Author: Efraim Chalamish
Economic reforms break new ground for productivity.

Recent economic reforms in Mexico and upgrades by rating agencies have strengthened Mexico’s position in global markets. The country’s economic performance is improving as well.

While several emerging markets currently face serious economic challenges, Mexico continues to stay on a positive trajectory. The Mexican government managed to implement several critical, long-overdue structural reforms in the past two years, and they have led to greater competition and productivity in key sectors, mainly energy and communication.

These reforms will likely lead, in the short term, to an increase in inbound foreign direct investment and economic growth. Current responsible fiscal policies too are likely to have a long-term positive impact on the Mexican economy.

Consequently, last month DBRS, a leading Canadian rating agency, upgraded Mexico’s long-term foreign and local currency issuer rating from BBB to BBB (high) and from BBB (high) to A (low), respectively. Similarly, US agency Moody’s Investors Service upgraded Mexico’s government bond ratings to A3 from Baa1.

Jorge Suárez Vélez, the founding partner of SP Family Office, a wealth management firm specializing in Latin America, argues that to see how well Mexico continues to perform in areas such as “insourcing manufacturing,” markets are carefully watching the “upcoming secondary laws that implement Mexico’s energy reform and the real impact of the tax reform that increased the tax base and rates while reducing administrative hurdles.”

According to a 2013 OECD economic survey, “in order to raise long-term economic growth by accelerating productivity and factor accumulation, structural reforms will be required. These reforms, however, are heavily attenuated by widespread informal employment and weak legal institutions that diminish the effectiveness of policies and hold back gains in productivity.” According to the report, Mexico can improve the effectiveness of its reforms by enacting legislation to remove barriers to market entry, reduce corruption and make the civil justice system more effective.