Background: Mexico has an estimated population of 106 million, and was governed by the PRI (Partido Revolucionario Institucional) between 1929 and 2000. Once strongly nationalist and interventionist, the leaders of PRI governments in the 1990s embraced free-market policies and economic liberalisation. The victory in July 2000 of the presidential candidate of the centre-right Partido Accion Nacional (PAN), Vicente Fox Quesada, was a milestone in the transition to democratic pluralism, but under the Fox administration political effectiveness has been hindered by a divided legislature and political reforms have been slow to progress.
Political Structure: The political system is presidential, bicameral, and federal (32 states). The president is elected every six years; Mr Fox took office in December 2000. Under the transition to democratic pluralism, the centre of political power has shifted away from the executive towards the legislature and local governments. Currently, a ban on re-election and the party hierarchies’ control of the 200-strong list of deputies (40% of the lower house) elected by proportional representation perpetuate the influence of party bosses. Electoral reforms that would, among other things, remove the ban on re-election, have been proposed, but are stuck in an opposition-dominated Congress.
Policy issues: Trade diversification has reduced Mexico’s susceptibility to oil-related cycles of boom and bust. Strengthening of the policy environment has reduced external indebtedness and engendered macroeconomic stability. Constraints on growth include dependence on the US export market, high-cost labour and energy inputs, dependence of the public finances on oil revenue, and a shortage of credit. Labour reforms would increase labour market flexibility and reduce high non-wage costs, tax reforms would help reduce the burden of tax collection currently placed on large companies, and allow for higher public spending on human capital, and energy reforms would allow for the rise in private participation needed to maintain a secure electricity supply and reduce costs. However, reforms face political resistance in an opposition-dominated Congress.
Taxation: The corporate tax rate was reduced from 33% to 30% in 2005, and is set to fall to 28% by 2007. The top personal income tax rate will also fall to 28% by 2007. Tax on royalties is between 15% and 34%. Depreciation allowances range from 5% to 25%, but can be up to 50% on pollution-control equipment. Tax on assets is 1.8% and is deductible from income tax. The value-added tax (VAT) rate is 15%; food products and medicines are exempt from VAT.
Foreign trade: Import duties range from zero to 35%, with the trade-weighted average tariff around 2.9%. VAT is levied at 15% on all imports except those to the border region, where a 10% rate applies. In 2004 exports totalled US$188bn and imports US$197bn, producing a trade deficit of US$8.8bn. The current-account deficit was US$7.3bn, around 1.1% of GDP.
| Major exports 2004 | % of Total | Major Imports | % of Total |
| Manufactures | 84.0 |
Intermediate goods | 75.9 |
| Maquila (Offshore assembly for re-export) | 46.3 |
Maquila (Offshore assembly for re-export) | 34.9 |
| Oil | 12.6 |
Capital goods | 11.5 |
| Agricultural | 2.9 |
Consumer goods | 12.9 |
| Leading Markets 2004 | % of Total | Leading Suppliers | % of Total |
| United States of America | 87.5 |
United States of America | 56.3 |
| Canada | 1.8 |
China | 3.9 |
| Japan | 1.1 |
Germany | 3.6 |
| Spain | 1.0 |
South Korea | 3.0 |
More information: OECD Statistical Profile of Mexico - 2006
Mexico: External links to macroeconomic reports and data
Latest OECD Mexico Economic Outlook
