MINING IN MEXICO — Resources give boost to Mexican economy

As a country with abundant natural resources and the third largest land area in Latin America, Mexico has developed the 15th largest economy in the world and has become the second most industrialized country in Latin America after Brazil.

Mexico’s remarkable period of growth began with the outbreak of the Second World War, when the war effort placed special demands on its economy. During the last four decades, Mexico has achieved one of the highest rates of economic growth in the world.

Gross domestic product (GDP) expanded from US$4.7 billion in 1950 to US$178 billion in current dollars in 1982, when the economy contracted for the first time in 32 years because of the foreign debt crisis. Economic writers have referred to this extraordinary growth as the “Mexican miracle.” Despite one of the world’s highest rates of population growth, per capita income and GDP both decreased from 1983 to 1986, reaching US$1,540 and US$127 billion, respectively, in that year, but had recovered to US$2,375 and US$201 billion by 1989.

The growth in GDP during the period from 1950 to 1980 averaged 6% per year. Growth began to accelerate in the late 1970s, such that between 1978 and 1981, the average rate increased to 8.4%.

This period of remarkable growth was accompanied until 1974 by low inflation and moderate external debt accumulation. The period of single digit inflation ended in 1973.

The impetus to growth derived from the large discoveries of oil and natural gas announced in 1976, indicating that Mexico had the potential to resume its role as a major world oil producer. By year-end 1983, PEMEX, the state oil company, reported that proven hydrocarbon reserves had increased to the equivalent to 72.5 billion barrels and the potential reserves were estimated at 250 billion barrels.

Almost overnight, the new discoveries converted Mexico into the world’s fourth largest reservoir of petroleum.

Mexico’s economic expansion during the 1970s and early 1980s was fuelled by two sources, the increase in oil production and in external borrowing. Oil production went from 178 million barrels in 1970 to 1,003 million barrels in 1982; external debt, secured by projected oil prices of US$60 per barrel, went from US$16 billion in 1975 to US$86 billion.

The dramatic increase in money supply led to corresponding increases in inflation. The euphoria ended with the collapse of oil prices in 1983, and the economic damage was made more severe by the earthquake in Mexico City in 1985.

Economic recovery has been prompted by the severe austerity measures that began to be imposed in 1986, the control of inflation and the reduction of state involvement in the industrial sector of the economy. Since 1986, Mexico’s growth of GDP has slowly increased and was estimated at a positive 3% in 1989.

Throughout the economic expansion in the post-Second World War period, a relatively good balance between various sectors of the economy has been maintained. The agricultural, manufacturing and extractive sectors were greatly expanded and modernized. Large investments were made in basic infrastructure involving electric power generation, transportation and communications.

Mexico has a diversified agricultural sector and is an important producer of many agricultural products. Mexico’s equally diversified industrial base includes the second largest steel and ferroalloy industry in Latin America, basic metals and metal products, industrial chemicals, cement, petroleum products, textiles, and transport equipment and other machinery. — From “The Mineral Economy of Mexico,” U.S. Department of the Interior, Bureau of Mines, Washington, D.C.