The Crisis Slams Mexico
Posted on: 23/02/2009 by Kent Paterson
This post is also available in: Spanish
For months, Mexican officials boasted their country was shielded from the worst ravages of the global economic crisis. Although President Felipe Calderon periodically rails against "doomsayers," reality is beginning to slap Mexico City in the face. Daily media reports detail the extent and depth of the economic problems descending on the nation.
According to the National Institute of Statistics, Geography, and Informatics, Mexico shed 750,000 jobs in 2008 alone, bringing the always officially low unemployment rate to its highest level since 2005. The job hemorrhage has been particularly severe in the export assembly sector, affecting tens of thousands of workers in Ciudad Juarez and other cities dependent on the U.S. economy.
The daily La Jornada reports $50 billion in foreign capital fled the country last year, and for the first time in recent years Mexican treasury bonds are losing their investment attractiveness. Mexico’s banking sector has so far not exhibited the fatal weaknesses afflicting counterparts in the United States and Europe, but plenty of warning signs abound. According to Mexico’s Banking and Securities Commission, the value of bad credit card debt shot up from $1.3 billion in November 2007 to more than $3 billion in November 2008.
Javier Taja, president of the Barzon debtor’s organization in the state of Guerrero, insists a mortgage payment problem looms in coming months when private unemployment insurance for many workers expires.
"(People) are not going to buy a house or a car," Taja said in an interview. "This will possibly cause us to have an internal economic contraction, apart from the financial malaise we now have at the international level."
Speaking to world leaders gathered in Davos earlier this year, President Calderon predicted the Mexican economy would actually grow by more than 1% in 2009. The president’s optimism flew in the face of other economic assessments, including those of the International Monetary Fund Bank of Mexico, both of which forecast a contraction in the Mexican economy of between 0.3 and 0.8%, respectively, in 2009. The Mexican economy shrunk 1.6% during the last trimester of 2008, according to the latest press reports.
Since last fall, the value of the peso in relation to the dollar has plunged 50%. Repeated interventions by the Bank of Mexico have been required to prevent a further slide. The expensive dollar bodes ill for a country that already imports 35% of its foodstuffs, according to Chihuahua state legislator and rural activist Victor Quintana.
In 2009, a kilo of staple corn tortillas fetches 12 pesos (almost one-fourth the daily minimum wage) in regions of the country. As Proceso magazine recently reported, corn and beans are now so valuable mass thefts of the products from trains are occurring in the state of Guanajuato.
Life is hard for many people like Acapulco resident Nely Vargas. Two years shy of receiving the modest Guerrero state pension, Vargas makes a living selling books on the street that range from Garcia Marquez to personal self-improvement.
"What does one do?" Vargas pondered. "I don’t sell much but here I am." A former telephone operator and cashier, Vargas said she considers tapping into electrical lines for free to keep the one home fan running in the sweltering tropical climate of her home town, a common practice in Acapulco and elsewhere in Mexico. "How am I going to pay a bill of $200 or $300?" Vargas asked.
Mexicans have endured economic crises many times since 1982, so the initial reactions to the global economic meltdown here perhaps had much less of the sense of astonishment than in the United States, where many North Americans confront for the first time the consequences of Washington’s neoliberal diet long dished out to other countries like Mexico.
Still, the latest crisis in Mexico is intensifying class, social, and political conflicts.
Federal, state, and local governments are rolling out measures aimed at ameliorating the worst effects of the crisis. Announced in January, President Calderon’s 25-point plan lays out modest actions including a freeze on gasoline prices, subsidies for export industries facing production shut-downs, slight increases in farm credits, allowing unemployed workers to withdraw money from privatized retirement accounts with a pledge of additional government contributions to compensate for the withdrawals, and extending government hospital coverage to jobless workers.
Additionally, the NAFIN economic development bank is extending a line of credit of nearly one billion dollars to Mexico’s ailing auto industry with the intention of getting more Mexicans into new cars. Betting on tourism, the federal government wagers more gringos will be lured south because their dollar buys more in 2009 than it has in many years.
Calling services the economic vanguard of the 21st century, President Calderon officially inaugurated the new Costa Pacifico mega-resort this month in the narco-dominated state of Sinaloa. The development is planned to be twice the size of Cancun. But even as government tourism officials religiously recite upbeat reports, empty or half-empty hotels, restaurants, and bars in existing vacation destinations tell a different story.
In numerous ways, the Calderon anti-crisis plan deepens Mexico’s dependency on the U.S. economy. Decidedly off the table for discussion is Mexico’s adherence to the North American Free Trade Agreement (NAFTA).
While applauding many aspects of the Calderon plan, Mexico’s private sector wants more tax breaks and finance credit. The crisis also is an opening for business sectors that have long lobbied for reforms of Mexican law to usher in "labor flexibility" that permit outsourcing, "open shops" and decrease labor guarantees and benefits, and to put strict limits on legal awards for labor disputes enshrined in the statutes. On a similar note, proposals to privatize public services and resources like water are making a comeback in places like Guerrero.
In a time of economic downturn, the peddlers of easy money are on the loose. Pawn shops and payday loans proliferate everywhere, and the gaming industry is hard at work trying to turn gambling into the next popular sport. Electronic bingo parlors and sports books establishments are popping up in many cities. The only piece missing is for the Mexican Congress to legalize Las Vegas-style casinos.
On the other side of the social spectrum, popular protests are on the upswing. A half-million truckers tied up national highways in a February protest for lower diesel prices. Revving up their familiar tractorcades again, farmers are mobilizing in support of lower fuel prices, higher commodity prices, and a renegotiation of NAFTA, which has left many corn and milk producers pulverized in the dust.
Mexico joins France, Russia, Greece, England, Ireland, Guadalupe, and other countries as a scene of popular protest against government economic policies. Noticeably absent from the movements spreading across Mexico, though, are Chiapas’ indigenous Zapatistas.
The largest, cohesive opposition force is the movement headed by former Mexico City Mayor and 2006 presidential candidate Andres Manuel Lopez Obrador. On Feb. 17, Lopez Obrador’s supporters staged demonstrations across Mexico that called for slashing electricity prices. In Acapulco, several dozen demonstrators delivered a letter to the Federal Electricity Commission and held a rally outside agency offices.
"They’ve given the big businessmen and merchants a considerable reduction," said protest spokesman Eloy Cisneros Guillen, "but there hasn’t been one for families."
The idea of lower bills struck a chord with retired maid Maria Magdalena Gonzalez, who said she has trouble covering basic expenses on her $120 monthly pension. A former employee of the emblematic Hotel Caleta and other Acapulco inns, Gonzalez was indignant. "I worked 40 years in the hotel industry for them to give me this!" she huffed.
Significantly, Lopez Obrador’s movement possesses a multi-faceted program that offers proposed solutions for not only immediate problems like high electricity prices but also for long-range ones like NAFTA. Lopez Obrador calls for renegotiation of NAFTA, especially of its agricultural provisions.
"We are proposing a change of direction for this country," said movement activist and former Guerrero state lawmaker Benjamin Sandoval Mena. "There is no way out (of the crisis) unless we modify the economic model."
Meantime, another political actor is publicly emerging on the scene. Although long operating in the shadows of Mexican society, the narco underworld is becoming more and more public. In big cities and small towns, messages against rivals that amount to political propaganda are draped from overpasses. An imprisoned old-school capo, Miguel Felix Gallardo, has his own website complete with Elvis-like photos. Allegedly, recent street demonstrations against the Mexican Army in a broad geographic swath of the country were financed by the narco.
Mexico’s legions of struggling farmers, countless army deserters, and idle youth provide constant fodder for a narco-economy packed with hundreds of thousands of small-scale producers, processors, transporters, street dealers, look-outs, and hitmen. Jobs remain plentiful in the narco-economy, but the average life span of its workers is getting shorter and shorter.
In the short-term, the Mexican state and political class will attempt to channel economic and social grievances into the ballot booth. Mexicans will elect a new federal Congress in July of 2009, and the different political parties are sure to zero in on the economy.
If the predictions of many political observers of a low voter turn-out this year come to pass, the former ruling Institutional Revolutionary Party (PRI) could come out the big winner. The PRI retains a hard-core base and has been rebuilding on the disenchantment with the ruling PAN and internal conflicts in the PRD. As the ruling party, the PRI distinguished itself by quelling popular unrest through a sophisticated combination of repression, cooptation, and economic concessions.
Whether Mexico’s political system can contain current outbreaks of popular protest with more crumbs will depend on how deep the economic crisis reaches, as well as factors such as the unpredictable dynamics of violence and retaliation, repression, and more violence unleashed by the narco war.
The ability of popular movements to transcend immediate economic demands, forge a common agenda, and place the issue of Mexico’s economic model squarely at the center of political debate is paramount for taking the country on a different path from the one that is leading toward greater economic and social decomposition. And, as many Mexicans are acutely aware, the character of the new Obama administration will greatly influence, for better or worse, outcomes in their own country.