Mexico’s Fireworks of 2010

January 5, 2010

Toward the tail end of 2009, as Mexicans prepared for the Christmas season, three new batches of economic data confirmed what many had already surmised: 2009 was a very bad year. The first batch of data came in the form of a National Statistics Institute (INEGI) report, which found that the country’s third-quarter GDP had declined by 6.2%. This was attributed to a 13.4% drop in manufacturing output, which, given that the country lacks a homegrown industrialization model, could be traced back to a 37% reduction in foreign direct investment.

The second batch of numbers came from the United Nations’ Economic Commission on Latin America (CEPAL), and showed that poverty, indigence (extreme poverty), and inequality had all grown faster in Mexico than in any other Latin American country. CEPAL estimated that 37 million Mexicans (almost 35% of the population) were now living beneath the poverty line (eating hand-to-mouth), while about 12 million were indigent (not eating much at all).

Third, the international bond rating agency Fitch Ratings downgraded Mexico’s credit-worthiness from BBB+ to BBB, citing the economy’s “weak fundamentals”: continued dependence on variable oil revenues, a weakened capacity to implement a counter-cyclical fiscal policy, and an unsustainable debt level. Fitch might have added that while the major economies of South America have diversified their global trade and financial relations, Mexico continues to depend on uncertain U.S. trade and investment.

Unless the two other large credit-rating agencies, Moody’s and Standard and Poor’s, quickly contradict the Fitch downgrade, Mexico will soon have to pay higher interest rates on borrowed money, and foreign investors will likely demand greater returns on their Mexican investments.

The ruling National Action Party (PAN) can live with the significant rises in poverty and inequality. For the past two decades, after all, under both the PAN and its predecessor in power, the Institutional Revolutionary Party (PRI), labor discipline has been at the core of Mexico’s economic policy. This (neoliberal) policy has easily nested itself within a much older policy framework, one that still attempts to immerse all civic and political activity within the corporate control of the state.

Indeed, when President Felipe Calderón decreed the liquidation of the Mexican public power company, Luz y Fuerza del Centro, in October, he was faithfully following two sometimes contradictory policy scripts that have been adopted by his conservative party, the PAN: a corporatist model of governance and a neoliberal model of labor discipline. As a corporatist, he was punishing those organisms of civic activism that were out of his control, in this case Luz y Fuerza’s militant Mexican Electrical Workers Union (SME); as a neoliberal, he was attempting to weaken the power of organized labor in general, clearing the way for renewed investor confidence and the subsequent economic recovery and growth.

To make his case to the Mexican public (and foreign investors), Calderón has likened “out of control” unions to the country’s out-of-control drug cartels, both being roadblocks to institutional order and market-based growth. But conflating the War on Drugs/Crime with the War on Labor/Dissent may be working too well for Calderón’s own good. The drug war has been a publicly acknowledged failure, and the discouraging economic indicators may be reflecting the “markets’ ” belief that the latter war is too. The story invented to lure private investors into Mexico may have turned on its inventors, showing weakness rather than strength, chaos rather than a stable business climate.

As the marathon praying and partying of the end-of-year celebrations stretching from December 12 (Day of the Virgin) to January 6 (Day of the Kings) come to an end, one hears two sets of predictions on the streets and in the cantinas. One set holds that in the face of hard times, next year’s drinking and celebratory fireworks will stretch all the way from January to December. The other set holds that there will indeed be fireworks, but of an entirely different sort. The history of 2010 is soon to be written.

Fred Rosen is NACLA’s senior analyst.


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