Mexico, lately in the process of joining the group of developed countries known as the Organisation for Economic Cooperation and Development, needs to get serious about economic development. It can start by discarding antique views of sovereignty.
The country's economy is reeling from a currency crisis rooted in the shaken confidence of international investors. Signs of political instability last year threw doubt on the staying power of Mexico's remarkable economic reforms. International capital went into retreat. As investors cashed in pesos, Mexico's reserves of foreign exchange plunged.
LOST CONFIDENCE
That the government misread the problem as having mostly to do with trade deficits, and that it hastened capital flight with a clumsy currency devaluation, are not the central points here. Mexico is not the first country to leap off its economic bridge over trade deficits.
Important here is how Mexico's fortunes reversed on a change in international confidence. Trade deficit or no, there would have been no currency crisis if foreign sources of capital hadn't turned wary of Mexican ventures. And the peso would not have required a $50 billion pledge from the U.S. to maintain value.
It was discouraging last week, therefore, to hear Adrian Lajous Vargas, director-general of Petroleos Mexicanos, assure journalists that the state-owned monopoly would remain insulated from foreign investment. Mexico, he said, wants to retain its economic sovereignty over oil and gas. To international confidence in Mexico's economy, his words are devastating.
Everyone knows how proud Mexicans are of their country's oil reserves. Everyone also knows that Pemex doesn't realize maximum value from those reserves for the Mexican economy.
No state-owned monopoly can develop resources with the efficiency of a competitive industry built on private capital. State-owned monopolies are perennially short of capital and operating discipline. Except in brief periods of extraordinarily high commodity prices, they stay that way because politics dissipates their profits. And they always lack discipline because their decisions ultimately must serve political rather than economic ends. This political dimension of decision-making hurts efficiency and profits. These are eternal verities of state-owned enterprise. Pemex is no exception.
There is only one possible rationale for Mexico's subordination of economic interest to sovereignty, and it is not a good one. It is fear that international oil companies will cheat Mexicans out of their hydrocarbon patrimony. This might once have been so. But the analysis assumes that neither oil companies nor Mexican negotiators have learned anything since Mexico nationalized its oil industry in the 1930s. Such nonsense demeans both sides and keeps Mexico and Mexicans in the grip of a self-sacrificial fiction, manifest in unproduced oil and gas.
URGENT TEST
Mexico is not alone in its confusion over sovereignty. Its currency crisis, however, makes an urgent test out of what might otherwise be a simple political debate. International investors await the outcome.
Will Mexico change historic attitudes in order to stimulate resource development, create wealth, and advance economic reform? Or will it submit to the inflation and recession that lie ahead and hope that its trading partners stand ready to bail it out again? Even viewed through the scratchy lens of sovereignty, the choice should be easy.
Copyright 1995 Oil & Gas Journal. All Rights Reserved.
