Guest Column
As Elections Approach, Mexico Faces Internal Instability
Drafted By: Jephraim P. Gundzik
Power and Interest News
Weak governance and deteriorating social conditions have steadily increased political and social instability in Mexico during the past several years. Rather than soothing the country's rocky political and social environments, the results of Mexico's upcoming general elections will heighten this instability. More concerning, however, are tightening U.S. border security and immigration reforms. These measures may provoke economic instability in Mexico, further destabilizing the country's political and social environments in the months ahead.
Political Instability
Hailed as a democratic leap forward, general elections in Mexico in 2000 ended the Institutional Revolutionary Party's (P.R.I.) 70-year long political monopoly. However, the country's new president, Vicente Fox, and his National Action Party (P.A.N.) were unable to gain a legislative majority, winning only 224 seats in the 500-seat lower house and 53 seats in the 128-seat senate. Mid-term elections, held in 2003, further undermined President Fox's legislative position, leaving P.A.N. with only 148 seats in the lower house and 47 seats in the senate.
While P.A.N. had captured the presidency, its weak position in the lower house and senate, especially after 2003, prevented the Fox government from advancing its legislative agenda. Initiatives seeking to liberalize the country's energy sector, reform public finances and labor laws and privatize state-owned industries all foundered. The only substantial legislation that was passed by Mexico's congress in the past six years was social security reform, which came in 2004. This reform was met with widespread social unrest.
Although multi-party politics has replaced Mexico's one-party political system, governance has weakened dramatically, overshadowing the country's democratic gains. The Fox government's inability to legislate fundamental economic reforms, especially fiscal and energy sector reforms, has darkened the country's long-term economic outlook. It has also contributed to deteriorating social conditions, which have sparked rising social unrest. The results of Mexico's upcoming general elections are unlikely to reverse the weakening trend in governance seen during the last several years.
On July 2, 2006, Mexico will hold general elections. In addition to a new president, voters will also choose new representatives for all 500 seats in congress and all 128 seats in the senate. Governorships in three states, including the Federal District, and 365 mayorships will also be contested. Until recently, Andres Manuel Lopez Obrador, the Democratic Revolutionary Party's (P.R.D.) presidential candidate, maintained a wide lead over all other potential candidates in public opinion polls. In May, public opinion polls indicated that Felipe Calderon, the candidate of P.A.N., overtook Lopez Obrador.
The increasingly pro-P.A.N. bias of Mexico's media and corporate sector is behind Calderon's surge in public opinion polls. This bias ensures that the presidential race will be closely fought. It also raises the prospect of old-style electoral fraud claims -- claims that could quickly produce widespread social unrest. Apart from the increasing potential for post-election social unrest, which candidate assumes the presidency is not especially significant as no party is expected to gain a legislative majority in the simultaneous congressional elections.
Opinion polls conducted to gauge party support in Mexico's congressional elections have been fairly uniform in recent months. Although the lead party has changed often, these polls have consistently shown that no single party will be able to amass a legislative majority. With no party likely to gain more than one-third of the popular vote, Mexico's next government will be no stronger than was the Fox government. Further deterioration in governance will invite increasing social unrest.
Social Instability
Mexico's democratic transition and resulting deterioration in governance opened the door to social unrest. Protests against government policies and labor strikes have increased dramatically in scope and frequency since Fox took office in 2000. In 2002 and 2003 social protests, organized by numerous campesino groups, marshaled tens of thousands of supporters for anti-government demonstrations. In late 2002, many of these groups combined to form El Campo No Aguanta Mas (The Countryside Can't Stand it Anymore). In January 2003, El Campo led Mexico's largest campesino protest since the 1930s.
In late 2004, campesino protests again gathered steam. In September 2004, campesino rallies drew tens of thousands of protesters. They were joined by 200,000 striking health care workers protesting against recently passed pension reforms. In addition, workers from the state-owned power company demonstrated against Fox's proposal to privatize the electricity sector. These protests became violent outside of congress where demonstrators battled riot police. Major campesino and public sector employee protests continued in 2005. These were joined by private sector employee protests and strikes.
Members of the Mexican Miners and Metal Workers Union (S.N.T.M.M.R.M.) staged several large and lengthy strikes in 2005 calling for higher wages and benefits and improved safety conditions. These strikes snowballed in early 2006 following an accident at the Pasta de Conchos mine in Coahuila that killed 65 miners. In early March, strikes by S.N.T.M.M.R.M. members impacted more than 70 different companies involving about 250,000 workers, paralyzing Mexico's mining and metal works industries. This was Mexico's largest union-led strike since the 1950s.
Though the wider strikes ended after two days, Grupo Mexico employees have remained on strike, sharply reducing output from Mexico's largest copper and zinc mines. Employees of steel maker Villacero have also remained on strike in Michoacan. Failed government efforts to break this strike in early April resulted in the deaths of two employees and many gunshot injuries. In addition to these strikes, violent protests have also recently erupted near Mexico City. Finally, drug-related violence has also soared higher in the past several years.
The primary factor driving the staggering growth in social unrest is declining real incomes. Real incomes for workers in Mexico's manufacturing sector declined by a cumulative 2.6 percent between 1995 and 2005. It is a safe bet that the contraction of real incomes economy-wide, including Mexico's sizable informal economy, during the past 11 years has been much deeper than the contraction of real incomes in the manufacturing sector.
A significant factor driving real income growth lower has been the government's tight control over the minimum wage. Although the number of employees earning the minimum wage in Mexico is quite small, a large portion of overall employee wages are derived from multiples of the minimum wage. Along with declining incomes, Mexicans have also suffered from rising unemployment, erosion of benefits, falling educational standards and increasingly unsafe working conditions.
In addition to unrest, deteriorating social conditions in Mexico have also sparked a surge in illegal immigration to the United States. The flow of illegal immigrants across the Mexico-U.S. border has increased from less than 100,000 annually in the late 1990s to over 500,000 annually in the past two years. Without this immigration and the return flow of remittances it provides, social and political instability in Mexico would probably be exponentially greater now. For this reason, militarization of the U.S.-Mexico border and immigration reforms in the United States will have far-reaching negative political, social and economic consequences for Mexico.
Economic Instability
Remittances from illegal immigrants in the United States are Mexico's second largest source of foreign exchange earnings and have become the backbone of Mexico's economy. In 2005, these remittances surpassed US$20 billion or 2.7 percent of G.D.P. By comparison, Mexico earned $35 billion from oil exports and about $12 billion from tourism revenue in 2005. Much of Mexico's oil revenue is diverted toward the federal government's budget or used to service the massive debt of the country's state-owned oil company, Pemex.
The inflow from remittances is an important source of income for the family members in Mexico of Mexicans working in the United States. This income, along with booming consumer credit growth, has been the primary factor behind strong real private consumption growth in Mexico, which reached 4.1 percent in 2004 and 5.4 percent in 2005. The growth of private consumption has, in turn, prevented real G.D.P. growth from weakening.
In contrast to private consumption, Mexico's corporate sector has weakened during the past two years. Non-oil export growth declined to 10.6 percent in 2005 from 12.4 percent in 2004. Industrial production growth also slowed in 2005 to 2.7 percent from 4.7 percent in 2004. Falling industrial output and exports have been accompanied by contracting commercial credit. The weakness of the corporate sector has contributed to contracting real incomes, has prevented employment growth and has encouraged the rising tide of illegal immigration to the United States.
The militarization of the U.S.-Mexico border, which began on June 1, includes the deployment of 6,000 U.S. National Guard troops. These troops will be joined by 4,000 additional Border Patrol agents in the next two years. In addition to more manpower and equipment for policing the border, the United States will also begin constructing hundreds of miles of security fencing and automobile barriers along the border. This will significantly reduce the flow of illegal Mexican immigrants to the United States beginning this year, capping the flow of remittances back to Mexico.
The flow of remittances back to Mexico will probably decline substantially beginning in 2007 as deportations of illegal immigrants increase. Impending changes to U.S. immigration laws will drive deportations. Although moderates in the U.S. House and Senate and President Bush support the legalization of many illegal immigrants in the United States, conservatives in both houses stand strongly opposed. These conservatives, who are overwhelmingly Republican, far outweigh the moderates, suggesting that immigration reform legislation will inevitably include a degree of criminalization for employers of illegal immigrants and stepped-up deportation efforts.
Conclusion
Declining remittances will deal a severe blow to Mexico's economy, aggravating social and political instability that is already becoming acute. Depending on U.S. economic developments and the outcome of immigration reform efforts, Mexico's economy could dip into recession as early as 2007, sparking a significant increase in social unrest. Perhaps this unrest will trigger economic reforms that will improve social conditions in Mexico. If not, Mexico's long-term political, social and economic outlooks are bleak.
Report Drafted By:
Jephraim P. Gundzik
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