Richard W. Fisher

English

Research Papers in Economics

President’sPerspective
keep a watchful eye on Mexico. Part of the
reason is my upbringing, which included sev-
eral years as a boy living in Mexico City. And
part of it is my job: Understanding Texas’
economy requires an appreciation of Mexico’s.
The two are joined at the hip.
I am encouraged by much of what I see
in Mexico. Its economy has been growing
strongly for three years now. Inflation has
declined to about 3 percent, its lowest level in
30 years. Public sector debt is no longer rising.
More than a decade ago, Mexico quit the
fool’s errand of trying to fix the value of its
currency, and a free-floating peso has been a
source of stability, not only in Mexico but in
South Texas as well.
Investors look favorably on these signs of stability, and they are offering
Mexico access to capital at lower interest rates and for longer terms than at
any time in memory. Mexico’s government, limited to short-term debt in 1995,
is now able to issue 20-year fixed-rate bonds, denominated in pesos.
Mexico is reaping the rewards of two decades of economic reform. The
country reduced barriers to trade and investment, freed its central bank from
political influence and privatized banks and other state-run businesses. By
1994, 80 percent of government-owned firms had been sold off. 
Despite these accomplishments, Mexico continues to rank among the
world’s least competitive nations. Here are some reasons: 
• More than half of adult Mexicans drop out before reaching secondary
school. Per-pupil spending has increased 20 percent since 1996, but Mexico’s
education system needs more than money. It needs better administration,
updated curricula and teaching techniques. Just as important, the economy
needs to provide the incentives for students to work hard and finish school—
namely, an efficient labor market to enter when they graduate.
• Mexico’s complex labor regulations are among the world’s most rigid,
imposing significant disincentives to operating in the formal sector. As a result,
the informal sector includes about half of Mexico’s labor force and most of the
country’s entrepreneurs. They do not bother with tax and labor regulations.
Being on the fringes, however, limits access to capital, restricts opportunities to
grow businesses and hinders innovation.
• Mexican legal institutions are outdated and ineffective. Too many gov-
ernment institutions are susceptible to corruption, eroding public confidence in
Mexico’s ability to enforce contracts, property rights and the rule of law.
I know many Mexicans share my concerns about the need to address the
country’s structural and institutional shortcomings—both economic and legal.
By focusing on fundamental reforms, Mexico’s economy will grow faster and
stronger, providing greater opportunities for Mexicans to learn, work, innovate
and compete in the global marketplace.
Richard W. Fisher
President and CEO
Federal Reserve Bank of Dallas
“By focusing on 
fundamental reforms,
Mexico’s economy will
grow faster and stronger,
providing greater 
opportunities for
Mexicans to learn, 
work, innovate and
compete in the 
global marketplace.”
I

President's perspective

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Research Papers in Economics