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Financial Crisis Hits Mexico: Social Crisis On The Horizon?





The international financial crisis that originated in mortgages and derivatives in the United States has spread to Europe, Asia and Latin America, and Mexico too will be significantly affected by the crisis. Government, business leaders and analysts say that for Mexico the crisis means:

·         Less foreign direct investment.

·         A decreasing market for its exports.

·         Lower prices for Mexico’s petroleum, so less revenue for government.

·         Less migration to the U.S. and lower remittances from migrants.

·         Rising unemployment.

·         Federal budget cutbacks.

·         Increasing poverty, hunger and malnutrition.

In response to the crisis and to his critics in the political opposition, Mexican President Felipe Calderón of the National Action Party (PAN) announced on Oct. 8 a program to deal with the crisis. Calderón’s plan — a mirror of the plan put forward by Andrés López Obrador of the Party of the Democratic Revolution (PRD) — calls for spending US$4.3 billion on public works, particularly mass transport and refineries. The government will also offer support to small- and medium-sized businesses.

The plan will have the government spend 65.1 billion pesos ($5.26 billion) or about 1 percent of GDP.[1] At the same time, the government will cut the Federal budget by 2.7 billion pesos, down from 2.82 trillion to 2.79 trillion pesos as a result of projected shortfalls in taxes and because of falling petroleum prices.[2] Calderón emphasized that this was not a financial rescue plan, but rather a plan aimed at the real economy and issues of employment. The Mexican Congress will need to approve Calderón’s plan before it can take effect.

A Government Already in Crisis

The financial crisis comes at a bad moment for the Mexican government of Felipe Calderón of the National Action Party (PAN) which faced a crisis of legitimacy because of the accusations of vote fraud and of improper political intervention by President Vicente Fox, also of the PAN, during the 2006 elections.

Since then Calderón has been leading a war against Mexico’s drug dealers which has led to partial militarization of the country, resulted in thousands deaths, and so far failed to bring victory and peace. Guerrilla groups have periodically blown up Mexican pipelines. Miners have been on strike for more than a year and dissident teachers have shut down schools in several states. Many fear that even greater social turmoil than what it is now experiencing could be on the agenda for Mexico.

Calderón new plan and revised Federal tax and accompanying budget proposals may help to alleviate the crisis, but it is unlikely that it will prevent increased demands from many sectors of society. Mexico’s independent labor union alliances have been mobilized for years against neoliberalism and in defense of social property. Now they will face a greater challenge.

A Crisis for the NAFTA Region

The U.S. financial crisis has caught up Canada and Mexico as well. Canada and Mexico have long been tied to the U.S. economy, but the process of globalization and the negotiation of the North American Free Trade Agreement (NAFTA), which took effect in 1994, drew both nations into a far closer economic and financial relationship to the United States. While both Canada and Mexico claim that their financial institutions have not participated to the same degree in the risky financial practices of their U.S. counterparts, still both have some of the same problems. Moreover, integrated as they are into the U.S. economy, they will share both some of the financial woes and will be dragged down with the U.S. into recession. In Canada government and business leaders say they too face financial problems from the mortgage market, though not as serious as those in the U.S., and they now foresee a recession for Canada.[3]

The U.S. financial crisis and the recession pose more difficult problems for Mexico than for Canada. Mexico is virtually integrated into the United States in terms of production and finance (not to mention political, military and security connections). The U.S. provides half of Mexico’s foreign investment, buys 85 percent of its exports, and provides work for millions of Mexican workers. Nearly ten percent of Mexico’s population — about ten million people — have migrated to live and work in the United States in the last couple of decades. A U.S. recession means a Mexican recession.

Mexican View of the Crisis

While no one can foresee the exact depth and breadth of the recession, Carlos Slim, Mexico’s richest man, believes that the crisis combines elements of the crises of 1929, 1970 and 1982, and he says, it "is more complex than that of 1929 and bigger because the economy is bigger." But he also expressed his belief that with its previous experiences, Mexico should be able to withstand it.[4] Mexico’s Secretary of Finance, Agustín Carstens calls the U.S. financial crisis "unprecedented" and says that without a doubt it would affect the Mexican economy.[5] He said that faced with "the crumbling [demoronamiento] of the financial system," that Mexico will "respond and use all of the instruments which the state had at its disposal."[6] Secretary of Communications and Transportation Luis Téllez Kuenzler called the crisis "monumental," though perhaps not as great as in other parts of the world.[7]

The Mexican government claims that its financial system is sound because of measures it took after the 1994 Mexican financial crisis. Still, given the integration of world financial systems, Mexico will not be entirely immune. Over 80 percent of Mexico’s banking assets are foreign owned: one-third by U.S. banks, one-third by Spain, and the rest by other European banks.[8] The shares of at least one Mexican bank have already fallen significantly.[9] The Mexican stock exchange lost over 5% in the first week of October.[10] The Mexico peso has lost ground as well, with the rate now at 12 pesos to the dollar, a loss of about 10 percent. The Bank of Mexico intervened to keep the peso from falling to 14 to the dollar.[11]

Effects on the Real Economy in Mexico

More important, the U.S. recession, now expected to be long and deep, will have effects on the real economies of both countries. Guillermo Ortiz, head of the Bank of Mexico (Banixo), says that Mexico will suffer from a fall in economic growth, exports, and employment.[12] As a result of the U.S. financial crisis and recession Mexico will see less foreign direct investment, a decreasing market for its exports, less migration abroad and lower remittances, and rising unemployment. Mexico also faces declining oil prices, its chief source of government revenue, which together with the financial crisis and recession will mean cuts in the Federal budget.[13]

Rogelio de la O, an economist allied with the Party of the Democratic Revolution (PRD), predicts that Mexico will lose 1 million jobs this year and 1.5 million next year. Mexico needs to create more than 1 million jobs each year, meaning that in two years Mexico would produce 4.5 million new unemployed.[14]

Mexican Secretary of Labor, Javier Lozano Alarcón, has expressed concern that 200,000 Mexican migrants could return to Mexico within a year, possibly leading to higher unemployment. The Pew Hispanic Research Center in the United States has already noted a decline in undocumented immigration to the United States in the last few years.[15] Secretary of Social Development, Ernesto Corder Arroyo warned that the fall in remittances from Mexican workers in the United States would lead to hunger in Mexico. Some 14 million families in Mexico cannot afford to buy the basic food basket to support a family and six percent of those receive help from family members working in the U.S., he said.[16] Migration to the United States has long been looked upon as Mexico’s social pressure escape valve, but the combination of stricter border controls, workplace and community raids by Immigration and Customs Enforcement (ICE) leading to increased deportations, and now the economic downturn in the U.S. economy all appear to be tightening up the lid, jamming up the valve, and turning up the fire under the pressure cooker.

Mexican Response to the Crisis

President Calderón has found himself challenged by everyone from the church to the opposition parties to take extraordinary action to respond to the crisis. The Mexican Catholic Church, speaking through the Archdiocese of Mexico, the national primate, declared through its weekly newspaper Desde la Fe (From the Faith) declared that the U.S. financial crisis had proved that savage, speculative capitalism "had failed." Criticizing government officials for a false sense of optimism, the church called for a return to a socially responsible economy.[17]

Representatives of the Institutional Revolutionary Party (PRI), which ruled Mexico for over 70 years, of the left-of-center Party of the Democratic Revolution (PRD), and of two smaller left parties, the Workers Party (PT) and Convergence, have told the government that the neoliberal model is dead and — before Calderón acted — demanded that the government create public works that will generate jobs.[18] The PRD proposed to the Senate that the governor of the Bank of Mexico be asked to set aside 25 billion pesos for the building of public works and infrastructure.[19] Outside of the Mexican Congress, the PRD remains paralyzed because it is divided between a left and right wing that cannot bear to be in the same room, much less overcome the divisions in the party.

Andrés Manuel López Obrador, the PRD presidential candidate in 2006 who, after what he claimed was a fraudulent election, proclaimed himself the Legitimate President of the Legitimate Government of Mexico represents a challenge to Calderón’s government. López Obrador, who — independent of his party — has the power to mobilize millions of Mexicans, mostly from among the working class and the poor, put forth an "anti-crisis plan" days before Calderón acted. López Obrador has blamed the Calderón government for ignoring the signs of a coming crisis and failing to act to prevent it. Once it the crisis began to unfold he called upon the government to adopt 30 measures to deal with, among the most important:

·         Cancel all increases in the prices of gasoline, diesel, gas, and electricity.

·         Increase the budget destined for the countryside.

·         Construct three refineries so Mexico, an oil producing country, won’t have to buy refined fuel from abroad.

·         Carry out a program of public works to reactivate the economy and to generate jobs.

·         Increase the public budget destined for youth as a social investment giving educational stipends to all students.

·         Create a food budget for older adults, beginning with the indigenous population and the urban and rural poor.[20]


Calderón essentially adopted the core of López Obrador’s plan based on public works. In response López Obrador has emphasized his call for cuts in wasteful government programs and bureaucrats salaries.[21] The PRD legislators have called for a 50 percent reduction in the salaries of government minister, legislators, and high level functionaries.[22]

López Obrador’s appeal and his movement are almost certain to grow during an economic crisis, though it seems highly unlikely that he would attempt to oust the man he calls the usurper.

To the left of López Obrador stands Subcomandante Marcos of the Zapatista Army of National Liberation (EZLN) who during the 2006 election conducted a non-electoral, anti-capitalist "Other Campaign" in which he and his compañeros visited cities, towns and rural areas throughout Mexico. Marcos and the EZLN, who reject all of Mexico’s political parties and its government, lost some of their support because of their sectarian behavior during the 2006 election when they refused to join the movement against election fraud. Still, they retain their base in the state of Chiapas and have an unorganized and amorphous following throughout the country. It remains to be seen if Marcos will seize the moment.[23]

In addition to the EZLN, which has not fired its arms since January 1994, there is also the Peoples Revolutionary Army (EPR), which has taken responsibility for some recent violent attacks on the government, as well as other small guerrilla groups. These groups maintain a revolutionary posture toward the government and usually define themselves as Marxist-Leninist.[24]

Finally, besides the PRD and the EZLN and EPR, there are those groups, neither parliamentary politicians nor guerrilla rebels, but movement activists and party-builders — revolutionary nationalists, Trotskyists, neo-Stalinists, and Maoists — who have anti-capitalist programs and small followings and have proven capable of intervening in social upheavals, such as the Oaxaca Civic Uprising (sometimes called the Commune of Oaxaca) two years ago.[25] One can expect all of these groups to offer revolutionary alternatives to Mexico’s government and its business class.

The Mexican Labor Movement

The financial crisis finds Mexico’s labor movement deeply divided, though the labor left is already mobilized to defend social property and the working class. Mexico’s "official" or government-backed unions united in the Congress of Labor (CT) and dominated by the conservative and corrupt Confederation of Mexican Workers (CTM) — which for decades supported the PRI — have since the Fox administration offered political cover to the conservative PAN. The CT can be expected to criticize the U.S. financial institutions and to call for very minimal improvement for workers, but will not take action.

A new and more dynamic, but equally conservative and corrupt, union alliance is that between the Mexican Teachers Union (el SNTE) led by Elba Esther Gordillo and Mexican Petroleum Workers Union (STPRM) led by the notoriously corrupt Carlos Romero Deschamps. Gordillo, a former head of the PRI and a shrewd political operator, called for this alliance to deal with the economic crisis back in May of 2008.[26] Gordillo, who has been a supporter of President Calderón, will attempt to respond to the crisis by winning more influence for herself and her union with the Calderón government.

The Labor Left

Mexico’s labor left, the National Union of Workers (UNT) and the Mexican Union Front (FSM), have been in a nearly constant state of mobilization against the government of presidents Fox and Calderón for the last eight years. They have sought to protect the Mexican Petroleum Company and the Light and Power Company of Central Mexico from privatization through a series of national mobilizations. The two left labor alliances have also created a National Union, Peasant, Social and Popular Front (FSCSP) that has used every occasion to criticize the government’s neoliberal policies.[27] Among other things they have called for a renegotiation of NAFTA.

Also already in struggle on the labor left is the Democratic Coordinating Committee (formerly la CNTE) of the Teachers Union which has been leading protests and strikes for weeks in various states throughout Mexico against the Alliance for Quality Education (ACE) established by President Calderón and teachers union leader Elba Esther Gordillo. Then too there is the Mexican Miners and Metal Workers Union (SNTMMRM) which has been on strike at Grupo Mexico’s Cananea copper mine and other mines for more than a year in a fight to defend the autonomy of their union. The Calderón government has removed Miners Union leader Napoleón Gómez Urritia from office, accused him of embezzling more than US$50 million, and drove him into exile in Vancouver, British Columbia, the location from which for more than a year he has led the union.

Since the crisis began, some small or local unions in the public sector have begun to issue statements calling on the government to protect employment.[28] So far the major unions have not issued positions on the financial crisis.

Mexico’s labor, social, and left movement will all be called upon to respond to the challenge of the current crisis. We will see who rises to the occasion in the next few months.

Notes


1. Claudia Herrera Beltrán, "Reconoce Calderón los impactos de la crisis y presenta plan para enfrentarla," La Jornada, Oct. 9, 2008; Jens Erik Gould and Andres R. Martinez. "Calderon Proposes Spending to Bolster Mexico Economy (Update1)" Bloomberg.

2. Roberto Garduño and Ciro Pérez, "El Ejecutivo ajusta el presupuesto 2009 a la baja; será de 2.7 billiones de pesos," La Jornada, Oct. 9, 2008.

3. Greg Quinn and David Scanlan, "Canada Joins Other Central Banks, Stocks More Dollars (Update3)," Bloomberg.com, Sept. 18; CTV.ca News Staff, "Scotiabank forecasts recession for Canada," CTV, Oct. 6.

4. Miriam Posada García, "La crisis en EU es peor que la debacle de 1929, afirma Carlos Slim," La Jornada, Sept. 30, 2008; "Mexico tiene experiencia para enfrentar crisis: Slim," Notimex, Sept. 30, 2008.

5. Roberto González A., Roberto Garduño, and Enrique Méndez, "Afectará a México la crisis sin precedentes de EU: Carstens," La Jornada, Sept. 18, 2008.

6. "Carstens: habrá medidas emergentes por crisis de EU," Notimex, Oct. 1, 2008.

7. Miriam Posada García, "La crisis que viene será monumental y habrá que sobreponerse: Luis Téllez," La Jornada, Oct. 9, 2008.

8. Alexei Barrionnuevo, "Emerging Markets Find They Arent Insulated from the Tumult," New York Times, Oct. 7, 2008.

9. Noel Randewich, "Mexico says banks protected, exports a weak spot," Reuters, Sept. 29, 2008.

10. Juan Antonio Zuñiga, "Perdió la BMV 5.40%, empujada por los desplomes en las bolsas mundiales," La Jornada, Oct. 7, 2008.

11. Juan Antonio Zuñiga, "Fuerte demanda llevó el dólar a $12, el precio más alto en 16 años," La Jornada, Oct., 7, 2008.

12. "Resiente México crisis de EU: Ortiz," El Economista, Oct. 6, 2008.

13. Roberto Garduño and Enrique Méndez, "Ante la crisis, Hacienda replantea el presupuesto," La Jornada, Oct. 3, 2008; Israel Rodríguez, "Se desploman precios del crudo; las mescla mexicana, por abajo de lo presupuestado," La Jornada, Oct. 7, 2008.

14. Jeremy Schwartz, "Looming economic disaster in Mexico?" Austin American-Statesman, Sept. 30, 2008.

15. Jeffrey Passel, "Trends in Unauthorized Immigration: Undocumented Inflow Now Trails Legal Inflow," Pew Hispanic Research Center, Oct. 2, 2008.

16. Victor Ballinas, "Si afectará a familias pobres la crisis en EU," La Jornada, Oct. 7, 2008.

17. José Antonio Román, "Pide la Iglesia a funcionarios ser realistas ante la crisis en EU," La Jornada, Oct. 6, 2008.

18. Enrique Méndez, "Demandan diputados medidas extraordinarias," La Jornada, Oct. 7, 2008.

19. "Plantea el PRD usar parte de las reserves monetarias para un plan de contingencia," La Jornada, Oct. 8, 2008.

20. Andrés Manuel López Obrador, "Urge Aplicar un Plan Anti-Crisis."

21. Alma E. Muñoz, "Calderón culpable del impacto en México de la crisis en EU: AMLO," La Jornada, Oct. 9, 2008.

22. Andrea Becerril, "Propone Monreal reducer 50% ingresos de legisladores, ministros y funcionarios," La Jornada, Oct. 9, 2008.

23. The EZLNs latest manifesto: "Sixth Intergalactic Commission." To the best of my knowledge Marcos has not yet spoken out on the current financial crisis of Sept.-Oct. 2008.

24. Mexicos armed guerrilla groups and their various manifestos and statements can be found at: CEDEMA.

25. The literature on Oaxacas Civic Uprising includes: Victor Raúl Martín Vásquez, Autoritarismo, movimiento popular y crisis política: Oaxaca 2006 (Oaxaca: Diálogo, 2006); Diego Enrique Osorno, Oaxaca: La primera insurección del siglo XXI (Mexico: Grijalbo, 2007); Cuauhtémoc Blas López, Oaxaca: Insula de Rezagos: Crítica a sus gobiernos de razón y de costumbre (Oaxaca, Mexico: Editorial Siembra, 2007); Nancy Davis, The People Decide: Oaxacas Popular Assembly (np: Narco News Books, 2007); Richard Roman and Edur Velasco Arregui, The Oaxaca Commune: The Other Indigenous Rebellion in Mexico (Canada: Socialist Project, 2008); also the journals: Socialism and Democracy, Vol. 21, No. 2 (July, 2007), special section "The Uprising in Oaxaca" and Cuadernos del Sur, Vol. 12, Nos. 24/25 (Nov. 2007) issue dedicated to Oaxaca events of 2006.

26. Carolina García, "Lanzan sindicatos propuestas laborales ante la crisis," El Universal, May 30, 2008.

27. Dan La Botz, "Mexicos Labor Movement in Transition," Monthly Review, Vol. 57, No. 2 (June 2005).

28. Patricia Muñoz Rios, "Organizaciones obreras señalan graves efectos de la pulmonia financiera de EU," La Jornada, Oct. 7, 2008.

Dan La Botz is a Cincinnati-based teacher, writer and activist. He can be reached at: [email protected]

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