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Don't panic.

PresidentVicente Fox and his cabinet spent the first half of May lashing out against critics and denying rumors of an imminent crisis. This move followed a spate of gloomy opposition party economic predictions in the local media, which only escalated after the government secured a billion-dollar International Monetary Fund contingency loan.

But Fox remains adamant: "The country is running. Nobody is stopping to feel sorry for themselves," he said to local press.

While Fox has questioned his critics' motives, it is evident that the depth of the slowdown in the United States, the market for 90% of Mexican exports, has already forced the president to acknowledge Banco de Mexico's economic growth predictions of 3% for the year, instead of his own previous 4.5% forecast. In any case, said Fox, the nation will eventually reach the 7% growth rate he promised on the campaign trail.

Whatever the political motives behind opposition-party claims, several recent radio surveys suggest there is actually a growing consensus among the population that the nation is already in crisis. That's not surprising, given that well over a quarter of a million workers have been laid off since November by companies preparing for the worst.

Although record levels of foreign direct investment in the first quarter are indicative of investor confidence and have thus far managed to avert any rapid economic deterioration, it is still uncertain whether the upward investment trend will hold. Adding to the woes are concerns that the crisis in Argentina could become a destabilizing presence in the region.

In an attempt to offset a negative effect on the public budget, the government has already reacted to the slowdown by cutting back spending by an additional 3 billion pesos. The government recently claimed to have saved some 6 billion pesos over the past three months, adding that the administration's target is to save a total of 30 billion pesos during its term in office.

While most market analysts and private-sector leaders have played down recessionary fears, they also say that a great deal of Mexico's short-term economic performance will depend on the success of the government's controversial tax-reform proposal and its ability to keep finances in check. Also of concern is the unprecedented behavior of the overly strong peso and the subsequent widening of the trade deficit.
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Article Details
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Publication:Business Mexico
Article Type:Brief Article
Geographic Code:1MEX
Date:Jun 1, 2001
Previous Article:PEMEX U-TURN.
Next Article:IViva California!

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