THE MEXICAN ECONOMY IN 1967 AND PROSPECTS FOR 1968

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001500220015-2
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 9
• Document Creation Date: December 16, 2016
• Document Release Date: December 28, 2004
• Sequence Number: 15
• Publication Date: February 1, 1968
• Content Type: IM

 L+ l~1/OF- / !MY! &F-/.,I-
Approved For Release 2005/01/11 : CIA-RDP85T00875R001500220015-2
Confidential
DIRECTORATE OF
INTELLIGENCE
Intelligence Memorandum
The Mexican Economy in 1967
and Prospects for 1968
Confidential
Copy No. 38
ER IM 68-12
February 1968
Approved For Release 2005/01/11 : CIA-RDP85T00875R001500220015-2
 Approved For Release 2005/01/11 : CIA-RDP85T00875R001500220015-2
WARNING
This document contains information affecting the national
defense of the United States, within the meaning of Title
18, sections 793 and 794, of the US Code, as amended.
Its transmission or revelation of its contents to or re-
ceipt by an unauthorized person is prohibited by law.
GROUP I
F.XCl.UOTD !NOM AUTOMATIC
11(1N'NIINAOINO AN[)
UYC I. A NNIEICATION
Approved For Release 2005/01/11 : CIA-RDP85T00875R001500220015-2
 Approved For Release 2005/01/11 : CIA-RDP85T00875R001500220015-2
CONFIDENTIAL
CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
February 1968
INTELLIGENCE MEMORANDUM
The Mexican Economy in 1967 and Prospects for 1968
Summary
Mexico remains one of the brighter spots in
the economic scene in Latin America. Production
rose by about 7 percent in 1967 and is expected to
continue the rapid growth of recent years in 1968.
A high rate of investment and the 1968 Summer
Olympics will stimulate construction, industry, and
tourism. Also, agricultural output should continue
the strong growth recorded in 1967. Pressure on
resources may push up prices more than in 1967, but
the rise probably will be small by Latin American
standards.
The spurt in imports that helped to raise
Mexico's trade deficit by $160 million in 1967 may
well continue this year. Exports should recover
from last year's stagnation, however, and the
Olympic Games should give a good boost to tourist
earnings -- which usually cover most of the trade
deficit. There appears to be at least an even chance
that the deficit on current account can be held at
the 1967 level, which can be handled without serious
difficulty. Mexico also is in a strong position to
cope with an increased deficit, considering its
foreign exchange reserves of $575 million and its
excellent reputation as an international borrower.
Note: This memorandum was produced by CIA. 'It was
prepared by the Office of Economic Research and was
coordinated with the Office of Current inteZZigence.
CONFIDENTIAL
Approved For Release 2005/01/11 : CIA-RDP85T00875R001500220015-2
 Approved For Release 2005/01/11 : CIA-RDP85T00875R001500220015-2
CONFIDENTIAL
Recent Growth
rate (see the accompanying chart).
cultural production, which has risen for eight
consecutive years , increased at an above-average
per capita GNP. Industry continued to lead major
economic activities in the pace of expansion. Agri-
economy yielded a gain of almost 3-1/2 percent in
with an increase in population of 3-1/2 percent --
services, as measured by the gross national product
America. As in 1966, the total output of goods and
1. In 1967, Mexico carried forward one of the
most encouraging records of economic growth in Latin
MEXICO: Growth of Production, 1958-67
INDEX
225 r-
AMERICAN
GNP
(Billion 1965 US $) GNP
22 per Capita
CONFIDENTIAL
Approved For Release 2005/01/11 : CIA-RDP85T00875R001500220015-2
 Approved For Release 2005/01/11 : CIA-RDP85T00875R001500220015-2
CONFIDENTIAL
2. Mexican economic growth generally has run
well ahead of the average in other Latin American
countries ever since the beginning of World War II.
Moreover, while the rate in the rest of the area
has slowed recently, that in Mexico has accelerated.
In the last decade alone, Mexico has raised its per
capita GNP from $380 to $490 while the population
has grown by 13 million persons, to a total of 46
million. As the chart shows, Mexico has conspic-
uously improved its relative position in Latin
America with respect to per capita GNP.
3. Rapid expansion has been promoted by a high
rate of capital formation. Investment is equivalent
to about 19 percent of GNP, compared with an average
of 17 percent in Latin America as a whole, and
about 90 percent of this investment is financed with
domestic resources. Mexico's emphasis on indus-
trialization (especially through import substitution)
has greatly stimulated manufacturing. Output in
manufacturing industries now accounts for almost 27
percent of GNP, whereas agriculture accounts for
only 16 percent. However, various agricultural
products -- cotton, coffee, sugar, fresh vegetables
and fruits, shrimp, corn, and wheat -- are the lead-
ing earners of foreign exchange.
Outlook for 1968
4. In 1968, Mexico is expected to continue
the rapid growth that has characterized the economy
in recent years. A high rate of government-induced
construction activity plus the stimulation provided
by the 1968 Summer Olympics are leading growth
factors, but agricultural output should show a
further strong advance. The presence of investment
and rising consumer income on resources may bring a
larger increase in prices than in 1967, when the
wholesale price index moved up by about 4 percent.
The increase should be small by Latin American
standards, however, because of cautious fiscal
policies of the Mexican government, effective
Central Bank restraints on credit expansion, and
the likelihood of plentiful food supplies.
5. Prospects are less certain in 1968 for
narrowing the perennial trade gap, which in 1967
widened beyond the $400-million level that can
CONFIDENTIAL
Approved For Release 2005/01/11 : CIA-RDP85T00875R001500220015-2
 Approved For Release 2005/01/11 : CIA-RDP85T00875R001500220015-2
CONFIDENTIAL
readily be covered by tourist receipts. The demand
for imports probably will again be strong in 1968.
Exports are expected to rise moderately after stag-
nating in 1967 (see the table). Also, the Olympic
Games should bring a substantial rise in Mexico's
receipts from tourism, which are the largest in
Latin America. The deficit on current account
nevertheless may equal or exceed the $565-million
level incurred in 1967.
6. Mexico probably would have considerable
room for maneuver in covering such a deficit.
Reserves of gold and foreign exchange amounted to
about $575 million at.the end of September 196:;,
and 13 years of exchange stability have given the
country an excellent reputation in international
credit markets. In part because of government
incentives to develop industry on the Mexican-US
border, inflows of direct foreign investment glen
should continue to be strong.
External Debt
7. Mexico's policy of industrialization has
generated heavy demands for imported capital goods
and industrial raw materials and has led to heavy
borrowing abroad. The medium-term and long-term
external debt probably exceeded $2 billion at the
end of 1967. Interest and amortization payments
on this debt approximated $450 million in 1967, or
about 28 percent of the value of exports and net
earnings from tourism. Debt servicing obligations
of this magnitude are manageable. But, as Mexican
authorities are aware, a sustained rise in Mexico's
deficit on current account at the rate recorded in
1967 could threaten the peso.
Stability of the Peso
8. Since the last devaluation of the peso,
in April 1954, the Central Bank rate has been
steady at 12.5 pesos to the US dollar. The peso is
a hard and freely convertible currency. After the
devaluation of the British pound, the Mexican
Finance Secretary stated that Mexico would continue
to sell gold freely.
(~N},- 4F--
Approved For Release 26c%O~t1~1DCTA=9VT00875R001500220015-2
STAT
 Approved For Release 2005/01/11 : CIA-RDP85T00875R001500220015-2
CONFIDENTIAL
9. The government now is under growing pressure
to accelerate outlays on basic development projects,
which have been curtailed for the past three years.
Pressures to benefit rural areas are particularly
strong. Although average income per rural inhabi-
tant has grown at about the same rate as per capita
incomes in urban areas, most of the gains have
been made by farmers producing cotton, wheat, and a
few other crops on large-scale, mechanized farms.
As a consequence, poverty in rural areas still is
widespread and severe.
10. The government also must complete facili-
ties for the 1968 Summer Olympics, repair extensive
damage caused by hurricanes in late 1967, and con-
tinue with construction of a subway for Mexico City.
Higher interest rates may dampen private investment,
but this squeeze probably would only partly offset
the rise in public investment. Increased demand by
investors for imported capital goods and industrial
raw materials thus may well raise balance-of-pay-
ments difficulties in 1968. To cope with this, the
government would have to implement an administra-
tively difficult cutback in public investment, levy
additional taxes, or further restrict credit to
the private sector, thereby weakening an already
depressed private housing market. The Diaz Ordaz
administration nevertheless can be expected to react
quickly and effectively, continuing the prudent
financial policies that it has pursued during its
first three years in office.
CONFIDENTIAL
Approved For Release 2005/01/11 : CIA-RDP85T00875R001500220015-2
 Approved For Release .2005/01/11: CIA-RDP85T00875R001500220015-2
CONFIDENTIAL
Million us- $
Imports
Exports
Trade surplus (+) or deficit Net receipts from tourism a/
Net receipts from other services,
production of gold and silver,
and transfer. payments
Current account surplus (+), or
deficit (-)
Corresponding increase. (-).
or decrease (+) in holding
of foreign assets
1965
1966 (Esti1967
mate'd)
1,560
1,605 1,765
1,114
1,192 1,190
-446
-413 -575
368
385 400
-319
-324 -390
-397
-352 -565
163
355
CONFIDEN
Approved For Release 2005/01/11: CIA-RD 875 R001500220015-2