Economic downturn in Mexico

I am overdue for a comment on the effects of the economic downturn on Mexico and Mexicans. Mexico seemed to feel the effects of the downturn a little more slowly than north of the border, but the effects are now being felt more and more severely. With NAFTA, Mexico is now a major participant in the continental automobile industry; the drop in the demand for autos means that there are layoffs here too. A second factor is that because of the lopsided and sensationalist news coverage of both the war against the drug cartels and the H1N1 flu outbreak, tourism is way down. Of course those of us who live here know how exaggerated the coverage is. Most Americans who live here say that they feel safer here than they did at home. Thus, we continue to provide some jobs and money in the economy, but large numbers of Mexicans depend upon tourism for jobs and income. Thirdly, because of the economic downturn in the US, many Mexican migrants there are unemployed and unable to send nearly as much money as they were doing. Tens of thousands of families need that to meet their living costs.

Finally, although the government has promised public works to stimulate the economy as so many other governments are doing, the federal government is facing sharply declining revenues. While both the state and municipal governments raise some revenues on their own, both levels receive half or more of their total income from the federal government. Of and on since the end of World War 2, the federal government, which owns the petroleum monopoly, Pemex, has relied on oil and gas for much of its income. This has been both a blessing and a curse. When prices were high and the money was rolling in, frequently the governments of the time frittered and wasted a great deal. Some of the currency and economic crises of the past occurred when the prices fell. Ever since its nationalization in the late 1930s, Pemex has been a sacred cow and public opinion has opposed letting foreign oil companies have any significant participation in the industry. The oil workers union has tended also to protect and expand jobs and in doing so have inhibited technological innovation. The problem is that because of government demands to get as much revenue as possible and union obstruction, reinvestment has been far too low. There has not been much in the way of new finds (Mexico is really lagging in exploring the possibilities of deep water oil fields in the Gulf of Mexico for example). Production in the old fields is declining drastically. At the rate of current decline, it may not be too long before Mexico has nothing to export. Mexico does not have enough refineries (they need to deal with heavier grades of crude) to provide for domestic production, but must import some refined products. There is much more that could be said about the oil industry here, but for my comment the main point is that federal government revenues are declining, even with relatively strong oil prices. This is getting passed down the line to the lower government levels. The latter, on being informed that they are not going to get as much money as they had expected, are now cutting large numbers of jobs.

The loss of jobs is coming on top of the fact that average wages have not kept up with rising prices in the last 5 years (about half the rate). Thus, families were having a tough go even before the economic downturn. On top of this, many of the main agricultural areas in Mexico have been hit this summer with the worst drought in over 40 years. In some places the corn crop has been practically wiped out. Some predictions are that the price of tortillas may double because of higher corn prices. In short large numbers of Mexican families are facing a ‘perfect storm’ economically.