Public sector revenues declined as a result of the crisis, and a number of estimates indicate that Mexico's gross domestic product (GDP) contracted by 6.6% in 2009. Mexico's economy is of interest to U.S. policymakers because of the strong economic linkages between the two countries, the proximity of Mexico to the United States, and the implications that economic issues have on political and social stability in Mexico. The 111 th Congress is likely to maintain an active interest in Mexico on issues related to trade, economic conditions, migration, border issues, and counter-narcotics. Current Conditions

The global financial crisis, and the subsequent downturn in the U.S. economy, resulted in the sharpest economic contraction in the Mexican economy in 20 years. Ties to the U.S. Economy

Mexico's strong economic ties to the United States after implementation of the North American Free Trade Agreement (NAFTA) have deepened the dependency of the Mexican economy on U.S. economic conditions. Mexico's reliance on the United States as an export market and the relative importance of exports to its overall economic performance make it highly susceptible to fluctuations in the U.S. economy. This will likely continue to have effects on economic conditions in Mexico. Economic growth in most Latin American countries was affected by the crisis, but because most of these countries were experiencing high levels of growth prior to the crisis and are not as dependent on the U.S. economy, they did not experience as deep a recession as Mexico (see Table 2 ). Mexico's job market has a large informal sector, and the crisis may have caused a growing trend towards informality and self-employment. The decline in remittances is mostly due to the global financial crisis and the slowdown in the U.S. economy, as the rising jobless rate has taken a toll on Mexican immigrants in the United States. Remittances are the second-highest source of foreign currency after oil, with tourism revenues following in third place. Poverty has been one of Mexico's more serious economic challenges for many years, and the government has made significant efforts to address this issue. However, poverty rates increased in 2008. The government's responses to the recent global financial crisis helped the country weather the 2009 recession and improve conditions in 2010. Some of the proposals are viewed as highly controversial and have deep-seated political implications, and efforts to restructure the energy sector or to adopt labor and fiscal reforms have been strongly opposed by the major political parties. Without the structural reforms necessary to bring about significant changes, Mexico's potential to increase economic growth, boost development, and lower the poverty rate will likely be very limited. However, there are signs that the population may be pushing for change, and much will depend on the outcome of the 2012 presidential election. The escalation of violence has resulted in increased risk aversion, which has impacted foreign investment flows, particularly in the manufacturing industry. Implications for the United States

The relationship between the United States and Mexico is important to policymakers from both countries because of the mutual interest in a number of key issues affecting the two countries, such as bilateral trade, economic competitiveness, and border security. President Barack Obama hosted a meeting with President Calderón where the two leaders discussed numerous key bilateral and hemispheric issues affecting the two countries. The two leaders vowed to enhance and reinforce efforts to create jobs, promote economic recovery and expansion, and encourage inclusive prosperity across all levels of society in both countries. Numerous analysts believe that the economic challenges that Mexico is facing are contributing to poverty and organized crime, and that a prosperous and democratic Mexico is in the best interest of the United States.
The state of Mexico's economy is important for U.S. policymakers for many reasons, most significantly because a prosperous and democratic neighboring country is in the best interest of the United States. The two countries have strong economic, political, and social ties, which have direct policy implications related to bilateral trade, economic competitiveness, migration, and border security. In May 2010, President Barack Obama hosted Mexican President Felipe Calderón at a meeting in the White House in which the two leaders discussed key issues affecting the two countries. They agreed to continue and reinforce cooperation on creating jobs, promoting economic recovery and expansion, and encouraging inclusive prosperity across all levels of society in both countries. The 111th Congress is likely to maintain an active interest in Mexico on issues related to the North American Free Trade Agreement (NAFTA) and other trade issues, economic conditions in Mexico, migration, border security issues, and counter-narcotics.
The global financial crisis that began in 2008 and the U.S. economic downturn had strong adverse effects on the Mexican economy, largely due to its economic ties and dependence on the U.S. market. Mexico's gross domestic product (GDP) contracted by 6.6% in 2009, the sharpest decline of any Latin American economy. Mexico's reliance on the United States as an export market and the relative importance of exports to its overall economic performance make it highly susceptible to fluctuations in the U.S. economy. Most other Latin American countries are not as dependent on the United States as an export market. Economic reforms over the past 20 years and the government's responses to the effects of the global financial crisis have helped Mexico weather the economic downturn and improve conditions in 2010. However, sustained economic recovery will likely depend on the U.S. economic recovery and the ability to sustain this growth.
In addition to the adverse effects from the global financial crisis and the U.S. economic contraction, Mexico's economy is experiencing numerous other challenges. The escalation of violence since the government's crackdown on organized crime and drug trafficking has led to investor uncertainty in some regions of the country and, subsequently, a sharp decline in foreign direct investment flows. The impact has been the most severe on the manufacturing industry, which is mostly located along the U.S.-Mexico border and has experienced significant job losses. Increasing unemployment throughout the country has led to a growing trend towards informality and self-employment. This may present a long-term problem for the government because growth in the informal sector can lead to increased poverty levels, diminished productivity, and lower prospects for sustained economic growth. Another issue is the 16% drop in remittances to Mexico in 2009, which has mostly affected the poor. Remittance inflows, which are largely from the United States, are Mexico's second-highest source of foreign currency after oil.
Numerous analysts have noted that Mexico's potential to promote economic growth, increase productivity, and lower the poverty rate is very limited without implementing substantial structural reforms. President Calderón has proposed a number of reforms to address these challenges, including proposals to eliminate extreme poverty, overhaul public finances, privatize parts of the state oil company, adopt labor reforms, reform the telecommunications sector, and encourage political reforms. Most of these proposals, however, have deeply rooted political implications and have been strongly opposed by the major political parties in the Mexican Congress. There are some signs that the population may be pushing for change, but the prospects for passing any of the proposals will likely depend on the outcome of the 2012 presidential elections.