Few countries are more reliant on the United States than Mexico. The
United States is the consumer of Mexico's exports, the home for its
dollar-remitting migrants, and the main source of its foreign
investment. Moreover, the northern neighbor's Gibraltar-like
stability has anchored Mexico's economy for almost the entire decade
and a half since the North American Free Trade Agreement, NAFTA, came
into being.

So now that the famous rock has broken free from the coast and is
sinking in the Mediterranean, why isn't Mexico plummeting along with
it? The United States' financial catastrophe has provoked speculation
that the end of American economic superpower status is nigh, but no
one is predicting a corresponding decline from its southern neighbor.
For Mexicans, the crisis will continue to cause intense spells of
national worry, but thus far Mexico has remained largely resilient to
the US's financial maladies.

First, the ill effects that we have witnessed: the peso, whose
stability over the last decade had been Mexico's singular monetary
accomplishment, recently suffered its largest one-day decline in
value in fifteen years. The government has already exhausted 10
percent of its foreign reserves (some $9 billion) to maintain the
currency's stability. The weaker peso has led analysts to predict an
increase in inflation, which, combined with lower American demand,
will make Mexico a much less attractive place for investors.

The problems don't end there: as has been the case elsewhere, the
Mexican stock market has see-sawed wildly. Compounding matters, the
basic social security retirement account (called an afore) provided
to every Mexican with a formal job is invested in stocks, so drops in
the market impact the future of millions of Mexicans. The list goes
on: remittances from immigrants in the United States dropped 12
percent from last year. Slowed economic growth means that the labor
market will also lose steam, which, combined with the return of
erstwhile migrants fleeing the American recession, could lead to a
sharp rise in unemployment. The crisis will also limit American
consumption, which will hit export and tourist industries especially
hard.

At the same time, no one is predicting a meltdown in Mexico. Its
banks, torched in 1995 by a crisis not entirely unlike that presently
occurring in the United States, remain safe. Rogelio Ramírez de la O,
a prominent leftist economist, wrote in an otherwise gloomy
column, "The Mexican banks don't face a crisis of insolvency of
Mexicans."

Mauricio Cárdenas of the Brookings Institution told CNN en Español
viewers, "I see the Latin American financial system as very strong."

Economically, Mexico is better off as well. Most independent analysts
are revising their growth projections downwards from 3 percent to 1
percent, but no one is yet predicting recession. The government's
budget projects 1.8 percent growth in 2009. That may prove overly
optimistic, but thus far there is no fear of a prolonged recession in
Mexico.

The bizarre world environment in North American economics is also
evident in each country's reaction. The US has been slammed for its
absent president, the failed first pass on the $700 billion bailout,
and the generally poor coordination of the response. In Mexico,
President Felipe Calderón offered a stimulus package that quickly
earned the approval of the entire political class as well as the
International Monetary Fund. It cut the 2009 budget outlays by about
$27 billion, shifted government spending into infrastructure
projects, and freed up government credit for small businesses, all of
which should soften the impact of the crisis both for the government
and for individual Mexicans.

As Andrés Oppenheimer pointed out in a recent column, Mexico's
experience with its 1995 meltdown could now serve as a paradigm for
the American recovery, both in the near- and long-term. While it
wound up an easy target for leftist populists, Fobaproa (as their
bailout became known) succeeded in resurrecting Mexico's banking
sector. It also forced greater financial regulations on the industry,
which is why Mexico is much less exposed to today's credit crisis
than the United States.

That's not to suggest that Mexico is free from worry, because it
isn't. The present crisis is more than a mere hiccup, and the
problems could certainly worsen in Mexico. Thus far, perhaps the
greatest consequence of the crisis has been the political opportunity
cost. With so much attention focused on the economic fiasco invading
from the North, Mexico is in danger of taking its eye off other vital
issues. That's why oil reform legislation lingers unapproved, and
Mexico's security problems seem to have fallen from the front of
policy-makers minds. Such issues are likely to remain thorny for
Mexico long after the present crisis has passed.

By Patrick Corcoran