The Mexican Economy After the Global Financial Crisis

M. Angeles Villarreal
Specialist in International Trade and Finance

The state of Mexico’s economy is important for U.S. policymakers for many reasons, most significantly because a prosperous and democratic neighboring country is in the best interest of the United States. The two countries have strong economic, political, and social ties, which have direct policy implications related to bilateral trade, economic competitiveness, migration, and border security. In May 2010, President Barack Obama hosted Mexican President Felipe Calderón at a meeting in the White House in which the two leaders discussed key issues affecting the two countries. They agreed to continue and reinforce cooperation on creating jobs, promoting economic recovery and expansion, and encouraging inclusive prosperity across all levels of society in both countries. The 111th Congress is likely to maintain an active interest in Mexico on issues related to the North American Free Trade Agreement (NAFTA) and other trade issues, economic conditions in Mexico, migration, border security issues, and counter-narcotics.

The global financial crisis that began in 2008 and the U.S. economic downturn had strong adverse effects on the Mexican economy, largely due to its economic ties and dependence on the U.S. market. Mexico’s gross domestic product (GDP) contracted by 6.6% in 2009, the sharpest decline of any Latin American economy. Mexico’s reliance on the United States as an export market and the relative importance of exports to its overall economic performance make it highly susceptible to fluctuations in the U.S. economy. Most other Latin American countries are not as dependent on the United States as an export market. Economic reforms over the past 20 years and the government’s responses to the effects of the global financial crisis have helped Mexico weather the economic downturn and improve conditions in 2010. However, sustained economic recovery will likely depend on the U.S. economic recovery and the ability to sustain this growth.

In addition to the adverse effects from the global financial crisis and the U.S. economic contraction, Mexico’s economy is experiencing numerous other challenges. The escalation of violence since the government’s crackdown on organized crime and drug trafficking has led to investor uncertainty in some regions of the country and, subsequently, a sharp decline in foreign direct investment flows. The impact has been the most severe on the manufacturing industry, which is mostly located along the U.S.-Mexico border and has experienced significant job losses. Increasing unemployment throughout the country has led to a growing trend towards informality and self-employment. This may present a long-term problem for the government because growth in the informal sector can lead to increased poverty levels, diminished productivity, and lower prospects for sustained economic growth. Another issue is the 16% drop in remittances to Mexico in 2009, which has mostly affected the poor. Remittance inflows, which are largely from the United States, are Mexico’s second-highest source of foreign currency after oil.

Numerous analysts have noted that Mexico’s potential to promote economic growth, increase productivity, and lower the poverty rate is very limited without implementing substantial structural reforms. President Calderón has proposed a number of reforms to address these challenges, including proposals to eliminate extreme poverty, overhaul public finances, privatize parts of the state oil company, adopt labor reforms, reform the telecommunications sector, and encourage political reforms. Most of these proposals, however, have deeply rooted political implications and have been strongly opposed by the major political parties in the Mexican Congress. There are some signs that the population may be pushing for change, but the prospects for passing any of the proposals will likely depend on the outcome of the 2012 presidential elections. .


Date of Report: September 16, 2010
Number of Pages: 24
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Brazil-U.S. Relations

Peter J. Meyer
Analyst in Latin American Affairs

As its economy has grown to be the 10th largest in the world, Brazil has consolidated its power in South America, extended its influence to the broader region, and become increasingly prominent on the world stage. The Obama Administration’s national security strategy regards Brazil as an emerging center of influence, whose leadership it welcomes “to pursue progress on bilateral, hemispheric, and global issues.” In recent years, U.S.-Brazil relations have generally been positive despite Brazil’s prioritization of strengthening relations with neighboring countries and expanding ties with nontraditional partners in the “developing South.” Although some disagreements have emerged over the past two years—such as different policy approaches toward the situations in Honduras and Iran—Brazil and the United States continue to work together on a number of issues, including counternarcotics, counterterrorism, energy security, trade, human rights, HIV/AIDS, and the environment.

Luis Inácio Lula da Silva, known as Lula, of the center-left Workers’ Party (PT) has served as Brazil’s president since 2003. During his two terms, President Lula has largely maintained orthodox economic policies while expanding the Brazilian state’s role in development. Although occasional corruption scandals and inter-party rivalries within his governing coalition have made it difficult to advance portions of his agenda, President Lula has been successful in passing some social security and tax reforms, implementing and expanding a number of social welfare programs, and encouraging public-private partnerships to invest in infrastructure and boost economic growth. He is currently seeking legislative approval for a new regulatory framework to govern the development of the country’s substantial offshore oil reserves, but portions of the new framework have been deferred by Congress until after the October 3, 2010 presidential and legislative elections. Lula has maintained high approval ratings (78% in late August 2010) throughout his administration as Brazil has experienced strong economic growth and considerable reductions in poverty.

Brazil’s recent economic success and Lula’s popularity have benefitted his designated successor, Dilma Rousseff of the Workers’ Party. According to recent polls, Rousseff leads José Serra of the centrist Brazilian Social Democratic Party by a substantial margin. While analysts believe that both candidates would largely maintain the Lula Administration’s economic and social welfare policies, most believe that Serra’s foreign policy would be more likely to align with that of the United States.

The 111th Congress has demonstrated interest in several issues in U.S.-Brazil relations. Both houses passed resolutions concerning an international child custody case involving Brazil (H.Res. 125 and S.Res. 37), and legislation related to the case (H.R. 2702) was introduced in the House. Other pieces of legislation concerning Brazil include S.Res. 74, to recognize the importance of the U.S.-Brazil partnership and pursue a bilateral tax treaty; S. 587, to provide $6 million to expand U.S.-Brazil biofuels cooperation; and H.R. 5439, to offset U.S. contributions to a fund for Brazilian cotton farmers, which was agreed to as a result of a World Trade Organization dispute, by reducing subsidy payments for U.S. cotton farmers.

This report analyzes Brazil’s political, economic, and social conditions, and how those conditions affect its role in the region and its relationship with the United States.


Date of Report: September 7, 2010
Number of Pages: 33
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Cuba: Issues for the 111th Congress

Mark P. Sullivan
Specialist in Latin American Affairs

Cuba remains a hard-line communist state with a poor record on human rights. The country’s political succession in 2006 from the long-ruling Fidel Castro to his brother Raúl was characterized by a remarkable degree of stability. The government of Raúl Castro has implemented limited economic policy changes, but there has been disappointment that further reforms have not been forthcoming. The economy was hard hit by storms in 2008, and the global financial crisis has caused further strains. Few observers expect the government to ease its tight control over the political system, although it did agree in July 2010 to release 52 political prisoners after talks with the Cuban Catholic Church.

Since the early 1960s, U.S. policy has consisted largely of isolating Cuba through economic sanctions. A second policy component has consisted of support measures for the Cuban people, including U.S.-sponsored broadcasting and support for human rights activists. In light of Fidel Castro’s departure as head of government, many observers have called for a re-examination of policy with two broad approaches advanced: an approach that would maintain the dual-track policy of isolating the Cuban government while providing support to the Cuban people; and an approach aimed at changing attitudes in the Cuban government and society through increased engagement. The Obama Administration has lifted restrictions on family travel and remittances; eased restrictions on telecommunications links with Cuba; and restarted migration talks. The Administration has criticized the government’s repression of dissidents, but it welcomed Cuba’s July 2010 announcement of a prisoner release as a positive sign. The Administration also has called for the release of a U.S. government subcontractor imprisoned since December 2009.

The 111th Congress approved three provisions in the FY2009 omnibus appropriations measure (P.L. 111-8) in March 2009 that eased sanctions on family travel, travel for the marketing of agricultural and medical goods, and payment terms for U.S. agricultural exports. In December 2009, Congress included a provision in the FY2010 omnibus appropriations legislation (P.L. 111- 117) that eased payment terms for U.S. agricultural exports to Cuba during FY2010 by defining the term “payment of cash in advance.” In May 2009, the Senate approved S.Res. 149, related to freedom of the press, and in March 2010 it approved S.Con.Res. 54, recognizing the death of a Cuban hunger striker. Pending legislation with Cuba provisions include: the Senate version of the FY2011 Financial Services appropriations bill, S. 3677, which extends the definition of “payment of cash in advance” for another year; the Senate version of the FY2011 Foreign Operations appropriations bill, S. 3676, which would fund democracy projects and Radio and TV Martí; and the Senate version of the defense authorization bill, S. 3454, which requires a Cuba report.

Numerous other initiatives have been introduced that would ease sanctions: H.R. 188, H.R. 1530, and H.R. 2272 (overall sanctions); H.R. 874/S. 428 and H.R. 1528 (travel); H.R. 332 (educational travel); H.R. 1531/S. 1089 and H.R. 4645/S. 3112 (agricultural exports and travel); H.R. 1737 (agricultural exports); and S. 774, H.R. 1918, and S. 1517 (hydrocarbon resources). H.R. 1103/S. 1234 would modify a trademark sanctions, while several bills cited above would repeal the sanction. S. 1808 would eliminate Radio and TV Martí. Measures that would increase sanctions are H.R. 2005 (related to fugitives), H.R. 2687 (OAS participation), and H.R. 5620 (Cuba’s oil development). H.Con.Res. 132 calls for the fulfillment of certain democratic conditions before the United States increases trade and tourism to Cuba. Also see CRS Report RL31139, Cuba: U.S. Restrictions on Travel and Remittances.


Date of Report: September 3, 2010
Number of Pages: 81
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CRS Issue Statement on Latin America and the Caribbean

Mark P. Sullivan, Coordinator
Specialist in Latin American Affairs

U.S. interests in Latin America and the Caribbean are diverse, and include economic, political, and security concerns. Geographic proximity has ensured strong economic linkages between the United States and the region, with the United States being the major trading partner and largest source of foreign investment for many countries in the region. Free trade agreements with several countries have been critical means for enhancing U.S. economic relations with the region. The region is also the largest source of U.S. immigration, both legal and illegal, with geographic proximity and economic conditions being major factors driving migration trends. Curbing the flow of illicit drugs from Mexico and South America into the United States has been a key component of U.S. relations with Latin America for almost two decades. Latin American nations, largely Venezuela and Mexico, supply the United States with just over one third of its imported oil, but there have been concerns over their reliability as an oil suppliers. While the region has made enormous strides in terms of political development over the past two decades, the rise of authoritarianism in several countries, especially Venezuela, as well as the Honduran military's June 2009 ouster of the country's elected civilian president have been U.S. concerns. 

In the 111th Congress, legislative and oversight attention to Latin America and the Caribbean to date has included a focus on the sharp increase in drug trafficking-related violence in Mexico and U.S. assistance to Mexico under the Mérida Initiative; continued counternarcotics and security support to Colombia; and efforts to assist Central American and Caribbean countries deal with drug trafficking, other criminality, and related violence. As in past years, debate over the best means to foster political change in communist Cuba has been a focus of congressional attention. Efforts to promote poverty alleviation, stability, and security in Haiti remained top congressional concerns in the first session, while the catastrophic earthquake that devastated Port-au-Prince in January 2010 focused congressional attention on the enormous task of disaster recovery and reconstruction. The 111th Congress also extended expiring unilateral trade preferences for the Caribbean and Andean regions (and could do so again for the Andean region), expanded and extended trade preferences for Haiti, and could consider legislation that would approve reciprocal free trade agreements (FTAs) with Colombia and Panama. 

Congress has maintained an active interest in neighboring Mexico with myriad counternarcotics, migration, trade, and border issues dominating the agenda. Numerous congressional hearings have been held on the increase in drug trafficking-related violence in Mexico, related U.S. foreign assistance and border security programs, and U.S. efforts to curb the flow of weapons to Mexico. Under the Mérida Initiative, Congress appropriated about $1.3 million in U.S. assistance to Mexico from FY2008-FY2010 to help combat drug trafficking and organized crime. Congress has expressed concerns about delays in the implementation of the program, including the delivery of equipment to Mexico, although it could appropriate additional assistance for Mexico in FY2010 supplemental appropriations legislation. For FY2011, Congress is considering an additional $310 million in assistance that broadens the scope of U.S.-Mexico bilateral security cooperation and focuses more on institution-building. On other Mexico-related issues, while initially it was thought that the second session might consider comprehensive immigration reform efforts, other domestic and economic issues have taken precedence. A current bilateral trade dispute involves the implementation of trucking provisions under the North American Free Trade Agreement.


Date of Report: June 30, 2010
Number of Pages: 5
Order Number: IS40343
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The Mexican Economy After the Global Financial Crisis

M. Angeles Villarreal
Specialist in International Trade and Finance

The state of Mexico's economy is important for U.S. policymakers for many reasons, most significantly because a prosperous and democratic neighboring country is in the best interest of the United States. The two countries have strong economic, political, and social ties, which have direct policy implications related to bilateral trade, economic competitiveness, migration, and border security. In May 2010, President Barack Obama hosted Mexican President Felipe Calderón at a meeting in the White House in which the two leaders discussed key issues affecting the two countries. They agreed to continue and reinforce cooperation on creating jobs, promoting economic recovery and expansion, and encouraging inclusive prosperity across all levels of society in both countries. The 111th Congress is likely to maintain an active interest in Mexico on issues related to the North American Free Trade Agreement (NAFTA) and other trade issues, economic conditions in Mexico, migration, border security issues, and counter-narcotics. 

The global financial crisis that began in 2008 and the U.S. economic downturn had strong adverse effects on the Mexican economy, largely due to its economic ties and dependence on the U.S. market. Mexico's gross domestic product (GDP) contracted by 6.6% in 2009, the sharpest decline of any Latin American economy. Mexico's reliance on the United States as an export market and the relative importance of exports to its overall economic performance make it highly susceptible to fluctuations in the U.S. economy. Most other Latin American countries are not as dependent on the United States as an export market. Economic reforms over the past 20 years and the government's responses to the effects of the global financial crisis have helped Mexico weather the economic downturn and improve conditions in 2010. However, sustained economic recovery will likely depend on the U.S. economic recovery and the ability to sustain this growth. 

In addition to the adverse effects from the global financial crisis and the U.S. economic contraction, Mexico's economy is experiencing numerous other challenges. The escalation of violence since the government's crackdown on organized crime and drug trafficking has led to investor uncertainty in some regions of the country and, subsequently, a sharp decline in foreign direct investment flows. The impact has been the most severe on the manufacturing industry, which is mostly located along the U.S.-Mexico border and has experienced significant job losses. Increasing unemployment throughout the country has led to a growing trend towards informality and self-employment. This may present a long-term problem for the government because growth in the informal sector can lead to increased poverty levels, diminished productivity, and lower prospects for sustained economic growth. Another issue is the 16% drop in remittances to Mexico in 2009, which have mostly affected the poor. Remittance inflows, which are largely from the United States, are Mexico's second-highest source of foreign currency after oil. 

Numerous analysts have noted that Mexico's potential to promote economic growth, increase productivity, and lower the poverty rate is very limited without implementing substantial structural reforms. President Calderón has proposed a number of reforms to address these challenges, including proposals to eliminate extreme poverty, overhaul public finances, privatize parts of the state oil company, adopt labor reforms, reform the telecommunications sector, and encourage political reforms. Most of these proposals, however, have deeply rooted political implications and have been strongly opposed by the major political parties in the Mexican Congress. There are some signs that the population may be pushing for change, but the prospects for passing any of the proposals will likely depend on the outcome of the 2012 presidential elections.


Date of Report: September 9, 2010
Number of Pages: 24
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Mexico-U.S. Relations: Issues for Congress

Clare Ribando Seelke
Specialist in Latin American Affairs

The United States and Mexico have a close and complex bilateral relationship, with extensive economic linkages as neighbors and partners under the North American Free Trade Agreement (NAFTA). In recent years, security issues have dominated U.S.-Mexican relations, as the United States has supported Mexican President Felipe Calderón's campaign against drug trafficking organizations (DTOs) through bilateral security cooperation initiatives including the Mérida Initiative, an anti-crime and counterdrug assistance package first funded in FY2008. Immigration and border security have also returned to the forefront of the bilateral agenda since Arizona enacted a controversial state law against illegal immigration (S.B. 1070) on April 23, 2010. In late July 2010, a federal judge blocked large parts of S.B. 1070 from taking effect pending the results of a U.S. Department of Justice lawsuit challenging its constitutionality. In response to rising concerns about border security, President Obama has deployed 1,200 National Guard troops to support law enforcement efforts along the U.S.-Mexico border and Congress has approved $600 million in supplemental funds for border security (P.L. 111-230). 

Now in the fourth year of his six-year term, President Calderón of the conservative National Action Party (PAN) is focused on restarting the Mexican economy, which contracted by 7% in 2009 (largely as a result of the U.S. recession), and combating drug traffickers and organized criminal groups. Although the Calderón Administration has arrested several top drug kingpins, the persistent and increasingly brazen violence committed by the DTOs has led to significant criticism of Calderón's anti-drug strategy. As the 2012 presidential elections approach, the Mexican Congress, which is now dominated by the Institutional Revolutionary Party (PRI), could be reluctant to give President Calderón any major legislative victories. The PRI won nine of the twelve governorships contested in the July 4, 2010 elections, while the PAN's alliance with the leftist Party of the Democratic Revolution (PRD) captured three governorships. 

In recent years, U.S.-Mexican relations have grown stronger as the two countries have worked together to combat drug trafficking and secure their shared border. On May 19, 2010, President Calderón traveled to Washington D.C. for a state visit with President Obama during which both leaders reaffirmed their commitment to working together on a wide range of bilateral issues. The Obama Administration asked for $346.6 million in assistance for Mexico in its FY2011 budget request, including $310 million in Mérida Initiative funding. 

The 111th Congress has maintained an active interest in Mexico with counternarcotics, border, and trade issues dominating the agenda. To date, Congress has appropriated some $1.5 billion in assistance for Mexico under the Mérida Initiative, including $175 million in funds for justice sector programs included in the FY2010 Supplemental Appropriations Act (H.R. 4899/P.L. 111- 212). Congress is likely to maintain a keen interest in how implementation of the Mérida Initiative and related border security initiatives are proceeding, particularly now that National Guard troops are being sent to the Southwest border. Congress may also consider proposals for comprehensive immigration reform. On the trade front, Congress is likely to maintain interest in how the Obama Administration moves to resolve the current trucking dispute with Mexico now that P.L. 111-117 would permit the resumption of a U.S.- funded pilot program for Mexican trucks.


Date of Report: September 2, 2010
Number of Pages: 42
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Venezuela: Issues in the 111th Congress

Mark P. Sullivan
Specialist in Latin American Affairs

The United States traditionally has had close relations with Venezuela, a major supplier of foreign oil, but there has been friction in relations for almost a decade under the government of populist President Hugo Chávez. U.S. officials have expressed concerns about human rights, Venezuela's military arms purchases, its relations with Cuba and Iran, and its efforts to export its brand of populism to other Latin American countries. Declining cooperation on anti-drug and antiterrorism efforts has also been a concern. In September 2008, bilateral relations worsened when President Chávez expelled the U.S. Ambassador to Venezuela, and the United States responded in kind. Under the Obama Administration, Venezuela and the United States reached an agreement for the return of respective ambassadors in July 2009. While some observers were hopeful that the return of ambassadors would mark an improvement in relations, this has not been the case. The United States has continued to express concerns about the Venezuelan government's treatment of the news media and political opposition and about interference in the affairs of other countries in the region. 

Under the rule of President Chávez, first elected in 1998 and re-elected to a six-year term in December 2006, Venezuela has undergone enormous political changes, with a new constitution and unicameral legislature, and a new name for the country, the Bolivarian Republic of Venezuela. Human rights organizations have expressed concerns about the deterioration of democratic institutions and threats to freedom of expression under President Chávez. The government benefitted from the rise in world oil prices, which sparked an economic boom and allowed Chávez to increase expenditures on social programs associated with his populist agenda. These programs have helped reduce poverty levels significantly, but the Venezuelan economy has been hit hard by the global financial crisis and economic downturn. 

In February 2009, Venezuelans approved a controversial constitutional referendum that abolished term limits and allows Chávez to run for re-election in 2012. Since 2009, the government has increased efforts to suppress the political opposition, including elected municipal and state officials. In January 2010, the government shut down the cable station RCTV-Internacional, prompting domestic protests and international concern about freedom of expression. Upcoming elections for the National Assembly scheduled for September 26, 2010, will be an important test for the opposition and Chávez's ruling party. 

As in past years, there have been concerns in the 111th Congress regarding the state of Venezuela's democracy and human rights situation and its deepening relations with Iran. On July 1, 2010, President Obama signed into law the Comprehensive Iran Sanctions, Accountability, and Disinvestment Act of 2010 (P.L. 111-195), which includes a provision making gasoline sales to Iran subject to U.S. sanctions. (In 2009, Venezuela had promised to supply some gasoline to Iran in the case of U.S. sanctions.) In June 2010, the Senate Committee on Armed Services reported S. 3454, the National Defense Authorization Act for FY2011, with a provision requiring a report on Venezuela related to terrorism issues. Among other initiatives, H.R. 375 and H.R. 2475 would place restrictions on nuclear cooperation with countries assisting the nuclear programs of Venezuela; H.Res. 174 and H.Con.Res. 124 would express concern about anti-Semitism in Venezuela; H.Res. 872 would call for the designation of Venezuela as a state sponsor of terrorism; and S.Res. 428 would express concerns about violations of civil liberties.


Date of Report: September 3, 2010
Number of Pages: 49
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U.S.-Mexican Security Cooperation: the Mérida Initiative and Beyond

Clare Ribando Seelke
Specialist in Latin American Affairs

Kristin M. Finklea
Analyst in Domestic Security

In recent years, U.S.-Mexican security cooperation has increased significantly, largely as a result of the development and implementation of the Mérida Initiative, a counterdrug and anticrime assistance package for Mexico and Central America that was first proposed in October 2007. With the recent enactment of the FY2010 Supplemental Appropriations Act (H.R. 4899/P.L. 111- 212), Congress has provided almost $1.8 billion for the Mérida Initiative. Congress provided $248 million of that funding to Central America and included an additional $42 million for Caribbean countries. However, Congress has dedicated the vast majority of the funds—roughly $1.5 billion—to support programs in Mexico, with an emphasis on training and equipping Mexican military and police forces engaged in counterdrug efforts. Escalating drug traffickingrelated violence in Mexico and the increasing control that Mexican drug trafficking organizations (DTOs) have over the illicit drug market in the United States have focused congressional attention on the efficacy of U.S-Mexican efforts and related domestic initiatives in both countries. 

With funding for the original Mérida Initiative technically ending in FY2010 and new initiatives underway for Central America and the Caribbean, the Obama Administration proposed a new four-pillar strategy for U.S.-Mexican security cooperation in its FY2011 budget request. That strategy focuses on (1) disrupting organized criminal groups; (2) institutionalizing the rule of law; (3) building a 21st century border; and (4) building strong and resilient communities. The first two pillars largely build upon existing efforts, whereas pillars three and four broaden the scope of Mérida Initiative programs to include new efforts to facilitate "secure flows" of people and goods through the U.S.-Mexico border and to improve conditions in violence-prone border cities. The Administration's FY2011 budget request includes $310 million for Mérida programs in Mexico. 

Congress is likely to continue overseeing how well U.S. agencies and their Mexican counterparts are implementing the Mérida Initiative and the degree to which both countries are fulfilling their pledges to tackle domestic problems contributing to drug trafficking in the region. Congress may also examine the degree to which the Administration's new strategy for U.S. programs in Mexico complements other counterdrug and border security efforts, including the $600 million in supplemental funds for Southwest Border security efforts provided in (H.R. 6080/P.L. 111-230). In addition to questions about the four pillars proposed, Congress may also debate how best to measure the success of current and future Mérida Initiative programs. A July 2010 report by the Government Accountability Office (GAO) recommended that the State Department develop better performance measures to track progress under Mérida. Another congressional interest is likely to focus on whether human rights conditions placed on Mérida funding are appropriate or sufficient. Congress is currently deciding what types and amounts of funding to provide for future U.S.-Mexican counterdrug and anticrime efforts initiated under the Mérida Initiative in the FY2011 Foreign Operations Appropriations bill. 

For related information, see CRS Report RL32724, Mexico-U.S. Relations: Issues for Congress; CRS Report R41075, Southwest Border Violence: Issues in Identifying and Measuring Spillover Violence; CRS Report R41237, People Crossing Borders: An Analysis of U.S. Border Protection Policies, by Chad C. Haddal; and CRS Report R41215, Latin America and the Caribbean: Illicit Drug Trafficking and U.S. Counterdrug Programs.


Date of Report: August 16, 2010
Number of Pages: 39
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