Guest Column

Carlos Slim and Mexican Poverty 

By Kenneth Emmond

Herald Mexico//El Universal

September 11, 2005

As we all know, poverty sucks. Even Latin America's richest man, Carlos Slim, knows that. He said as much last Wednesday, when he remonstrated with the federal government for being satisfied with achieving economic stability instead of doing more for Mexicans.

“Stability is just a tool and not a goal,” he said. “If there's no growth, then that is not good macroeconomics.” He upbraided the government for squandering its petroleum windfall instead of providing long-term benefits for the owners of Petroleos Mexicanos (Pemex) — Mexico's citizens. After more than 65 years of owning this wonderful resource, they're still waiting for benefits like better health and education systems and more jobs.

Slim took his message to the nation's youth. Speaking to about 10,000 students at the Annual Meeting of Scholarship Holders of the Telmex Foundation, he said wealth is a great responsibility, and whoever has it has a duty to manage it soberly and efficiently, and to distribute the income.

“We must share the fruits of the tree and reinvest those fruits,” he said.Indeed. We've had a glimpse of what happens to the immense cash flows of Pemex.

Some goes to gasoline thieves — at least a million liters per year just in Hidalgo, according to the State Civil Protection System. Some goes to union leaders, and in 2000 a big chunk went to the Institutional Revolutionary Party (PRI) for its ill-fated presidential election campaign. Pemex's US$70-billion-dollar cash flow is tapped to provide about one-third of the government's income — 60.8 percent of the oil producer's gross in the first half of 2005 — and this provides relief for wealthy Mexicans who choose not to pay their taxes.

Not much benefit for the average Mexican in any of that. Now, with prices near their all-time highs, the government is using the windfall to prop up the macroeconomic numbers. That's not something most Mexicans can relate to either.

The government is so focused on milking the Pemex cash cow that it's neglecting something crucial to the future: re-investment.

Pemex director Luis Ramírez says the company is on the verge of insolvency with debts of nearly US$90 billion dollars. It's desperate for funds to maintain its leak-prone pipelines and for exploration and development. One recent projection concluded that if these items are not attended to, Mexico could become a net importer of oil within a decade.

There is a way to deal with the pressures of immediate spending for this non-renewable resource. In the 1970s the oil-rich Canadian province of Alberta levied a special tax on oil companies, with the proceeds going into a “Heritage Fund.” This fund provides loans and grants of up to 50 percent to new-technology entrepreneurs, with the result that today Alberta is a world-class technology leader. Mexico could do the same.

Pemex isn't Mexico's only source of riches.The country produces: Gross Domestic Product (GDP) doubled over the last 10 years but most Mexicans are not much better off than they were before NAFTA-driven growth kicked in. You can verify that by talking to almost any taxi driver, waiter, or small business owner.

Yet some have benefited: Mexico has 13 billionaires, just three behind Canada, where GDP per capita is almost four times as high. It ranks fourth in the world in purchases of executive jets.

Forbes Magazine reckons that Carlos Slim's wealth grew by US$10 billion last year; that alone accounts for a national increase in average per capita income of one dollar.

It's not just the luck of the draw. Transparency International estimates that more than 10 percent of GDP disappears due to corruption.

To be fair, the government is fighting back. The Public Affairs Secretariat reported recently that it apprehends an average of 12 public servants every day for acts of corruption.

The head of the Superior Audit of the Federation says some publicly-owned institutions simply refuse to provide the data needed to carry out an audit. Hmmmm.

One of these is Congress. Legislators are generous to themselves in terms of pay and benefits but they're reluctant to render accounts about what they spend. We do know, however, that Chamber of Deputies members awarded themselves a double-digit pay raise last January.

Former Spanish Prime Minister Felipe González says a large part of the reason for these anomalies can be found in Mexico's political class. Speaking at the same event as Slim, he said Mexican democracy doesn't work as smoothly as it should because these professional politicians change parties as easily as they change their shirts.

There's a perverse logic to this. The loyalty of the political class is not to the people who elected them — and who they ostensibly represent — but to their party and to their well-connected families.

“It's not the presidential system or the parliamentary system that's at fault,” said González. “What's failing is the politicians.”The wealth is there. When the political class listens to Slim's message about sharing the fruits, this nation will boom, and even the taxi drivers and waiters will be better off.

Herald Mexico/El Universal commentary article at: http://www2.eluniversal.com.mx/pls/impreso/web_columnas_sup.detalle?var=24958

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