Friday, December 27, 2013

Making it Real

In today’s WSJ, Pierpaolo Barbieri and Niall Ferguson provide background on Mexico's Economic Reform Breakout:

For much of the last decade, Mexico and Brazil were a study in contrasts. "Brazil Takes Off" was a typical magazine cover, depicting Rio's huge statue of Christ literally blasting off. The equivalent story for Mexico was "The War Next Door: Why Mexico's Drug Violence is America's Problem Too."

In the past two years, however, the roles have been reversed. Riots in São Paulo and the downfall of billionaire Eike Batista have badly dented Brazil's glamorous image. Meanwhile, a succession of bold moves by Mexico's charismatic new president, Enrique Peña Nieto, have finally awakened foreign observers to the fact that Mexico is Latin America's new "country of the future."

Not only is Mexico's per capita GDP back above Brazil's, according to International Monetary Fund data, but over the past five years investors in the Mexican stock market have enjoyed nearly three times the returns of those who put their money into much-hyped Brazilian equities. Jobs are being created so fast in Mexico—more than two million since early 2010—that the problem of illegal immigration to the United States may soon be history.

In the 1980s and 1990s, Mexico was almost as well known for its financial crises as for its drug wars. Those days are gone. Although growth has been sluggish this year, thanks in large part to the troubles of the construction sector, the IMF predicts a rapid rebound between 2014 and 2018.

For years Brazil has been touted as one of the countries to watch, the next big thing. Yet, as I witnessed firsthand on a recent visit, it remains a difficult place to do business and has never realized its promise as a major emerging economic power. Mexico meanwhile continues to move forward and make the sort of reforms that allow its economy to grow. One of the most significant of those is the overhaul of the Mexican laws governing oil and gas. By allowing outside investment and expertise, Mexico is moving to take advantage of its rich energy resources which bodes well for its economic future.

At this point, Brazil shows no signs of following Mexico’s path of reform. Until it does, it remain a country of great promise and potential that never quite seems to live up to either.