Almost seventeen years after the nationali- zation of the electrical industry, all of our forewarnings have been fulfilled. Techni- cally, the Federal Electrical Commission is in bankruptcy. It owes foreign capital $7.2 billion dollars in outstanding loans, yet it only has capital assets of $4 billion. This enterprise is so debt-ridden that the owner is not the Mexican nation but rather foreign interests, principally North Ameri- can, who dictate its policies in the interests of the transnational corporations. -Rafael Galvan Electrical Union Leader May 2, 1977 This statement by the leader of the rank-and- file electrical workers' movement made clear what has become inescapable in Mexico: the State-owned and operated electric power indus- try, like the Mexican economy in general, has fallen deeply into imperialism's "debt trap." With the total foreign debt of Mexico now surpassing $28 billion, increased attention has focused on the CFE as the single largest source of the debt crisis. As of December 1976, the CFE accounted for 23 percent of the total public foreign debt, tripling its size from 1970 to 1975. And in this same year 70 percent of the total income of this industry was going to pay off the foreign debt. 1 Independent labor leaders like Galvan call the CFE a "sop of the transnationals" and a "vassal of imperialism." Mexican and foreign businessmen, whose profits are the principal cause of the debt, blame it on bad management by the government, and pressure for continued subsidized electricity rates. High government officials blame each other and past administrations for the problem. And mean- while, from Washington and New York suites, officers of the International Monetary Fund, the World Bank and Chase Manhattan glare menac- ingly at the Mexican government and "advise" it to become more efficient with its electrical energy, if it expects any future loans. CAUSES OF THE CFE DEBT * The debt originated when the Mexican govern- ment nationalized the industry from its U.S. and European owners in 1960, paying an inflated $120 million for the aging facilities. The govern- ment was forced to turn to foreign loans (including $52 million from the Prudential Insurance Company of America) for the pur- chase of what was already an inefficient, irrational power system no longer lucrative enough to be attractive to private investors. "These companies," explained a rank-and-file 10 NACLA ReportSept/Oct. 1977 11 electrical workers newspaper, "guided only by their desire for profit, never bothered to inte- grate and plan the nation's electrical power system. Capitalism never plans socially." 3 Inefficiency and disorganization have persisted within the electrical power industry because it has never been integrated into one national system. Two parallel state companies (the CFE and the Compania de Luz y Fuerza in Mexico City) continue to administer the industry and are themselves subdivided into more than ten separate agencies. The reason for keeping the industry divided and thus inefficient is basically political, since the integration of the industry would also bring with it the unification of the three major electrical unions (80,000 workers), possibly unleashing a force the state does not want to contend with (see Part II). * Nor did the foreign companies expand electri- cal power into the countryside, where small rural villages hardly constitute a profitable market. The state, consequently, has assumed the entire burden of rural electrification, stretching electric lines to some 10,000 rural towns between 1970-75 with loans from the World Bank. Still, 25 percent of the population of Mexico remains without electricity. 4 * Probably the largest ongoing cause of the debt of the CFE has been the policy of state subsidies to private industry through the sale of electricity to industries at below-cost rates. From 1962-73, electrical rates remained unaltered for industry, while the cost of raw materials, labor and especially machinery and technology rose con- stantly. Most private companies paid between 10-28 centavos per kilowatt hour during these years, while production costs for the CFE were 41 centavos per kilowatt hour. The annual loss through this policy was estimated by one source at nearly $3 billion. 5 * Still another cause of the debt is that many of the foreign loans are tied to the purchase of overpriced machinery and technology from the creditor nations, as in the case of a $2.5 million Eximbank loan for the purchase of gas turbines from United Technologies of Hartford, Connec- ticut. 6 Between 1970-75 the CFE imported a total of $800 million in electrical machinery and technology from foreign creditor nations.' Add to this the $200 million of goods purchased by the CFE between 1974-76 from Mexican-based electrical equipment companies, much of it with foreign loans, and you have whopping business for the international banks and lending institu- tions. * The acquisition of high priced technology is one of the ongoing causes of the debt. The most striking, and indeed dangerous, example of such technology is the multimillion dollar contract the CFE has recently signed with General Electric for the installation of nuclear plants to generate electricity - using enriched uranium they must obtain from the United States. The first system G.E. set up in Laguna Verde for the CFE netted the company $400 million, 8 with $25 million going to Bechtel for installation of another thermonuclear plant in 1976.9 (G.E. is building similar systems for poor nations like Jamaica, Trinidad, Guatemala and the Ivory Coast, arranging financing from the U.S. Export- Import Bank. 10) It is estimated that 45 percent of Mexico's electricity will be produced in these thermo-nuclear plants by the year 2000, raising serious questions not only of economic and military dependence upon the United States but also of health and environmental protection as well." * Still another cause for the skyrocketing foreign debt is the increased interest-payments on the debt itself. Interest payments are consum- ing a growing portion of the new loans taken out each year, caused in part by the rising interest rates in the worldwide money market. According to an ex-director of the CFE, the debt stood at $1.9 billion in 1972, and interest payments were $104 million. Only four years later the total debt had mushroomed to $6.7 billion, with the interest payments on the debt climbing to $464 million. The total debt thus increased 3 1/2 times, while the interest payments quadrupled.12 CONTRADICTIONS IN THE SYSTEM All these factors mentioned above have helped to turn the nationalized electric power industry into an enormous parasite upon the Mexican working class. The CFE, like the 500 other state-owned enterprises, is used to enrich the foreign-dominated private sector instead of providing for the most basic needs of the Mexican people. Thus it is a sad but accurate example of the role played by the state in a dependent capitalist nation like Mexico. The practice of state subsidies to the private sector was actively encouraged by the interna- Sept./Oct. 1977 1112 NACLA Report Source: Robert Castaneda, "Los limites del Refor- mismo en Mexico," Cuadernos Politicos #8, Ap-Jun, 76. tional lending banks in the years following the 1960 nationalization. However, the economic recession of the 1970's and the colossal growth of Mexico's foreign debt have sent a tremor of anxiety through the inner circles of international finance. What if the Mexican government should default on its debt repayments? This fear caused the World Bank, as early as 1972, to advise the Mexican government to raise the electrical rates and to condition further credits on such an increase. 1 3 The Mexican government responded in 1973 by raising electricity rates by 50 percent (and oil rates by 33 percent). As the crisis deepened in 1976 and the IMF pressure on Mexico grew, the government once again raised the rates. Finally, in March 1977 President Lopez Portillo declared still another electricity rate increase. His proposal also included the freezing of all hiring by the CFE, and holding wage hikes to a maximum of 10 percent. This policy, aimed at the electrical workers, has already caused 15,000 full-time workers to be fired, according to the head of one electrical union.14 The crisis of the CFE and its foreign debt are clearly just symptoms of the dilemma which confronts not only Mexico, but the majority of the developing and dependent capitalist nations of the world. On the one side, local capitalists and especially foreign investors demand subsidies and special treatment from the state sector, and threaten to "run away" if the response is not generous enough. But decades of subsidies and foreign loans have drained the resources of the state and put it at the beck and call of the international credit institutions, who are now demanding a balanced budget above all else. As some authors have pointed out, this contradic- tion between specific needs of individual corpor- ations and the general needs of the capitalist system, as articulated by the IMF, IDB, World Bank, etc., poses some sticky problems for international capital.is But as a leader of Mexico's rank-and-file electrical workers' move- ment explained, it is the working people who will suffer the most from this problem created by the capitalist system: In general, given the debt crisis, there are only two possibilities for the survival of capitalism in Mexico: (I) a major reform of the state enterprises to make the big companies pay their share, which would cause some serious confrontations with imperialism and the Mexican bourgeoisie, or (2) a frontal aggression against the masses, taking more from the working class where there is nothing left to take. This is the project of the landowners, the right, and some sectors of imperialism like the IMF. They all have their representatives in the Mexican government ... What will determine which of these positions within the state consolidates will depend upon the correlation of forces outside the state, especially the independent organization of the working class.16
FOREIGN DEBT I. Information from research of the Democratic Tendency and Solidaridad, 1976. 2. For a complete list of the 500 state-owned enterprises see Juan Felipe Leal, op. cit. 3. UnificacionProletaria #2, Dec. 11, 1974. 4. EIDia, Dec. 12, 1976. 5. Excelsior, June 28, 1976. 6. Ex-lm data. 7. Excelsior, Dec. 5, 1975. 8. LosAngeles Times, Sept. 7,1972. 9. Solidaridad, #160, Nov. 1976. 10. Business Week, Dec. 2, 1972. 11. The issue of nuclear energy is just recently coming to the forefront in Mexico and is one of mutual concern for people on both sides of the border. The best information available at this point is the Rius comic- book, "Energia Nuclear Para Mexico, Para Que?" Los Agachados, #259. 12. Martinez Dominguez inSiempre, May 25, 1977. 13. Efren Martinez Nava, Obstaculos de la industria electrica nacional, Thesis for School of Economy, UNAM 1974, p. 26. 14. For more on the recent changes in the electric rates and other reforms see: Comercio Exterior de Mexico, May 1977, p. 168. 15. Roberto Castaneda, "Los limites del capital- ismo en Mexico. Las finanzas del regimen," Cuadernos Politicos, #8, April-June 1976. 16. NACLA interview with Antonio Gershenson, Aug. 1977.
