MEXICO MOVES FROM LATIN LEADER TO LAGGARD / THE FINANCIAL TIMES COMMENTARY & ANALYSIS ( HIGHLY RECOMMENDED READING )

Mexico moves from Latin leader to laggard

By Moisés Naím

Published: November 23 2009 20:59

Not long ago Mexico was the superstar among emerging markets, while Brazil remained the butt of jokes dating back the best part of a century. “Brazil is the country of the future and always will be” became a cliché.

No longer. Brazil is now the darling of the international community and investors and politicians alike look to it for business opportunities, international leadership and development ideas. Brazil used to be a frequent mendicant of the International Monetary Fund. Today the IMF goes to Brazil cap in hand looking for capital. Meanwhile Mexico is going nowhere; in some aspects, such as crime, it is sliding backwards.

The political and economic reforms in Mexico in the 1990s were exemplary. Suddenly the country shed its prickly nationalism and jumped into the international arena with talent and verve, successfully negotiating the North American Free Trade Agreement with the US and Canada and joining the rich countries’ club, the Organisation for Economic Co-operation and Development. With a remarkable lack of violence, the party ruling the country for seven decades left power through competitive elections. Mexico’s rapid recovery from the 1994 financial crash, the subsequent economic stability, its oil potential, its tourist attractions, and its size (Mexico is the world’s 11th largest economy) made Mexico the promise of Latin America and a model for other underdeveloped countries.

Meanwhile Brazil was bogged down in political scandals, with a bloated government, a frail economy, a lousy business environment and far too much violence and extreme poverty.

Today their fortunes have reversed. Last year the Brazilian economy grew 5 per cent, while Mexico grew a paltry 1 per cent. Brazil is, together with China and India, one of the countries least battered by the global economic crisis. Mexico is one of its main victims. In Brazil, employment has already grown back to pre-crisis levels. Its finances are also stunning: this year Brazilian banks provided 60 per cent of loans made in Latin America, and its stock market has soared. The financial magnetism of Brazil is such that the government, seeking to stem the tide of capital flowing into the country, has levied a tax on foreign investment.

Mexicans wax nostalgic for the days when this kind of news referred to them. They also look enviously at how Brazil is becoming a global oil powerhouse, while a suicidal combination of self-imposed legal restrictions, populist politicians and interest groups prevents Mexico from developing its enormous energy potential.

Brazil has also displaced Mexico in international influence: the country has become indispensable in global talks on environment, trade, financial reforms and nuclear non-proliferation. Brazil’s voice resonates more than most in the Group of 20 meetings.

All this does not mean that Brazil has overcome its immense problems. It suffers from social tragedies as severe as or worse than Mexico’s, and remains one of the most unequal societies in the world. Brazilian criminals are as violent and organised as their Mexican counterparts. Poverty still dominates in Brazil’s north and Brazil tops the region in income, gender and ethnic inequality. Moreover, luck, geography and geopolitics have recently played against Mexico and in Brazil’s favour. It is not the fault of the Mexican government that swine flu hit the country and devastated tourism; or that Mexico’s economy is tightly tied to the US, the epicentre of the latest economic crisis; or that China is a voracious client of Brazilian raw materials and a ruinous competitor of Mexican manufacturing.

The reality is that, for now, Brazil is leaving Mexico behind. Explanations abound. But perhaps the most important and least discussed one is that Mexico is being held hostage by its cartels. I am not referring to drug cartels. The cartels holding Mexico back are the private conglomerates, unions, political groups, universities, media companies and professional associations that limit competition within their sectors. Mexico is full of cartels with privileges and veto powers that inhibit the nation’s ability to make the changes the country needs to move forward.

This need not be the case, and history shows that things can change very quickly. Mexico can gain the will to break the cartels’ chokehold. Hopefully the competition from Brazil will spur competition inside Mexico.

The writer is editor in chief of Foreign Policy magazine

Copyright The Financial Times Limited 2009.