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MEXICO'S TOURISM INDUSTRY.
Term Paper ID:23077
Essay Subject:
Examines economy & effects of 1994 collapse of peso & U.S. loans on tourism; major tours, hotels, role of govt., attractions (resorts, natural environment), infrastructure, foreign investment. Table of contents. Charts.... More...
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Paper Abstract:
Examines economy & effects of 1994 collapse of peso & U.S. loans on tourism; major tours, hotels, role of govt., attractions (resorts, natural environment), infrastructure, foreign investment. Table of contents. Charts.
Paper Introduction:
MEXICO’S TOURISM INDUSTRY IN THE 1990S
page
Introduction .............................................. 1
Purpose of Study ...................................... 1
Scope of Study ........................................ 1
Tourism and the Mexican Economy ........................... 1
Tourism and the Global Economy ........................ 1
Recent Tourism Experience in Mexico ................... 2
Economic Performance By Mexico ........................ 3
Collapse of the Peso in 1994 .......................... 4
Macroeconomic Effects of the Peso Crash ............... 5
Effects of the Crash on Mexico’s Tourism Industry ..... 11
Major Tourist Attractions in Mexico ....................... 15
Scope of Attractions .................................. 15
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Political opposition to the country's ruling part attempted in 1995to abolish the Ministry of Tourism, an action that could have beendevastating to the industry. Our flora and fauna, however, are unrivaled,"Garcia said.[lxiv] The twin resort towns at Los Cabos, on the tip of the Baja Californiapeninsula, thrive on ecotourism. [lvii]Ibid. We have a coralreef offshore and we would not want to interfere with its delicate ecology. Martin's Press, 1995.Johnson, P. [xxxix]D. Chicon, "Lodging in Latin America: AnInvestment Outlook," Hotel & Motel Management, 21 (5 June 1995), S14. Recognizing thefull importance of the hospitality and tourism industry to the country'srecovery, the government is taking a strong and active interest in helpingthese companies. The term 'environment' generally implies natural resources, but many wouldconsider the preservation of a people's manmade heritage to be almost ascrucial. Mexicaninvestors and operators themselves are behaving in a cautious manner. (Ed.). 15 Ecotourism in Mexico Generally ........................ Higherrewards always come at the price of higher risk. In fact, the Mexican bailout sent the wrong signal to governmentsand investors. "Lodging in Latin America: An Investment Outlook." Hotel & Motel Management, 21 (5 June 1995), S12-S15.Standard & Poor's. [lxxix]Ibid. [lxxiii]Ibid. "Historical Setting." in Rudolph, J. Huescar and D. [xxviii]Quoted in Budd, 22. 27 Changing Industry Focus ............................... [xiv]M. Austin, "Fonatur Leads Efforts to Mold Mexico's Resorts,"Hotel and Motel Management 2 9 (23 May 1994), 4-5. "Mexico Loosens Investment Rules for Foreigners." The Wall Street Journal 12 (16 May 1989), A11.Naim, M. [lxvi]"Natural," S8. 25 Surface (Road and Rail) Transportation ............ "Businesstravel is where growth is in the '9 s," Azcarraga declared lastspring.[xxxiv] According to Mexico's Ministry of Tourism figures, businesstravelers accounted for virtually all the increased traffic to this countryin 1994. [lxxxv]P. [lxii]Quoted in "Natural," S9. Luhrman and D. Ixtapa, Bahias de Huatulcoand Loreto were built by Fonatur. MEXICO'S TOURISM INDUSTRY IN THE 199 S IntroductionPurpose of Study This study examines the tourism industry in Mexico in the 199 s.Tourism has been an integral part of the Mexican economy at least as longas the country has been a republic. R., and Chicon, F. [xvi]Ibid., 126. Thefemale/male distribution of the Mexican population is 5 .6 percent/49.4percent respectively.[ix] Per capita gross national product in Mexico is US$1,73 .[x] Stated inAmerican dollars, the per capita gross national product in Mexico hasdecreased one-sixth over the past ten years. According to Maria Antoineta Brogan,director of the Honduras Tourism Office, ecotourism is a major concern inthe Mundo Maya, a region made up five Mexican states as well as Belize, ElSalvador, Guatemala and Honduras in Central America.[liv] Sven Lindblad, president of Special Expeditions, an operator thatspecializes in ecotours in Mexico, warned that "well-managed ecotourism isvery expensive," and voiced concern that market demand is ahead ofintelligent policy in many parts of the world, while acknowledging thatprogress is being made.[lv] The Mexican government also is interested in the cost efficiency ofecotourism, according to Joaquin-Coldwell, the tourism minister. Ayala, "Mexican Resorts: A Blueprint With An ExpirationDate," Cornell Hotel and Restaurant Administration Quarterly 34 (June1993), 34-42. It was not until the late-198 s and the early-199 s,that global tourism began to experience substantial growth. Mexico's economy is classified by The World Bank as middleindustrial. [xvii]"Emerging Market Indicators: Mexico," Economist 336 (3 September 1995), 124. Early data for 1996reflects a continued increase in Mexican consumer prices, although the rateof increase appears to be moderating to some extent. 11Major Tourist Attractions in Mexico ....................... Simon and F. This action is designed to stimulate foreign participation inthe Mexican tourism sector. Washington: US Government Printing Office, 1985), 1-8 .Luhrman, D., and Ling, D. [xv]Ibid., 117. The National Railways carried 53.9 million tons offreight and 15 million passengers in 1995. [xxii]Naim, 127. [lxiv]Ibid. Mexican trade delegations are showing greater presence attrade fairs in Europe, and believe that with such attractions and improvedinfrastructure they can attract more European visitors. [vi]J. This is especially worrisome in that one of the IMF's mainstrengths has been its adherence to clear rules of equal treatment for allcountries. It was in the 196 s, however, that thefederal government in Mexico began to actively assist the tourism industryin the promotion of foreign travel to Mexico as a means of earning foreignexchange for the country.[i]Scope of Study The findings of the research performed for this study are presented inthree major discussions. N. [xi]The World Bank, 179. Approximately 55 percent of the Mexicanpopulation lives in urban centers of at least 5 , persons. Situr, for example, has taken great care withthe Maya sites at the Playa del Carmen development. "The dig is a chance to participate in theexploration of one of the world's most recently discovered fossil troves,"said Rick Adleman, Dinamation's director of expeditions.[xlv] Workingunder the supervision of University of Mexico paleontologists, participantswill have an opportunity to join in excavations of fields from the LateCretaceous period. [iii]D. (New York: Standard & Poor's Corp., 1995.The World Bank. We have beenpaying the salaries of six of their archaeologists to work with us on thesite," said Kenneth Prysor-Jones, general director of Situr, which hasopened four resorts along The Corridor near Playa del Carmen.[lxii] As aconsequence, an 18-hole, 72-par golf was designed to incorporate Maya ruinsamong its fairways and greens. "Common Interests." American Printer 2 8 (February 1992), 38- 4 .Moffett, M. Mexico: A Country Study. [lvi]Ibid. [liv]Budd, 4 . [xxxiv]Ibid. Moffett, "Mexico Loosens Investment Rules for Foreigners,"The Wall Street Journal 12 (16 May 1989), A11. Now some 4 million acres are protected monarchbutterfly reserves.[xliii] Not far to the northwest, San Miguel de Allendeis becoming the mountain-biking capital of Mexico. "Mexico's Larger Story." Foreign Policy, (Summer 1995), 112-13 ."Natural Delight: Country Protects Its Environment." Travel Weekly 53 (28 November 1994), S8-S9."The 1995 Latin American Research Team." Institutional Investor 29 (June 1995), 123-142."The Rich, the Slower." Economist 329 (7 January 1994), 92."Shake, Slither and Schuss." Economist 338 (6 January 1996): 57-58.Simon, J. [xxxiii]Ibid. Scientists became concerned thatthis activity might endanger the butterflies, so they convinced the Mexicangovernment to declare a reserve to protect the butterfly habitat.Subsequently, a small non-governmental organization (NGO) was formed towork with the local communities and give them incentives to protect thearea.[xli] Butterflies wow ecotourists in Mexico.[xlii] Ecogrupos is but one ofseveral operators who each winter take visitors to see the millions ofmonarch butterflies that flutter down from all over the US and Canada tonest and breed in the high mountains west of Mexico City. Ambiance isanother matter," Escobedo said.[lxxi] The tourism firm also takes clientson bird-watching outings throughout the state and on excursions to meetspider monkeys in the jungles of Yucatan and neighboring Campeche.[lxxii] Trek Mexico offers climbers a chance to scale Iztaccihuatl,Popocatepetl and Citlalteptl, three snow-tipped volcanoes within a day'sdrive of Mexico City. Intercontinental Adventures, based in Mexico City,also features river-rafting trips in Veracruz. Funding for these projectsis provided 91 percent by Fonatur and nine-percent by the Mexicangovernment directly.[lxxv]Infrastructure Support Mexico also has provided infrastructure support that has benefited thecountry's tourism industry.[lxxvi] This support is reviewed in thefollowing discussions.Surface (Road and Rail) Transportation As of 1995, Mexico had 239,235 kilometers of roads, of which 47,5 4kilometers were classified as main roads, 61,1 8 kilometers as secondaryroads, and 13 ,623 kilometers as by-roads. [xc]Ibid. "An American Study of Tourism Marketing." Journal of Travel Research 3 (Fall 1991), 37-41.Huescar, A., and Luhrman, D. [lxix]Quoted in "Natural," S9. All it took to reduce the interest of investors in thebenefits of international diversification was for the U.S. Mexico is one of those countries considered to be on the vergeof becoming an industrial market economy.[xi] Mexico over the past three decades has consistently registered acurrent account deficit.[xii] The 1993 balance of payments deficitapproximated US$4 billion before official transfers. Most of them are gray whalesthat annually migrate from the Bering Sea off Alaska. Budd, "Peso's Drop is Mexican Hotels' Gain," Travel Weekly 54(24 April 1995), 22. "Wholesalers in the U.S. The label "emerging" conceals more than it reveals. TheMexican administration and the tourism industry successfully defended toministry against this attack on the grounds that the efforts of the tourismindustry are of vital importance to the overall economy of the country.The threat for the industry, however, remains in the background ifpolitical opponents of the country's ruling party gain power.[lxxxix]Changing Industry Focus Mexico's actions with respect to foreign investment represent yetanother attempt by the country to address its severe foreign debt problem.By encouraging investors to bring more money into the country, thecountry's international payments position will, it is hoped, be improved.The new investment rules require that foreign investors raise all necessarycapital from sources outside of Mexico, and to assure that foreign exchangeflows related to any of their projects in Mexico either balance or providea positive flow into Mexico for the first three years of operation.[xc] Mexico is also attempting to use the new investment regulations toapply the principles of location theory in urban economics. "Economic Indicators." Review of the Economic Situation of Mexico 8 (February 1995), 4 -44.Banco Nacional de Mexico. No one is lowering the prices of the packages to Mexicoand passing savings along to clients, even though costs here have droppeddramatically," said Carlos Ibarguen, general director of De Carlo Tours,which has an extensive operation in Mexico city.[xxxv] Wholesalers denythis contention: "International airline tariffs have not declined, andhotels negotiate their room rates in dollars. [xliii]Ibid. Thus, the anticipated international travel boomnever materialized. .. 1 Tourism and the Global Economy ........................ [xl]M. Outbound shipments in 199 totaled 122.7 million tons, while inbound shipments totaled 52.9 milliontons. Of course, weprovide a few amenities, but the idea is to provide tourists with a chanceto live like the locals do in a real seaside fishing village," said ArturoSaavedra, the official in charge of the program.[xlvii] In Veracruz, thejungle state that hugs much of the Gulf of Mexico, river-rafting, hot-airballooning and hiking are catching on, as is bird-watching.[xlviii] A new bed-and-breakfast hotel has opened in Xilitla, Mexico, that theycall El Castillo. 24 Government Support For the Industry ................... [xlv]Ibid. "Print Target Markets: Markets Follow Economic Path." Graphic Arts Monthly 97 (August 1992), 99-1 1.de Lima-Dantas, E. While this decision calmed markets and briefly gaveMexico a second wind, it angered European governments, which felt bulldozedinto a bailout on which they were not adequately consulted and for whichsome saw little justification. The company also offers spelunking, camping trips onhorseback, and virtually anything a visitor might desire in the way ofecotourism.[lxxiii] Major Players in Mexico's Tourism IndustryGovernment Support For the Industry Mexico' tourist industry has received tremendous support from thegovernment since the 196 s, with the formulation of five coastaldevelopment programs aimed at increasing the number of travel destinationsin the country. In Mexico inthe mid-199 s, tourism represents about 2 percent of total exportearnings.[v]Recent Tourism Experience in Mexico Hotels and motels in Mexico have experienced an increase in businesssince the devaluation of the peso in the 199 s. [lxviii]"Natural," S9. . 24 Infrastructure Support ................................ We work very closelywith the National Institute of Anthropology and History. . Budd, "Mexico Tourism Chief: Ecotourism Is Fastest-Growing Leisure Segment," Travel Weekly 52 (18 October 1993), 39-4 . And when you're payingsomething like 1 % interest on loans in an economy where inflation isrunning close to 5 % a year, our costs have not exactly declined," saidGabriel Escalante, president of the Cancun Hotel Association.[xxxvi] Actions taken by the Mexican government in the wake of the pesocrisis, however, may harm the tourism industry. Travelers from abroad, however,usually want to get farther out.[lxviii] "Our Ecoguaymas program runsseven days, starting and ending in Guaymas, a port and resort on thenorthwestern mainland coast of Mexico," said Raul Romero, general directorof the organization.[lxix] Ecoguaymas includes an introductory lecture atthe School of Marine Biology in Guaymas, hikes into the desert and cruisesto several of the islands in the Sea of Cortes.[lxx] At Celestun, where Alfonso Escobedo of Merida-based Ecotours takesclients to see flamingos in their native habitat, meals are taken at cafesmost tourists normally would avoid. It indicates that the potential losses of private investorseventually could be absorbed by governments and multilateral financialinstitutions, thus blurring the principle that both governments andinvestors should enter the game of portfolio investments at their ownrisk."[xxvi] In this context, The Economist said in January 1996 that: "Asthe past two years have shown, . R. Now the organization is constructingdevelopments in larger vacation destinations. they may notfind Mexico a spectacular bargain, but prices are lower than at most otheroverseas destinations. [lxxi]Quoted in "natural," S9. "Mexico." Travel Trade Gazette UK and Ireland, (6 October 1993), S1-S2.Madigan, M. What better reminder that emerging marketsdeserve long-term relationships, not just casual flings?"[xxvii]Effects of the Collapse of the Peso on the Tourism Industry Mexico's tourism industry benefited in the short-term from theeconomic crisis that followed the crash in the value of the peso. All ports were privatized in 1992. Federal ReserveBoard to raise interest rates or for the Mexicans to devalue theirpeso."[xvi]Macroeconomic Effects of the Collapse of the Peso The Mexican financial crash in late-1994 had dramatic effects on fourof the country's macroeconomic measures-GDP, consumer prices, unemployment,and balance of payments.[xvii] The effects of the crash on these fourvariables are illustrated in Charts 1 through 4, which may be found thispage and on the next several pages. Mallardi, "Common Interests," American Printer 2 8(February 1992), 38-4 . As the data presented in Chart 1 indicate, Mexico's GDP plummeted inthe year following the financial crash. [xxi]"Emerging Market Indicators," Economist 338 (27 January 1996),1 2. are the ones who reallyare cleaning up. [ix]B. [xlvi]"Natural," S9. "Fonatur Leads Efforts to Mold Mexico's Resorts." Hotel and Motel Management 2 9 (23 May 1994), 4-5.Ayala, H. Thetourism industry in Mexico is in a state of uncertainty in the mid-199 s asa consequence of the volatile state of the country's economy-particularlythe situation involving the international currency exchange value of thepeso. Mexico's trade balance-net exports (exports minus imports) followed apattern for the 199 -1996 period similar to that of the country's balanceof payments.[xix] While Mexico's trade deficits over the period weresomewhat less than the country's current account deficit, the pattern wasnearly identical to that for the current account deficit illustrated inchart 4.Chart 2Change in Mexican Consumer Prices: 199 -1996________________________________________________________________% Change + 4 + 3 + 2 + 1 - 1 - 2 199 1991 1992 1993 1994 1995 1996 [Sources: Emerging: Mexico, 1995, 124; Emerging, 1996, 1 8]________________________________________________________________ The Mexican peso has taken a further beating in the wake of the late-1994 financial crash in the country. [xlix]J. "December through February are the best months to spot whalesoff Baja in the Sea of Cortes, according to Karel Beets of Ecogrupos, atour operator specializing in the region. [lxxxvii]M. "We need to be very careful, of course. [v]A. [xiii]Banco Nacional de Mexico, "Outlook for 1994," Review of theEconomic Situation of Mexico 7 (January 1994), 24. [lx]"Natural," S8. 26 Media ............................................. 15 Mega-Resort Construction .............................. Within the industry, a changing focus andcontinuing support from the Mexican government hold the potential to createa very strong industry performance over the coming five years. In no other LatinAmerican country has the foreign debt problem been more serious than it hasbeen in Mexico. 2 Economic Performance By Mexico ........................ It is also unlikely that the other developed countries thatgrudgingly acquiesced to U.S. G. The Mexican merchant marine fleet included 649 vessels withcapacities in excess of 1 gross weight tons in 1995, with a total grossweight tonnage of 1.2 million.[lxxx]Media Telmex, a previously state-owned company, was privatized in 1991.Telmex controls 98 percent of all telephone service in Mexico. [xxxv]Ibid. 16Major Players in Mexico's Tourism Industry ................ Goeldner, "Trends in North American Tourism," AmericanBehavioral Scientist 36 (November 1992), 144-154. Some $2 billion is beinginvested in converting Xochimilco, home of the famed Floating Gardens, intoan ecological reserve. Obviously, the fact that Mexico continued its downward spiraldespite the bailout will make governments and multilateral institutionsthink twice before jumping to the rescue of countries attacked by currencymarkets. Fonatur, the National Tourism Development Fund, is sponsoring anexperimental project on the Pacific, not far from Huatulco, which will bedesigned to give vacationers the opportunity to "go native" for a fewdays.[xlvi] "We're working with villagers to provide nearly identicalaccommodations as those the villagers themselves live in. Frechtling, "Improving the World's Tourism Statistics,"Journal of Travel Research 3 (Fall 1991), 49-51. [lxxxii]Ibid. [lviii]Quoted in "Natural," S8. [xciv]Standard & Poor's, Industry Surveys (New York: Standard & Poor'sCorp., 1995), L-3. Compania Mexicana deAviacion and Aeronavias de Mexico provide both domestic and internationalair services, and 33 foreign airlines provide international air services toMexico.[lxxix] Mexico has a total of 49 ocean ports located on the Gulf and PacificCoasts. [xx]"Emerging Market Indicators," Economist 335 (13 May 1995), 1 6. [xii]Ibid., 213. These travelers are educated, cultured people who demand topquality and scientific information."[lvii] Much of Mexico's appeal to tourists can be summed up in one word-ecology. In the Sonora Desert south of Arizona, Berdegue toldthe group, 1.6 million acres have been set aside as a biological reserve.Ecotourism also is being promoted in the Colorado River delta in northernMexico, in the forest state of Michoacan and in Campeche, where the Yucatanpeninsula begins, Berdegue said. R. The general topic area addressed in thesediscussions are (1) tourism and the Mexican economy, (2) major touristattractions in Mexico, and (3) major players in Mexico's tourism industry. "Mexico soon became a main beneficiary ofthe unprecedented surge in private capital flow, a favorite son among the'emerging markets.' Between 199 and 1994, Mexico became the world'ssecond-largest recipient of foreign private investment, after China."[xv] The Mexican financial crash exposed the motivations underlying theinternationalization of investment portfolios. "Improving the World's Tourism Statistics." Journal of Travel Research 3 (Fall 1991), 49-51.Goeldner, C. Furthermore, the assistance would have made money for the USgovernment, as the Mexicans would have had to pay steep fees for using theloan guarantees. [lxxv]A. A study conducted by theNational University of Mexico found that 8 percent of the wildlife hadvanished from the lagoon separating Cancun's hotels and beaches from themainland. "We know these places are clean andsanitary, and the seafood they serve is fresh and delicious. [xxix]Ibid. Thanks to Mexico'sefforts to protect their mating areas, they have made a dramatic comeback.Previously hunted nearly to extinction, they now total an estimated15, ."[lxvi] Tourism operators specializing in ecotourism are expanding theirofferings in Mexico. The activities of the tourismindustry are no longer limited to the provision of lodging, food, andancillary services. Budd, "Mexican Inn on Jungle's Edge Offers Taste of NatureUntamed," Travel Weekly 54 (14 September 1995), 58. de Lima-Dantas, "Historical Setting," in J. Goodrich, "An American Study of Tourism Marketing," Journalof Travel Research 3 (Fall 1991), 37-41. [lv]Quoted in Budd, 4 . A recalcitrantCongress, however, refused to approve the rescue package.[xxiv] President Clinton then acted on his own initiative by assembling "analternative rescue package that did not require congressional approval andthat relied heavily on funds supplied by the U.S. Tourism growthsuffered as a result during and shortly after each of the energy crises.Just as worldwide tourism was poised for another growth period in the early-198 s, the most severe economic recession in more than 4 years hit theUnited States, and most other industrialized countries experienced economicrecession soon afterwards. "Mexican Inn on Jungle's Edge Offers Taste of Nature Untamed." Travel Weekly 54 (14 September 1995), 58.Budd, J. Johnson, "Print Target Markets: Markets Follow EconomicPath," Graphic Arts Monthly 97 (August 1992), 99-1 1. "Mexican Resorts: A Blueprint With An Expiration Date." Cornell Hotel and Restaurant Administration Quarterly 34 (June 1993), 34-42.Banco Nacional de Mexico. [xxvii]"Shake, Slither and Schuss," Economist 338 (6 January 1996), 57-58. The Mexican crisis showed that the prospect of highyields rather than prudence motivated this internationalization. But Mexico's new economic system showed itself to bepowerless in the face of external factors beyond its control."[xiv] The government of Mexican President Salinas renegotiated the country'smassive foreign debt, initiated market reforms that boosted the country'sinternational prestige, and successfully negotiated entry into NAFTA withCanada and the United States. Entertainment, convention facilities, and specialaccommodations for business and government guests have long been a part ofthe industry's ancillary services.[xciv] Conclusions This study examines the tourism industry in Mexico in the 199 s. [xci]Ibid. Hotel operators must undertake acooperative planning and marketing strategy aimed at improving the statusof the country's tourism industry.[lxxiv] Mexico's National Fund for Tourism Development or Fonatur has built 31percent of the hotel guest-rooms in the country for over $7 billion sincel974. Over the past eightyears, these markets have yielded an average annual dollar return of 14%,double that in developed markets. G. [l]Quoted in J. JulioBerdegue, president of El Cid, the largest resort complex in Mazatlan,announced major efforts to conserve the environment of Mexico's CopperCanyon and the Sea of Cortes, which separate the Baja California peninsulafrom the mainland. Rudolph, (Ed.),Mexico: A Country Study (Washington: US Government Printing Office, 1985),68. [viii]The World Bank, World Development Report 1995 (New York: OxfordUniversity Press, 1995), 229. We've seen what can happen in places like Acapulco.Ecology was ignored and tourists stopped coming," said Julia Carabias-Lillo, president of Mexico's National Institute of Ecology.[lix] As aresult, Acapulco invested heavily in recent years in a clean-up program andis working to woo the tourists back.[lx] On the Mexican Caribbean, ecology has become a major concern. [xviii]Naim, 127. MEXICO'S TOURISM INDUSTRY IN THE 199 S pageIntroduction .............................................. The reason for this apparent anomaly was the financial rescue package forMexico that was structured by the United States.[xviii] In the absence ofthat rescue package, it is difficult to imagine what the effects on theMexican economy and Mexican society might have been. [iv]J. New regulations now limit the number of hotel rooms per acrealong "The Corridor," a 9 -mile stretch running south along the shore fromCancun.[lxi] "We had to sacrifice a marina development. [xxv]Ibid., 128. exporters and investors."[xxiii] Both Speaker of the House ofRepresentatives Gingrich and Senate Majority Leader Dole supported therequest, as did the Chair of the Federal Reserve Board, Alan Greenspan.Additionally, former presidents of the United States and leaders of majorcorporations urged the Congress to accede to the request. Television receiver sets in Mexico approximate 12.5million, or one set per each 7.1 persons.[lxxxiii] The more than 3 daily newspapers in Mexico have a combinedcirculation of 12 million, or one copy per each 7.4 persons. Trek Mexico alsooperates river-rafting adventures, from short one-day run that ends up inTaxco, to longer excursions through the Huasteca country in the state ofSan Luis Potosi. "Wehave beaches, but they are not as good as Cancun; ruins, but they are notas spectacular as Yucatan. [xxxi]Budd, 22. As the data presented in Chart 2 indicate, consumer prices in Mexicoskyrocketed in the year following the financial crash. Luhrman, "Globe Trotting Trends: Latin AmericaShines on the World Tourism Stage," LatinFinance 67 (May 1995), T4-T7. The localjungle is quite treacherous, however, and the Danzigers will gladly arrangefor guides.[xlix] Ecotourism is the fastest-growing segment in the leisure travelindustry, according to Mexican Tourism Minister Pedro Joaquin-Coldwell.[l]The Tourism Ministry hosted a conference in 1993, that was attended byabout 3 delegates from the public and private sectors, and that wasdesigned to focus on new ways to preserve the environment and to highlightdestinations where positive environmental efforts have been lacking. The new hotel is close to Edward James's eccentriccastle, Los Posas, a surrealist mansion decaying in the tropical jungle.Guests of El Castillo can enjoy the wonderful weather of the region, gorafting on the many rivers or hike along thousands of trails. On the other hand,however, many tourist packages and hotel rates are priced in dollars-notpesos-partially dissipating the illusion. [vii]Banco Nacional de Mexico, "Economic Indicators," Review of theEconomic Situation of Mexico 8 (February 1995), 4 -44. D. [xix]"Emerging," 124; "Emerging Market Indicators," Economist 338 (9March 1996), 1 8. [lxxvii]Ibid. R. "Trends in North American Tourism." American Behavioral Scientist 36 (November 1992), 144-154.Goodrich, J. "We've been running up to a 9 % occupancy rate at our propertiesin Puerto Vallaria and Cancun," said Jose Martinez-Guitron, president ofSitur, Mexico's largest hotel operator.[xxix] Situr has experiencedproblems earlier in 1995, when the company briefly was forced to suspenddebt payments. New York: St. [lxxviii]Ibid. 5 Effects of the Crash on Mexico's Tourism Industry ..... J. The newinvestment regulations require that foreign investors locate theirprojects outside of the congested urban areas of Mexico City, Guadalajara,and Monterrey.[xci] Post-NAFTA, Mexico's two biggest hotel operators, Grupo Posadas andGrupo Situr, shifted their sights toward such industrial cities asMonterrey and Leon, where US businessmen would be spending more time.[xcii] The rapidly changing travel industry is awakening to the fact that thefuture likely lies in specialized industry segments, as opposed to generaltourism.[xciii] Business management within such an unsettled environmentas that found in the tourism industry demands close attention to detail anda constant attention to marketing opportunities, if individual travelagencies are to survive, much less thrive. Moreover, the bailout forced the IMF toextend an assistance package seven times bigger than the normal limit andto shell out a fifth of its liquid resources."[xxv] The Mexican rescue created precedents for the IMF that will be "hardto follow should another crisis of this magnitude erupt in an IMF membercountry. Stock market participationwill be permitted by foreigners through specially designed trust funds.While the prohibition of foreign ownership of properties in Mexican coastaland border zones will not be relaxed, foreign investors will be able tosecure 3 -year trusts for properties in the areas, which are automaticallyrenewable. [lxxvi]Hunter, 953. [lxxxiii]Ibid. Investorswere looking abroad for the high returns that they were not getting athome, given the bearishness of financial markets in the United States,Japan, and Europe. [lix]Ibid. Urban railway systems operatein Mexico City (158 kilometers), Guadalajara (1.5 kilometers), andMonterrey (17.5 kilometers). A trip to therecently restored Sierra Gorda missions in the hills of Queretaro lastsfour days and takes in scenically beautiful, but little visited, areas lessthan six hours by car from Mexico City. [x]Ibid. Logging operations, which increased as roads improved, wereblamed for their demise. . People come to see our broad,expansive beaches, our archaeological wonders deep in the jungles, our snow-capped volcanoes, our coral reefs under the sea. "Sport fishermen always have been ecologyconscious, even before many of them ever heard the term," said Jack O'Hara,sales director at the Twin Dolphin.[lxv] Catch-and-release fishing isstandard practice in this area of Baja. 1Tourism and the Mexican Economy ........................... [lxxxi]Ibid. [xli]Huescar and Luhrman, T5. The primary reason for thisdecrease is the fall in the international currency exchange value of thepeso. If investors are to minimize risk, they will need tobecome more selective than they have been in the past. Existing hotels in other visitor centers arealso undergoing renovation to give Mexico's tourism industry a competitiveadvantage.[xl]Monarch Butterflies The Monarch Butterfly Reserve in Mexico is an example of ecotourism inMexico. World Development Report 1995. Mountain biking isbeing promoted as an ideal way to see the Colonial Highlands. That optimism is based, in largepart, on the passage of the 1993 Foreign Investment Law which providesforeign investors with the ability to hold legal title in the so-called'forbidden zone' (31 miles from shoreline and 62 miles from borders) forcommercial, industrial, timeshare, or hotel purposes."[xxxviii] Major Tourist Attractions in MexicoScope of Attractions Mexico's tourist attractions include Spanish heritage, native culture,and landscape which covers jungle-backed beaches and alpine meadows, andits visitors are mainly from North America, although tourism from Europehas increased. These roads were used by thedrivers of 6,754, 96 passenger automobiles (of which 6,439,62 wereprivately owned), 4,892,848 trucks, 94, 4 buses, and 231,5 3motorcycles.[lxxvii] The only common rail carrier in Mexico, National Railways, operated in1995 over 2 ,216 kilometers of standard gauge track and 9 kilometers ofnarrow gauge track. Wholesalertour firms are making more profit because they are not lowering theirprices to Mexico, in spite of the 5 percent reduction in the value of thepeso.[vi]Economic Performance By Mexico Mexico's population as of the 199 census was 81.5 million persons.The country's estimated population as of 1995 was 89.3 millionpersons.[vii] The rate of natural population increase in Mexico is 2.3percent annually.[viii] In the early-199 s, 72.6 percent of Mexico'spopulation resided in urban areas. Foreign investors will be prohibited from activities onlyin specified strategic sectors of the economy, such as petroleum, basicpetrochemicals, and electric power generation. [xciii]C. "It's not all roughing itby any means. In 1992,there were approximately 11 million telephones in Mexico.[lxxxi] There are in excess of 1,5 licensed radio stations in Mexico.Almost all of these stations are required to carry the "National Hour"program that presents among other things government policy statements.Radio receiver sets in Mexico approximate 16.5 million, or one set per each5.4 persons.[lxxxii] Television services in Mexico are provided by both the state-ownedInstituto de Television under the name Imevision the independent commercialservice Televisa. [xlviii]"Natural," S9. 1 Scope of Study ........................................ New York: Oxford University Press, 1995.----------------------- [i]E. [xxiii]Ibid. Many of our guests stay at the Posada Coatepec, just a fewmiles from Xelapa, which is one of the most delightful inns in the entirecountry," said Juan Pablo Mondragon, general manager atVeraventuras.[lxvii] Ecogrupos, founded two years ago in Mexico City,specializes in the Copper Canyon, the Maya World, and the Sea of Cortes,also called the Gulf of California. "Plan to Abolish Tourism Industry Absurd." Travel Weekly 54 (17 April 1995), 22-23."Emerging Market Indicators." Economist 338 (9 March 1996), 1 8."Emerging Market Indicators." Economist 338 (27 January 1996), 1 2."Emerging Market Indicators." Economist 335 (13 May 1995), 1 6."Emerging Market Indicators: Mexico." Economist 336 (3 September 1995), 124.Frechtling, D. The peso was trading at the level of3.34 pesos to one United States dollar in May 1994.[xx] By January 1995,the trading level had risen to 5.76 pesos to one United States dollar, andby January 1996, the trading level had risen to 7.54 pesos to the UnitedStates dollar.[xxi] As of early-March 1996, the trading level hadincreased further to 7.6 pesos to one United States dollar. In the early-198 s, scientists discovered that nearly all themonarch butterflies in North America fly to a small town in Mexico for thewinter. [xxiv]Ibid. Emerging marketsshould never really have been lumped together as a single category offinancial assets. And, as a result, it is fully expected that, once thecurrent economic crisis stabilizes and nears resolution, tourist andbusiness travel will recover and these hotel developments will resume.Furthermore, the long-term outlook for foreign investment in Mexican hotelproperties continues to be positive. "The voracious appetite inthe United States and other industrialized countries for investments inemerging markets was initially interpreted as a reaction to opportunitiescreated by economic reforms. [lxx]"Natural," S9. Emerging markets were never intended for the faint-hearted. [ii]"The Rich, the Slower," Economist 329 (7 January 1994), 92. Vacancy rates averaged 8 percent in 1994, while earnings rose 2 percent for the tourism industry.Business travel was expected to increase in the 199 s, but companystreamlining measures have taken their toll on business travel. "Peso's Drop is Mexican Hotels' Gain." Travel Weekly 54 (24 April 1995), 22.Budd, J. the path from here to there is likelyto be a bumpy one. [lxxiv]H. "Eye on Mexico." Hospitality Design 16 (April 1994), 58-59.Mallardi, V. [lxvii]Quoted in "Natural," S9. 1 Recent Tourism Experience in Mexico ................... They are puttingup half-a-dozen huts similar to the others in the community. In the wake of the peso's crash, with thousands of Mexicancompanies struggling to survive, both domestic and international businesstravel have dropped dramatically. One-day excursions from Mexico Citytake visitors to small villages in the neighboring states of Morelos andPuebla, where pre-Hispanic lifestyles still predominate. "On the onehand it signals a return to the days when Mexico was perceived as a cheaperdestination value by the international traveler. "Mexico isan ideal country for mountain biking. 4 Macroeconomic Effects of the Peso Crash ............... [xxxvi]Ibid. The Mexico City system accommodated 1.4million passengers in 1991.[lxxviii]Communications Systems Mexico has a network of 32 international and 41 national airports.Local airlines provides links between all of the larger states in theMexican union and the country's major airports. Others in the hotel industry were equallypleased. "We are reviewing our blueprints for Huatulco and Los Cabos tomake certain these mistakes are not repeated," said Sigfrido Paz-Paredes, asenior advisor to the Mexican Tourism Ministry.[liii] Mexican government officials and members of the private sector alikesaid they have become more aware of the importance of ecology. "Ourbest season ever," said Chris Tortosa, general manager of the MeliaCaboReal, president of Los Cabos Hotel Association and of the Los CabosTourism Board.[xxviii] According to the Mexican Tourism Ministry, first-quarter 1995 tourism earnings were up 2 percent compared with the sameperiod in 1994, and occupancy rates were averaging approximately 8 percentat luxury seaside resorts. Madigan, "Eye on Mexico," Hospitality Design 16 (April1994), 58-59. Naim, "Mexico's Larger Story," Foreign Policy, (Summer 1995),112. Obviously,other emerging economies would suffer too, and with them, the prospects forU.S. The energy crises of 1973-1974 and 1979-198 increased the costs oftravel significantly because of jet fuel price increases. N. 3 Collapse of the Peso in 1994 .......................... Veraventures, headquartered in Xelapa, capital ofVeracruz state, offers a selection of programs, ranging from river-raftingto hot-air ballooning. The tourism minister said that: "When you get right down to it,ecology is what brings visitors to Mexico. Tourism, however, is amajor industry on a worldwide basis.[iii] For many countries, such asMexico, tourism is a major source of income.[iv] Prior to 1973, tourism was a major growth industry on a worldwidebasis. As the data presented in Chart 3 indicate, unemployment in Mexico wasaffected adversely in the year following the financial crash, although theincrease in Mexican unemployment was not as severe as were the effects ofthe crash on Mexican GDP and consumer prices in Mexico.Chart 1Change in Mexican GDP: 199 -1996________________________________________________________________% Change + 6 + 4 + 2 - 2 - 4 - 6 199 1991 1992 1993 1994 1995 1996 [Sources: Emerging: Mexico, 1995, 124; Emerging, 1996, 1 8]________________________________________________________________ As the data presented in Chart 4 indicate, Mexico's balance ofpayments was affected positively in the year following the financial crash. Mexico alsohas 25 weekly newspapers with a circulation of approximately one million,or one copy per each 8.3 persons, and 98 journals with a circulationapproximating 18 million, or one cope per each five persons.[lxxxiv] Media advertising costs in Mexico are substantially lower than thosein the United States.[lxxxv] On a unit cost basis of per person reached,media costs in Mexico approximate less than one-half the comparable cost inthe United States.[lxxxvi]Foreign Ownership Control On 15 May 1989, Mexico announced significant changes in that country'sforeign investment rules. Ecotourists are lookingfor rustic accommodations, cultural authenticity and a completely naturalenvironment. The announcedchanges reverse many of these situations.[lxxxvii] In the future, foreign investors will be allowed to hold a 1 percent equity in enterprises with total assets valued up to an includingUS$1 million. 15 Monarch Butterflies ................................... Hunter, (Ed.), The Statesman's Year-Book 1995-1996 132nd ed.(New York: St. [xxxii]Quoted in Budd, 22. 25 Communications Systems ............................ Thesymposium was jointly sponsored by the Mexican Tourism Ministry and theUnited Nation's World Tourism Organization.[li] According to Joaquin-Coldwell: "Future profits lie in focusing on environmental tourism. Joaquin-Coldwell said that although the country will earn a record $4 billion frominternational tourism this year, the era of "fantastic profits" in thetravel industry is over.[lvi] The minister added that "the time is rightto develop ecotourism in Mexico because it requires a limited monetaryinvestment and favors a minimal infrastructure. With government and privatefunds, some 5 , new lodging units meeting international standards werebuilt by the end of 1994. M. [lxxxiv]Ibid. [liii]Ibid. "Outlook for 1994." Review of the Economic Situation of Mexico 7 (January 1994), 21-25.Budd, J. The Statesman's Year-Book 1995-1996 132nd ed. Endnotes BibliographyAustin, A. Early data for 1996, as indicatedin the chart, reflects the beginning of a recovery for Mexican GDP. Direct flightsfrom Europe to Mexico are now being offered.[xxxix]Mega-Resort Construction The construction of several mega-resorts in underdeveloped areasthroughout Mexico is the centerpiece of President Carlos Salinas deGortari's efforts to give tourism a boost. [lxi]Ibid. Nowhere is this more true than in Mexico with its Spanish, Maya,Aztec and Toltec histories. Tourism and the Mexican EconomyTourism and the Global Economy For more than four years, major economic forecasting organizationshave consistently predicted that global economic recovery "lies just aroundthe corner."[ii] With each successive forecast, however, the "corner"continues to remain elusively ahead of the present. "Very often, tourism is what inspires theauthorities to act. 26 Foreign Ownership Control ............................. A refusal to extend this financial support, PresidentBill Clinton suggested, would throw Mexico into a major political andeconomic upheaval, which was bound to hurt the United States. Horseback rides along lonely trails wherethe desert meets the sea appeal to many, but the big attraction is fishing,golf and whale-watching. Based on data from this study, the tourism minister said thepreservation of wildlife in Mexico's other master-planned destinations-Huatulco, Los Cabos, Ixtapa and Loreto-is of major concern to thegovernment. [lxxxix]J. Up here we have good biking weatherthroughout the year, and we have lots of trails waiting to be biked," saidJohn Kay, who owns a small hotel there.[xliv]Ecotourism in Mexico Generally In Coahuila, a Mexican state that borders Texas, three dinosaur digsare being planned this winter by Dinamation International, a Colorado-basednonprofit organization. C. In the past, foreign companies participating inthe Mexican economy had been (1) restricted to minority equity positions,(2) prohibited from participating at all in a wide range of businessactivities, (3) prohibited foreign participation in Mexican stock markets,(4) severely restricted in the ownership and operations of tourismfacilities, and (5) subjected to complicated requirements and seeminglyendless delays by the country's National Foreign Investment Commission,which had the final say on any foreign investment proposal. Fishermen in this area are adamant about protecting theenvironment. With respect to the activities of the NationalForeign Investment Commission, projects which fulfill the new guidelineswill be automatically approved without Commission action, while thoserequests requiring Commission action will be automatically approved if theCommission fails to act within a fixed time period.[lxxxviii] In 1995, in the name of budget-cutting, a proposal was made in theMexican Chamber of Deputies to abolish the Ministry of Tourism. Special equipment, meals, lodging and bilingualguides are provided, but trekkers are on their own when it comes tolearning how to pronounce the names of the volcanoes. Exchange StabilizationFund and by the IMF. [xliv]Quoted in "Natural," S9. In the Yucatan, plans are under way tobring in more visitors to Rio Lagartos, a nesting ground for thousands offlamingos. 1 Purpose of Study ...................................... Budd, "Plan to Abolish Tourism Industry Absurd," TravelWeekly 54 (17 April 1995), 22-23. [xcii]"The 1995 Latin American Research Team," Institutional Investor29 (June 1995), 123-142. The resort towns of Cancun, Los Cabos. D. For a time,however, it appeared the number of butterflies arriving at the sanctuarieswas declining. The explanation was that investors hadrealized the benefits of diversifying the risk in their portfolios byspreading them internationally, and emerging markets provided theopportunity to do so. [lxv]Ibid. Tourism serves as an important dollar earner for thecountry, particularly because the government has recognized its importanceto Mexico's overall economic development. If manfails to conserve the attractions visitors want to see and enjoy, thetourist destination will be ruined."[lii] Cancun, a master-planned resortthat was developed by the Mexican government and has become the nation'sleading travel destination, was presented to the conference as an exampleof what can go wrong when ecology is ignored. [xlvii]Quoted in "Natural," S9. "Globe Trotting Trends: Latin America Shines on the World Tourism Stage." LatinFinance 67 (May 1995), T4-T7.Hunter, B. [lxiii]Ibid. "We're facing a temporary liquidity problem, but we shouldhave it resolved shortly" Martinez-Guitron said.[xxx] Situr also announceda reorganization plan that may involve the sale of some of the firm's morethan 4 hotels.[xxxi] At Camino Real, where the entire chain is up for sale, marketingdirector Eduardo Imay confirmed that occupancy rates in Cancun and PuertoVallarta were exceeding expectations: "Unhappily, business in our urbanhotels, especially in Mexico City and Guadalajara, has dropped to a pointwhere we have only a 65% occupancy."[xxxii] Although this outcome shouldbenefit Westin, which has only one urban hotel (the Galaria Plaza in MexicoCity) and five on the beaches (in Cancun, Acapulco, Ixtapa, Puerto Vallartaand Los Cabos), expansion plans have been put on hold. In Mexico City, a government-owned oilrefinery has been closed and made into a park. [xxxvii]Budd, 22. [lii]Quoted in Budd, 39. "Mexico Tourism Chief: Ecotourism Is Fastest-Growing Leisure Segment." Travel Weekly 52 (18 October 1993), 39-4 .Budd, J. As for Pleasure travelers. [lxxxvi]V. NAFTA could be the vehicle through which foreign investor and operatorparticipation in Mexico's tourism industry increases in the coming years.At the present time, however, the devastating effects of 1994's pesocollapse are still too fresh to permit foreign investors and operators toconsider major entries into the Mexican tourism industry. On 1 April 1995, Mexico'svalue-added tax was increased 5 percent to 15 percent, although the taxlevel was allowed to remain at 1 percent in border areas and on the BajaCalifornia peninsula. [xxxviii]J. The pesoappears to be stabilizing, but at a level far higher than the trading levelthat prevailed prior to the late-1994 financial crash.Chart 3Change in Mexican Unemployment: 199 -1996________________________________________________________________% of Labor Force + 1 + 8 + 6 + 4 + 2 - 2 199 1991 1992 1993 1994 1995 1996 [Sources: Emerging: Mexico, 1995, 124; Emerging, 1995, 1 8]________________________________________________________________ As the potential global impact on the international financial systemthe financial crash in Mexico became apparent, the Clinton Administrationand the Republican congressional leaders agreed on the urgency of the needto prevent a default by Mexico on the country's short-term debt.[xxii] Asa consequence, the Clinton Administration sought approval from Congress fora $4 billion package of loan guarantees for Mexico "aimed at calminginvestors and minimizing the risk that the Mexican crisis would spread toother countries.Chart 4Change in Mexican Balance of Payments: 199 -1996________________________________________________________________US$ (billions) + 1 - 1 - 2 - 3 - 4 - 5 199 1991 1992 1993 1994 1995 1996 [Sources: Emerging: Mexico, 1995, 124; Emerging, 1996, 1 8]________________________________________________________________ This aid package, which in principle did not imply any disbursement onthe part of the US Treasury, was collateralized with the receipts ofMexican oil exports and was contingent on Mexico's adoption of harshreforms. 28Conclusions ............................................... The steep rise in interest rateshas halted hotel development by many hospitality groups including GrupoSitur, Grupo Posados, Presidente Hotels, and Holiday Inn. (Ed.). 3 Endnotes ..................................................Bibliography .............................................. pressure this time will tolerate another suchexception. Gasoline prices, set by a government monopoly,increased by about 4 percent in 1995, electricity rates rose 2 percent,and highway tolls were raided from 1 -to-4 percent.[xxxvii] It is still uncertain what the longer-term effect the currency crisisand economic slowdown will have on Mexico's tourism industry. Mexico had attracted a "lot of acclaim for its economic reformsof the proceeding years, largely following the US-backed model for economicdevelopment. We want to do nothingthat would disturb the flamingos or frighten them away," said OscarPeniche, director of the Yucatan State Tourism Office.[lxiii] In Campecheon the Gulf of Mexico, tourism director Francisco Garcia sees bird-watchingand jungle walks as a means of attracting more visitors to his state. [li]Budd, 39. [lxxx]Ibid. In thisregion, Mexican government officials have recognized that Cancun wasoverbuilt. J. [xxx]Ibid. Martin's Press, 1995), 948. [lxxii]"Natural," S9. [xlii]" Natural Delight: Country Protects Its Environment," TravelWeekly 53 (28 November 1994), S8-S9. Mexico's total foreign debt exceeds US$1 billion.Somewhat more than one-half of this foreign debt is held by commercialfinancial institutions-mostly banks-in the developed nations-primarily inthe United States, with the remainder being held by the InternationalMonetary Fund.[xiii]Collapse of the Peso in 1994 The Mexican financial collapse of late-1994 took the world bysurprise. Industry Surveys. "We were looking atGuadalajara and Monterrey, but it appears we'll be waiting a while now.Our occupancy in Mexico City is down 6% compared with last year. We need to protectthem."[lviii] Pollution problems in Mexico's capital city, however, haveheightened awareness among Mexicans in the past few years of the importanceof protecting their environment. The area is one where logging was very popular and trees near themonarch wintering site were being cut. [xxvi]Ibid. C. Ling, "Mexico," Travel Trade Gazette UK andIreland, (6 October 1993), S1-S2. 15 Scope of Attractions .................................. [lxxxviii]Ibid. The beachhotels are doing wall right now, thanks to international business, but oncethe winter season is over and they begin to depend on the domestic market,the outlook will not be so bright," said Italo O'Censo, general manager atthe Galaria Plaza.[xxxiii] A year ago, hotel executives such as Pablo Azcarraga, president of theFiesta Americana chain, were pushing for more city hotels. According to some estimates, some4 , sailfish and marlin are hooked in the waters off Baja Californiaevery year. But in only three of those eight years(1988, 1989 and 1993) did they show a gain which exceeded the averagereturn in rich-country markets. M.
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