DEFICIT WOES.

The nation's trade deficit continues to widen, this time to the tune of US$l7.69 billion in 2000, according to latest reports, which is a sharp 25.4% increase over 1999. The gap is now equivalent to 3.1% of Mexico's gross domestic product, and is still expected to swell to at least 3.5% by the end of the year.

Banco de Mexico blames the growth on less favorable export conditions. "The slowdown of the U.S. economy has led to weaker demand for Mexican exports, particularly manufactured products," it reported.

The underlying problem is the nation's capacity to pay the deficit through other sources of capital. In this sense, Mexico has depended overwhelmingly on foreign direct investment (FDI), more than half of it linked to the export sector, to compensate for the difference. Last year FDI covered almost 75% of the nation's deficit.

But with consumer demand slowing in the United States, capital inflows are expected to drop. Meanwhile, deficit growth is being exasperated by falling oil prices and strong internal growth (which is heavily dependent on imported goods). Subsequently, Mexico needs to keep current capital in, while bringing more of it over by creating an increasingly favorable investment atmosphere. Similarly, the drop in corporate investment gives greater importance to the US$8 billion dollars that migrant Mexican workers in the United States send over each year.

It is hoped however, that the slowdown up north could force many U.S. firms to reconsider costs and seek more favorable conditions in Mexico to conserve competiveness.