth of  3.0 per cent in 2007 and 3.5 per cent in 2008, 
with fiscal accounts remaining in balance in 2007 a nd in 2008, leading to a strengthening of Federal 
Government debt indicators.  The SHCP also pred icts a balance-of-payments current account deficit 
equivalent to 0.8 per cent of GDP in 2007, partly as a result of annual growth in the value of exports 
and imports of goods and services of 5.1 per cent and 6.2 per cent, respectively.31 
46. The SHCP expects inflation to be 3.0 per cent in 2007 and 3.7 per cent in 2008, as measured 
by the INCP, thus remaining within the range of vari ability stipulated by the Bank of Mexico.  Interest 
rates (28-day Cetes) are forecast to be 7.2 per cent by the end of 2007, and 7.0 per cent at the end of 
2008.  The SHCP also expects the average oil pr ice to drop to around US$54.6 a barrel in 2007 and 
US$46.6 a barrel in 2008; and it foresees a slight de preciation of the Mexican peso against the United 
States dollar, with the exchange rate around 11.0 pesos per dollar at the end of 2007 and 11.2 by the end of 2008.
32 
                                                      
31 Draft Federal Revenues Law for the Fis cal Year 2008 (SHCP).  Consulted at:  
http://www.apartados.hacienda.gob.mx/presupuesto/temas/ppef/2008/temas/expo_motivos/ingresos/ilif_ 
2008.pdf. 
32 Draft Federal Revenues Law and Expenditure Budget for 2008, published by the SHCP on 
3 October 2007.  Consulted at:  http://www.apartados.hacienda.gob.mx/ 
novedades/espanol/docs/2007/Presentaciones/presentacion_secretario_paqueteconomico_03102007.pdf.