HispanicVista Columnists

Going Backwards In Mexico

By Richard N. Baldwin T.

27 March 2005

      In competitive sports, business and especially on the competitive world stage between countries the old axiom is that to even stay in place, you have to run. To stand still is to go back. And make no doubt about it; México is in full reverse.

     México was, a few years ago, in the top 10 countries favored for foreign investment. Last year México sank to the low 30s in the race of countries attracting foreign capital investment. I think that we are still ahead of Uganda.

     In the "blush" early years of NAFTA, México rose to the second highest exporter to the US. Canada is and was number one. Now México is third, behind China who is also flooding the Mexican markets. Worse yet, México never took advantage of the window of time for doing the reforms necessary to really take advantage of NAFTA.

     As far as foreign capital flow into México, the second highest capital inflow of México is now "remittances". This is the money that millions of Mexican immigrants in the US send home to their families that they save from their wages in the US. This surpasses tourism, manufactured exports, agriculture and everything else . . . except the export of oil. And on the horizon, that will change too. And that makes us a true beggar nation, begging from its own. Let's look at the near future of Mexican oil.

     With so many promises to the people about "Our national treasure (PEMEX)" that will bring all of us prosperity, our cash cow is going broke. Of its income, 60% is taken right off the top to support the federal government. This money supplies 40% of the national budget.  But with insufficient funds for maintenance (oil leaks are now a national scandal) and exploration, PEMEX may be bankrupt in a few years.

     PEMEX now has a $45 billion dollar debt. In 6 years its cash reserves fell from $15 billion to just over $2 billion at the end of 2004. Projections are that México will become a net importer of crude oil in 10 years.

     Mexico is now a heavy importer for refined oil products from the US. Mexico ships crude north and pays for it to be refined because of the lack of capacity to do it domestically. But, the Fox administration’s tax reform proposal to reduce reliance on the oil cash cow failed (twice). The reform’s main reason for failure was due to Fox’s insistence on adding on a 15% tax on food and medicine . . .  which would be mainly born by the poor.

     The failure of our oil industry could be extremely dangerous for the stability of the country.

     Surprisingly, Cuauhtémoc Cárdenas (two-time looser for the presidency and member of the center left PRD party) just modified his strong stance against any foreign investment in PEMEX, stopping short of privatization. But the majority party (the PRI) remains strongly against any foreign investment. México does not posses the necessary funds to save PEMEX on its own.

     México's problems are much the same as in many Latin American countries. I. E. a vast poor class that keeps getting the short end of the stick on wealth distribution. Now, right here I want to emphatically say that the idea of taking from the rich to give to the poor (or robbing if you will) has not and will not ever work for the benefit of the poor. But on the other hand, the growing anti-free trade movement simply reflects the fact that after following the "Washington Consensus" dictum, the gap between the rich and the poor is growing. And if you are hungry enough, things like socialism, capitalism, and populism mean little to you. You want food.

     The inability (or lack of resolve) of the Mexican government to address these problems may lead us down the Bolivian path to chaos. To be able to create meaningful jobs for our people requires many "structural" reforms that neither the government or our business community will tackle. Let's look at China. One of the fuels of their economic engine is not only the creation of (or allowing) business owners, but also the development of a strong national market. And that means channeling some of the money into the hands of the population to spend on that market. Communist China realizes that large private money blocks (the rich) are necessary to make the engine work. But the second ingredient is for the general population to have the money to spend.

     Unfortunately, neither the Mexican government nor our business class can recognize the wisdom in the "China plan". The consensus here is to keep the majority of the Mexican population as uninformed as possible and to keep their earnings level as low as possible. And to depend on the northern border "safety valve" to export our most ambitious people to send home money to support those left behind.

     México has lost the "low wage" race, but does not recognize the fact.

     The Mexican government is in full election campaigning mode now and is in paralysis. Solving the structural reforms necessary is now on indefinite hold. But any "big hit" like the tapering off of oil income, or even worse, shutting off the "safety valve" could produce severe instability in México.

     As an article by Dianne Lindquist of the San Diego Union-Tribune states, "Experts air worries on Mexican economy". And a failed economy leads to political instability.
_______________________________________________
Richard N. Baldwin T., a HispanicVista.com (http://www.hispanicvista.com/) contributing columnist, lives in Tlalnepantla, Edo de México. E-mail at: R1041643422@aol.com