Mexico and the Crisis of a Dependent Economy

By Laura Carlsen
Tuesday, November 10, 2009

 

The well-known 19th century Mexican saying—"poor Mexico, so far from God and so close to the United States"—has become more poignant today than ever in the context of the global economic crisis.

This year Mexico will be one of the worst-hit countries due to the crisis that began in the United States and quickly spread all over the world. It has lost more than 600,000 jobs in the formal sector and may lose as many as 735,000 in total this year, according to official statistics. The shrinking of the economy could fall between 6.5% and 7.5% in 2009, according to the Bank of Mexico, who attributes this decrease to "the increased dependency that Mexico has on the economic cycle of the United States." The Bank reports a 33% shrinkage in imports, worse than the previous crisis of 1995.

In recent years, the poor have depended on government subsidies and remittances in order to survive. "Free" trade has destroyed the production structure of the rural regions where poverty is concentrated and there is almost no investment from the private sector. The remittances sent from Mexicans in the United States have fallen by 12% due to the crisis there and the government has announced cuts in social programs and federal funds to the municipalities.

The latest reports, which do not take into account the worst of the crisis so far this year, show an increase from 44.7 to 50.6 million people below the poverty line between 2006 and 2008, reaching a total of nearly half the population. This could very well be a conservative estimate; an independent study estimates the number of Mexicans living below the poverty line patrimonial at 80 million. In rural areas and urban peripheries, many families are finding it hard to buy basic foods.

Around 80% of Mexico's exports go to the United States as a result of NAFTA. The country maintains a negative trade balance of $4 billion with its neighbor to the north. Despite the supposed attempts of the government to diversify trade, it has not come to pass. The U.S. foreign investment that was supposed to be the driving force of the economy, according to the trade model, is drying up resulting in the cutting of existing jobs within the most integrated sectors such as the automobile industry and maquiladoras.

It is true that Mexico is confronting the convergence of a multitude of problems that are not all related to its economic dependence on the U.S. economy. The other major factor is the country's dependency on oil. Between January and June, the revenues made from crude oil exports fell 41% relative to the same period just one year before. And if that wasn't enough, tourism in the country lost some $2 billion due solely to the A/H1N1 influenza.

However, it is not clear that the crisis facing Mexico is merely a short-term problem. As a result of the crisis, U.S. consumer patterns are reaching more sustainable levels, which could be good news for the environment. The slowdown in investments in countries that offer cheaper labor entails the need for structural changes.

The response from Felipe Calderon's government recently has been to announce an increase in the price of petroleum and electricity and new taxes. A popular movement has responded by boycotting the payment of electricity bills, resulting in arrests and the cutting of power to the most vulnerable communities. The elimination of the Central Light and Energy Company and its union has exacerbated the problem. An increase in food costs, also the result of dependency on international markets and U.S. imports, is further pushing families toward poverty and desperation.

There is a lesson to be learned from the current suffering in Mexico and its inability to confront the crisis. However, the government continues to show signs that it hasn't learned anything. Instead of restructuring the economy by diversifying trade, protecting at-risk productive sectors, and building a safety net for the growing number of poor families, it has launched an offensive against labor and reiterated its reliance on the free-trade model that has clearly failed the Mexican people.

The cost of economic dependence on the United States is being paid by the poor, in clear violation of their social and economic rights.

The question is: to what point will the people tolerate this and what has to happen to make the government change its course.

Laura Carlsen (lcarlsen(a)ciponline.org) is the director of the Americas Program (www.americaspolicy.org) for the Center for International Policy in Mexico City.

 


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