There are times when foreign buyers for real estate in Mexico voice a concern about the sovereign risk of buying in Mexico. With an understanding of the unique ties that bind the three countries, confidence can be gained in understanding that any expropriating of US or Canadian property in Mexico is a very remote and an unlikely possibility. Any expropriation could not be seen as separate event. There is a bigger picture here.
The United States of Mexico is the 13th largest country in the world. In the Americas, it is the third most populated country after the United States of America and Brazil. The United States and Mexico share a 3,326 kilometer border. These countries share much more than a physical boundary.
When NAFTA was created 8 years ago, it created the world’s largest free trade area, which now links over 406 million people producing more than $11 trillion worth of goods and services.
In addition to The North American Free Trade Agreement between Mexico, Canada and the United States, in September of 2001, President Bush and President Fox launched the Partnership for Prosperity. This Partnership is a private-public alliance to harness the power of the private sector to provide jobs and opportunity to citizens of Mexico within their own country.
As a result of dramatically increased trade under NAFTA, Mexico has become the second largest market for US exports. After Canada, Mexico is the largest trading partner with the U.S.
The annual cumulative foreign direct investment in 1994-2001 reached 111.9 billion. By 2003, nearly all-trilateral trade will be duty free, further spreading the benefits of free trade. Exports to the US represent 88% of Mexico’s exports and account for a quarter of the country’s GPD. Given the overall size of trade between the two countries, there are remarkable few trade disputes involving relatively small dollar amounts.
Because the Mexican economy is strongly linked to the US business cycle, the dollar and peso play off each other. The peso has been weaker recently against the dollar, not because of business conditions within Mexico, but because the US dollar is weaker against the Euro dollar.
FDI (Foreign Direct Investment) presents a bright picture in the Mexican economy. In 2000, Mexico was the largest recipient of FDI in Latin American (22.5 billion $). Final numbers of 2001 have not been published, but the largest US investment in 2001 was Citigroup’s 12.2 billion purchase of Banamex.
Mexico maintains more diplomatic offices in the US than any other country-48, with an office in almost every state of the United States.
Mexico is the world’s fifth largest oil producer, its 10th largest oil exporter and the fourth largest supplier of oil to the US.
A stable, democratic and economically prosperous Mexico is fundamental to US interests. US relations with Mexico have a direct impact on the lives of livelihoods of millions of people, particularly the millions of Mexican immigrants that remit over $6 billion a year back into Mexico.
Mexico is a member of the UN, currently holding a seat on the Security Council and is a member of NAFTA, GATT, APEC, OECD, WTO (founding member)
The scope of US-Mexican relations goes far beyond diplomatic and official contacts. It entails extensive commercial, cultural and education tiles, as demonstrated by the annual figure of nearly 340 million legal crossings from Mexico to the US. In addition, more than a half million US citizens live in Mexico, with more than 3,000US companies having operations here and the US accounts for over 60% of all foreign direct investment in Mexico. In 2000, there were 21 million (7.5% of the US populations) people of Mexican origin in the US.
Since 1981, the management of the broad array of US-Mexico issues has been formalized in the US-Mexico Binational Commission, composed of US cabinet members and their counterparts in Mexico.
Mexico’s fiscal deficit is expected to close at around 1.4% of GDP, less than most major economies around the world. Meanwhile, privatization and economic liberalization have opened up new opportunities for US investment in Mexico’s railroad, ports, banks and airports. Finally, a new initiative to open the electrical sector to private ventures holds great promise for the future.
“Our two countries have developed a historic level of trust and mutual respect, strengthened by common values and purposes, that has facilitated an unprecedented degree of bilateral cooperation. It is a high national priority of both nations to continue building on that cooperation over the coming years and harnessing it for the achievement of important goals of economic and social development, security and rule of law that are so essential in both of our countries.” President George Bush, in a visit to Mexico, March 2002.
Mexican trade policy is among the most open in the world. Moody’s in March 2000 and Fitch IBCA in January 2002 have issued investment grade rating for Mexico’s sovereign debt. The upgrade was based in part on the determinations that Mexican has not been significantly affected by “contagion” from the Argentine crisis.
The interdependence between Mexico, the United States and Canada gives all strength for the future.
This article is based upon legal opinions, current practices and my personal experiences in the PuertoVallarta-Bahia de Banderas areas. I recommend that each potential buyer conduct his own due diligence and review.
Additional sources for this article are from Dean Ross and a report of the US department of State Report on Mexico.
