The aim of this research paper is to accomplish a comparison between México and Malaysia as Developing Countries. Moreover, this paper will carry out the analyzing of the two countries similarities and differences. Those countries have differences in the economical and the historical background. However, they are similar in the main characteristics of the developing countries, which are; low level of living, low level of productions and high population rates. Thus, both of them depend on the agriculture as a primary industry, imperfect markets, and the dependence or vulnerability in international relation. Moreover, this research paper will include the situation of the Balance of Payments and the Debt problem in México and Brazil; which will be included in phase three and four. At the end of the research a brief conclusion, will states which country is more successful in solving its problems. Finally, there will be a suggestions and recommendations for both countries in order to overcome the obstacles they are facing now.
Mexico is located in North America, from the north it is bordered by United States, then Guatemala and Belize from the southeast. Moreover, the Caribbean Sea and the Gulf of Mexico lies in the east. As shown in the map the Pacific Ocean is in the west and the south. The total area of Mexico is 756,067square miters (approximately 1,958,201 km square). The two third of the frontier between The US and Mexico is formed by The Rio Grande. Additionally, México City is the capital of Mexico; it also considered as one if the largest cities in the world and in Mexico itself. Mexico's main rivers are the Balsas and another one at the US boundary called Rio Grande. A series of high mountains extend east west from across the south of Mexico. Another series of mountains but lower extends from north-west; as a result, a Series of mountains like the U shape or half a circle formed. Moreover, Most of the peninsula of Baja California is desert with some mountains. Thus, towering mountains is covering about two third of Mexico. However, México is a main producer of the Coffee, cotton, corn, oranges, and sugar cane. As well, Mexico is rich in agriculture and minerals, especially silver, copper, gold, lead, salt, and sulfur. In the early history, The Indian of México established many cities; they invented a counting system, a figure of writing, and developed a calendar.
B. Differences analysis:
1. Size and Income level
According to World Development Indicator the population of México is 106 million (2008), and the population annual growth rate 1.0% (2005-2008), and according to World Book Encyclopedia the population density is 120 person per square meter (46 per km), which are distributes as 73% in the urban areas, and 27% in rural areas. Most of them are Indian-Americans, Spanish and Europeans. However, a few of them is black or Asians. Most of the Mexican people are Mestizos (mixed people between white and the Indians).brazil has a high birth rate, according to tradition, and a very low death rate. Approximately 55% of Mexican population is under 20 years. The official language of Mexico is Spanish, most of them use it and it is used in Latin America's countries. However, about 5 million Mexican uses the Indian language daily.
To estimate the income level of México, in 2002 a survey states that the Gini Index is 49.5. The lowest 10% has 1.6% share of income and consumption, on the other hand the highest 10% has 39.4% share of income. However, the highest 20% has 19.7% income share.
2. Historical Background
In the ancient times, the Indians are the first people lived in Mexico. However, in 7500BC they found how to cultivate. They grew corn, avocado, beans, peppers, squashes, and tomato. From the time, they were the first people to plant this kind of vegetables. Mexico becomes a republic in 1824. It coated most of what is now the western and southern US. In the mid 1800,'s Mexico lost vast areas and sold the US additional lands. However, taxes were a part of Mexico, but many US citizens were there, in 1836, Santa Anna conquered a tax force in clash of the Alamo at San Antonio. In addition, taxes win the independence from Mexico. After 10 years, the United States defeated Mexico and took many of the Mexican territory. The French group occupied Mexico in 1863. During the 2nd world war, the industry in Mexico has developed to support the allies with war good. In addition, Mexico faced many trouble like, in 1985 7200 citizens was killed during an earthquake.
3. Physical and Human Resources
Most of Mexican land covered with mountain (about1/3), however, there is a part in Mexico city includes forest. In addition, most of the Mexican economy consists of gas and oil resources. What is more, Mexico considered as a rich country with its oil and gas resources, its export is few. Besides, there resources such as silver, copper, zinc, salt, lead, manganese and sulfur. More to the point, Mexico have a rich fishing resources due to its location on the coast line, such as shrimps, tuna, and sardines. . In 2008 oil export prices has increased, while in 2009 a high decline in the prices has occurred, which affects the country's economy and the public sector. Oil revenues represent more than one third of the Mexican public sector revenues.
4. Ethnic and religious Composition
Most of the people lives in Mexico are mix between Americans and Indians. In addition to the Spanish ancestry, some of them are Indians and others Europeans. However, a few parts are black and East Asian. On the other hand the composition of the Mexican religious is about 90% of them are Roman Catholic, and some Protestants. However, a part is Jews and American Indian religion. Most of the Mexican speaks Spanish in addition to their old Indian language
5. Relative importance of the private and public sector
Most of the public sector revenues come from the oil exports. Mexican economy depends mostly on the private sector.
6. Industrial Structure
In the past, the Mexican used to depend on mining and agriculture in their economy. However, in1940's the development of industry has been supported by the government, and now, producing and, manufacturing many products. Additionally, in the 70s oil becomes the main export to the United States. Thus, income from oil encourages the industrial development. However, the expected income from oil used to be guarantee for borrowing in order to establish projects. Hence, they found it difficult to pay the loans, the economy declined and people there lost their jobs. Moreover, industrial services have structured 50% of the total worth of goods and service in Mexico.
However, manufacturing increased rapidly in Mexico, which leads to development in economical status. Hence, the raw material appeared to assists new factories. Also Marketing system has appeared and the products became next-door to the consumer. They spend heavily on construction, and providing housing. However many investors contributes to finance those projects. More than 50% of the products are manufacturing on Mexico City, then speeded to the other regions. They succeeded in assembling the electrical products, as well as stereo system, computers, TVs and kitchen machines. they are also famous in their skill craft like as the craftworks follows the Indian and Spanish design, silver jewelry, blanket, generally the products vary from region to the other. Mexico has main products like chemicals, clothing, iron and steel, motor vehicle, processed food, petroleum, beer cement, fertilizers, wood, and paper.
7. Political Structure power and interest group
As any country, Mexico has its political structure that consists of executive branch, judicial branch, and legislative branch. Mexico considered as a Federal Republic. Its executive branch headed by a president that considered as the decision maker. The role of such president is to states the government policy, proposes the laws, control the distribution process of federal taxes coming from revenues. In addition, they elect governor of each district and legislator to each state, and then the president selects each governor. Then the voting process comes to allow each citizen to choose the governor. All people in Mexico can vote from age 18.
The president of Mexico has an effective role over the government that all major political figures in the executive branch rely on the president. However, the president uses many constitutional improvements to support the government policy.
8. External dependence
During the 1980s, the export was more than the import. However, the electrical products and the vehicle's parts and motors were mainly imported. Mexico used to import from USA, Japan, Spain and Germany. Yet they also import computer accessories, plastic, industrial machines, finished metal shapes, telecommunication equipments, and other petroleum products.
C. Similarities Analysis:
1. Low level of living (GDP HDI Others)
The standards of living can be measures using a variety of measurement, such as GDP, GNI and HDI. In which countries grouped to know whether it is developed or developing. According to "World Bank Development Indicator", the Gross Domestic Product (GDP) per capita growth of Mexico in 2004 was 2.9%, while the growth percentage was 4.4%. In addition, the gross national income per capita (GNI) in 2008 was $8340. GNI per capita was 6790 in 2004, and was ranked the 70Th among countries. However, the PPP gross national income per capita in 2004, was 9,640 billions dollars, which ranked the 80th. Health development indicator (HDI) is a measure to recognize the state of the country whether it's developing or not. Mexico HDI in 2007 was 0.829, which is not good, as many countries like Sweden has HDI 0.9. Moreover, the average life expectancy at birth in Mexico is 75 years in 2004, which considered low life of expectancy. Besides the survival to 65 years in 2003 was 75% of the males, and 86% of the females. The adult literacy rate in Mexico 92.8 in 2009, ranked 82nd. Moreover, the national poverty line which determines the position of each country whether it's far or near from it. A survey in 2002, estimates the population below the poverty line is 34.8% rural, 11.4% urban, and 20.3% national. According to the international poverty line, it was estimates in 2002 that 4.5% of the Mexican populations are below $1 a day, and 20.4% are below $2 per day. Also poverty gap at $1 per day was 1.2%.
2. Low level of productivity
Mexico's main products in agriculture are corn, beef, cattle, milk and coffee. In manufacturing it produce processed food, motor vehicle, iron, and steel. How ever, it is rich in mining, as it produces petroleum, natural gas, and iron. According to World Bank Statistics, the average working hours per week was 43 hours in 1995-1999. also the minimum wages was $768 per day.
3. High rate of population growth
Mexico total population in 2004 was 103.8 millions, with an average annual population growth rate of 1.6 % (1990-2004). More over the population age composition was 31.6% from age0 to 14, 63.2% from age 15 to 64, and 5.2% from age 65 and more. Death rate in 2004 was 5 from each 1000 people. On the other hand, the birth rate was 19 per 1000 people.
4. Dependence on agricultural production and primary exports
However, Mexico has a lot of industrial and services activities, they still attached to the agricultural activities as it is developing country. In which 22% of the male are in the agricultural sector, while 5% only of the females work in agriculture sector. The agriculture wage was $908 per year during 1995-1999. Although Mexico is a developing country but it doesn't exports primary goods only, it exports petroleum, motor vehicles and engines.
5. Prevalence of imperfect markets and incomplete information
. Most developing countries were moving to a developed market economy in which the economy will assist them but government intervention was a reason to make a developing country develop in a low rate. Mexico have stable currency, strong infra structure, but not well developed bank system. Mexican economy has market information more than many developing countries. However, mexixo doesn't sufer from low resources as it has many natural resources such as petroleum , gas, and fishing resources.
6. Dependence and vulnerability in international relations
Mexico import from many countries, most of its imports are from Unites States as it represent about 73% of its import. Besides its import from Japan, Germany, and Canada, that represent from 2% to 3% from its imports. Although its import from the developed countries, it also import from China, South Korea and Brazil.
The commodities imported are machines (metal, agriculture), electrical devices, car parts for assembly, and aircraft parts.
To sum up, it seems that Mexico as a developing country differentiated from the other developing countries. Thus, the size of population is 106 million (2008), and the population annual growth rate 1.0% (2005-2008). Mexico's high population rate is one of the obstacles towards developing. However, also people there suffer from very high-income inequality as the lowest 10% shares 1.8%and the highest 10% shares 36.6% from the income per capita. (1996). Mexico depends on USA, Germany and Japan in its import. In addition, it does not manufacture the cars, motorcycle parts, and the electrical machines. On the other hand, Mexico major export to Unites stated is the oil. When oil export increases the income increases as well. Consequently, this income from oil helps to make many projects. Those factors are encourage Mexico develop and become industrialized. Besides the private sector, which controls the economy in México, helps to develop new projects and plans.
On the other side, a common characteristic describes the developing countries. Thus, people in developing countries suffer from low level of living, low level of productivity, and high rate of growth rate. Clearing up, Mexico GDP per capita (PPP) is $ 9100 (2000), GNI per capita was 6790 in 2004; and HDI in 2007 was 0.829. Thus, this economics indicator describes the status of Mexico as a developing country. Besides the high rate of population, growth (1.6%) was only a barrier for the industrialization. Mexico dependence on the agriculture decreases slightly, because people affected by US and the industrialization life. On the other hand, manufacturing increased, causing a rapid development in the economic status.
By improving its industry, reducing the import, increasing the exported products, and oil Mexico could increase its GDP per capita. Consequently, a raise in GDP will shift Mexico from developing to a developed country. Besides, taking education and, health in consideration will increase the HDI rate to approach 0.999 and will decrease the death rate. Yet Improvement of income distribution and employment reforming will helps the industry to increases by high rate.
A. poverty and income distribution in country
1. Present levels of poverty and income inequality in the country
In 2002, the distribution of income in Mexico was GINI Index 49.5. In which the lowest 10% share 1.6 from the annual income and the highest 10% earns 29.4%, which represent a very high inequality. On the other hand, the lowest 20% earns 4.3 from the income, while the highest 20% earns 55.1% from the income. Inequality present also in developed countries but with a higher rate. Inequality in Mexico is turning upward then downward, as in 1994-1995, it decreased but increased during 1996-2000. in 2006, 40% of the population in Mexico was below the poverty line. In 2006, 13.8% of the population was below the poverty line in Mexico.
2. Analyzing the reasons behind the present levels
Mexican foreign debt is 191 billion dollars in 2001 this debt cannot be repaid. In addition, the government intervention to reduce the poverty is affective but slow. The president of Mexico has an effective role over the government that all major political figures in the executive branch rely on the president. However, the president uses many constitutional improvements to support the government policy. However poverty percentage in the country still high.
The inequality in income and distribution causes the poverty gap to increase between the highest and lowest in Mexican population. That the economic activities affect the level of poverty, because unemployment causes poverty, trade and hotels activities occupy 27% of the GDP, in which about 3156000 workers employed there. Also 26% from GDP gained from manufacturing, 15% from community, social, and personal activities. However, mining, construction, utilities, finance, insurance and real state, share the rest of the GDP in Mexico. This activities will enhance the decreasing of the poverty percentage in Mexico, however it still high. Thus, the economic status of the country helps to decreases a part of the poverty and inequality.
However, the international economic and financial crisis now days, affect the present level of poverty and inequality, thus inequality has increased sharply. Additionally many workers lose their jobs. Besides, many financial institutions have bankrupted. Therefore all these damages that result from the financial crisis causes the economy of Mexico and the poverty in it as well.
Mexican families consist of five or six people, many families live in the same home. Mexican women's doesn't have freedom as women in US; they are influenced by US nowadays. Mexico as a developing country should reform the process of birth, as it has a high birth rate, (19 per 1000 people). However, early marriage and illegal marriage causes the society to be poor. Which result from the high unemployment rate in the country.
3. Policies adopted and actions taken to improve current levels and evaluation of their desired effects
The policies that should be adopted to improve the poverty rate are to improve the social life through education, and decreasing the literacy rate. Moreover, reducing the birth rate as it is 19 people from each 1000 (2006) , Which considered a high rate. Also unemployment should be reduced, as it was shown according to World Bank indicator that about 3.5 % of the people were unemployed. In addition, Mexico was suffering from a debt crisis in 1994, which lead to an economic and financial crisis in Mexico that affect the poverty rate and the unemployment rate. However politicians tried to reform this crisis that originated from the balance of payment , but it still affecting México till now. Mexico devaluate its currency (Peso) in order to pay its debts. Moreover, México suffers from illicit activities, as the cultivation of the heroin plant (opium poppy) . However, government expots effort to keep the cultivation of theses pants very low.
These illegal activities destroy the people and make them not concentrate to solve their country problems. Government policy should ban those people from cultivating un useful plants. Hence, it should reduce the inflation rate and normalize the prices.
C. Conclusion on phase 2
However, the poverty in México is lower than many countries but it is still a matter of thinking. Thus, the government should try to help the people below the poverty line. Reducing the inflation rate is not enough but paying the country's debt and encouraging the primary industry will help many poor families. Besides, government should try to pay the debt. Thus, work with the poverty as the poverty gap at national poverty line is as 12.2% of the rural, 2.8% urban and 6.3% national. Political issues and troubles should be solved in order not to affect the political power of the country.
A. Balance of payment BOP present situation in Mexico
1. Evidence of surplus or deficit in BOP
According to the world development indicator "the current account balance is -19993 million dollars, the exports are 266,390 while the imports are 278,963million dollars" (2008). Thus, the current account balance is in deficit where it has shortage by 19,993 million dollars. Besides the trade balance is in shortage as the imports exceeds the export by - 12,573 million dollars .(266,390-278,964) Thus, it is nit high comparing with Unites States, which considered the highest current account defect of -811.5 billion of dollars. However, china the developing country is in the first place of the country with the largest surplus of 249.9 billion of dollars.
2. Analysis of the reasons behind the present situation in BOP
The reasons affects the current balance are the exports, imports, investment, net remittances, and debt services payments. Hence, the total current increased by exports, investments and net remittances, and decreased by imports, and debt services payable. To emphasize, the balance of payment increases by any cash inflow and decreases by the cash outflow. For example, any export to the outside the country returns with money and profit they increases the current balance. However, the investment increases the capital, and therefore generates money inside the country. Moreover, the foreign direct investment brings money to the country and enhances many projects that developing countries cannot establish. Furthermore the remittances ( the money that the people working outside transfer to México) increases the balance of payment.
However in México, the remittances from the people working in the United States falls 3.6% in 2008, as it considered the first turn down in remittances since 10 years or more. Furthermore, the remittances are the second resource of cash in Mexico's current account after the oil export. What causes the deficit in the current account is the deficit in the balance of trade account in which the export is more the import. According to the world development indicator the reserves in México is 76329 million dollars (2006). Thus, during the balance of payment crisis in 1994, México make use of the reserves to finance its private capital outflow, in order to keep the exchange rate fixed.
3. Policies adopted and actions taken to improve the BOP and solve its problems
a. Export promotion
It was visible that the balance of payment of México was affected by the export and import deficit. As in 1980, there was a high rise in imports because of the trade liberalization makes the imports higher than the export. Thus, the imports exceeded the export and a deficit as a result originate. Consequently, the World Bank and IMF helped Mexico by paying a 12 billion dollar to reschedule the forging debt under agreement. Hence, the agreement was that Mexico repayment of the money was united to the oil export earnings. Mexico launches NAFTA in 1994, in which the trade exchange is between USA and Canada. About 89% of the trade is under free trade agreement.
b. Import substitution
For any developing country to finance the current balance it has should decreases its imports and increases its exports. Thus, Mexico decreases the imports through import substitution policy by creating local industries to replace the imported products in the markets. These policies achieved by currency devaluation, in order to reduce the price of exports.
c. Structural adjustment programs
This could occur through adopting restrictive fiscal and monetary policy by the IMF stabilization policy. The IMF stabilization program requirement is hard to meet every country, liberalization of foreign exchange, devaluation of ex. Rate, removing price control, control of wage increase, and control the bank to increase the interest rate. In 1982, Mexico declared that it could not pay the debt, other countries fears to lose their money, as they will actually lose. After many meetings a proposal offers many facilities, which is restricting the principal paid, lowering the interest rate, partial cancellation of one-third the money. In 1980, a plan called Brady plan offered a offered partial private debt forgiveness to selected countries on the condition that they apply IMF and World Bank stabilization programs. The IMF and the World Bank would then guarantee the repayment of the remaining loans. Furthermore, it was offered debt to for equity swaps and debt for nature swaps.
Conclusion for part 3
Briefly, Mexico balance of payment suffers from crisis that has been originated from the loans. Consequently, un payable debts and deficit in the balance of trade makes Mexico indeed need of money. Thus, it took loans from the IMF and WDI. Finally, it could not pay it an declared its inability to pay, however many countries help Mexico to overcome. Moreover it was helped though reconstructing the principle payment, decreasing the interest and reducing the original payments. The IMF stabilization policy increases the inflation rate, and unemployment through its strict policy.
A. the debt problem in Mexico
- Evidence of the debt problem
- Analyzing of the reason behind the present situation in the debt problem
- Policies adopted and action taken to solve the debt problem
Conclusion for part 4
Why country was more successful in solving each problem?
- Statistics, World development indicator, 2008
- Encyclopedia, World Development Bank, 1992
- T. Michael and S. Stephen, Economic Development, 9th edition, 2008