Backed by numerous international economic forecasters, the administration of Mexican President Peña Nieto predicted a buoyant year of vigorous growth, robust foreign investment, muscular job creation and, magically, lower prices for consumers.
President Enrique Peña Nieto’s scheme of turning Mexico into an authentic, not easily rattled, middle-class country appears in trouble as world oil prices continue to topple. If Mexico and a number of other vulnerable countries maintain even a shadow of a steady economy, many grim-minded oil assessors say, they could be seen as enjoying something of a miracle.
But, ask many Mexicans: Are the deep-thinkers and clever manipulators prepared to deal with the clearly seen worldwide oil future? Most responses certainly are not as optimistic as the president believes them to be.
The president’s challenges go far beyond oil. He and his former TV soap opera queen wife, Angelica Rivera, bought a noticeably opulent new weekend home in a noticeably opulent neighborhood. The purchase was conveniently accomplished with the “help” of a consortium that had won several no-bid state government contracts from Peña Nieto when he was governor of the state of Mexico.
Then, September 26, 2014, 43 student teachers were kidnaped by police and handed over to drug cartelistas in the state of Guerrero. As families wept and desperately looked for their offspring, the president and first lady went on vacation. Peña Nieto & Co seemed to believe the student “incident” would simply go away if the government ignored it. It took the president a month to decide to meet with the families of the disappeared students (now deemed murdered). Those families were dissatisfied with the meeting. “As always, we came away empty-handed,” said one father.
Peña Nieto seems to be coming away from his plans to revive the Republic’s waffly economy just as the price of oil, which dropped 60 percent since last June, continues to show no cause for cheering. True, it bounced back more than 20 percent as January slid into February. But Tuesday, February 10, it dove five percent, and user news offered little to applaud. Production in the United States and elsewhere appears to be rising, yet slower economic growth has a hold in China, Japan and economies in Europe. A number of economists say Mexico this year may experience more than market weaknesses, tumbling from laggard job growth to something more pronounced.
But Peña Nieto’s top advisors say the major developments that will energize Mexico’s economy in 2015 include 1) deep-sixing the irritating hikes in gasoline prices (the ‘gasolinazos’) 2) lopping off charges for long-distance calls made in-country; 3) energizing housing construction; and 3) surprisingly, financing for entrepreneurs aged 18-30.
Because much of the country’s gas and oil deposits are locked in tough-to-extract shale and deepwater deposits, expensive technology is necessary. “The present lower oil prices could reduce the profitability of projects that would have come from energy reform, and with it, reduce the effects that this might have on economic activity,” the Bank of Mexico says.
Further clouding the horizon are growing predictions that the international price of oil will crash to US$20 per barrel. Though about one-third of Mexico’s federal budget comes from oil sales, the administration maintains that recent tax hikes will compensate for such reduced petroleum revenues. At a recent seminar organized by the Autonomous Technological Institute, Economy Secretary Idelfonso Guajardo affirmed that the importance of oil as a generator of foreign exchange has decreased markedly, from 70 percent in previous years to 13 percent today. In this sense, Mexico’s booming auto export industry helps fill the oil revenue gap.
Other jitters in the Mexican economy include the value of the peso to the dollar, which has lately has been hovering around 15, and a possible increase in U.S. interest rates. Such higher rates could send foreign investors, who currently own 38 percent of Mexican treasury certificates and other government bonds, back across the border, says Proceso magazine.
The weakened peso means extra expenses in servicing a foreign debt that must be paid in dollars. Proceso tagged Mexico’s external debt at US$145.461 billion as of September 2014.
Insecurity also is a heavy drag on the economy. In a recent study, the National Institute of Statistics, Geography and Informatics (INEGI) found that one-third of Mexican businesses had suffered some kind of crime, usually robbery, within the past year. (And many believe that INEGI estimated the annual economic cost of crime in the neighborhood of US$10 billion, or 0.66 percent of the Gross Domestic Product, as too light.) A majority – 60 percent – of businesses surveyed rated crime as their biggest problem, followed by taxes (47 percent) and the anemic purchasing power of the public (42.2 percent).
Low wages and inflation are persistent sore spots in the economy. Dr. Carlos Gauna, professor of economics at the University of Guadalajara campus in Puerto Vallarta, calculates that the purchasing power of the average Mexican consumer tumbled nine percent during the first two years of the Peña Nieto administration, with the cost of the daily basic basket of goods rising from 172 pesos to 193 pesos. Inflation (hovering at four percent) is not spiraling, but steady price hikes take their toll on a workforce not enjoying accompanying wage increases. On the employment front, Gauna contended that Mexico must create one million new jobs every year but is effectively creating only 200,000.
Other hard-headed analysts say if Peña Nieto continues to cling to self-satisfying ways – i.e. cajoling reluctant, often angry citizens with unjustified optimism – untimely things will occur, such as more demonstrations calling for his resignation.
Lessons of a troubled presidency and the devaluation December 19, 1994. During the final years of outgoing President (1988-1994) Carlos Salinas de Gotari, both government and business bought into the dream of a nation floating on credit, an easy miracle for every income level. Except for the problem of financial discipline. Credit cards were passed out promiscuously in shopping malls and on street corners to anyone with the slightest kind of identification.
With the 1994 devaluation, banks appropriated every thinkable kind of possession from those clients unable to pay their credit debt. Suddenly government, banks and every type of merchandiser confiscated hectares of property whose value they were unable to maintain. Some were suddenly owners of vast numbers of vehicles, homes, farms, ranches, slaughter houses, thousands of head of livestock, millions of farm vehicles, humble homes, milpas, bicycles, clothing, toys.
Farmers and ranchers, historically loath to give up property, sold off the poorest portions of their land to maintain key acreage which would afford a thin livelihood for large families. I had ranching friends fighting a monetary war armed with a thin – or no – education. One family was selling off most of their livestock in order to, hopefully, maintain the most productive portions of their property. Others were selling off most of their property to keep young, healthy stock that would soon produce new herds – if they could borrow land. One moment millions of Mexicans were magically middle class, or about to be. The next moment ... pauperdom.
(First of a series on presidential optimism.)