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Mexico's Track Record: A Cautionary Tale for the G-20

June 8, 2012 · · Originally published in Heinrich Boell Foundation

As Mexico becomes the G-20 chair for 2012, its embrace of a neoliberal agenda of deregulation and privatization show a poor track record on all the group's goals.

The key priorities of Felipe Calderon’s government for Mexico's presidency of the G20 include the important issues of economic growth and job creation, financial stability and inclusion, food security, and sustainable development. However, in each of these areas, Mexico itself has a very poor track record. Calderon has continued to champion a neoliberal agenda of deregulation and privatization, despite dismal results for the majority of Mexicans. Since the summiteers will be cocooned in the luxurious and secluded resort of Los Cabos, a reality check is in order.

1. Low levels of economic growth and creation of precarious jobs

Felipe Calderon will chair the G-20 this year.Calderon has stated that "notwithstanding the bad economic management choices in the past, today it [Mexico] is a different country than in the past, more responsible, as it is reflected by its growing economy, with low inflation and employment generation." In fact, Calderon's term (2006-2012) is characterized by the slowest growth since 1954, a mere 1.58% in average from 2007 to 2011 and, according to World Bank indicators, between 2007 and 2010, GDP per capita in Mexico decreased by 3.71%, which is among the worst performance in Latin America. If we compare Mexico with Brazil and Argentina (the other Latin American countries in the G20) the results of different economic strategies are evident. In the same five year period, real annual growth in Brazil and Argentina averaged 4.38% and 6.64%, respectively (the Latin America's average being 3.56%). These countries rely heavily on domestic market growth, as well as on sub-regional integration, while Mexico relies on exports to the United States. Consequently, Mexico suffered more from the 2007 – 2008 economic crises than any other country in the hemisphere. After several decades of export – oriented policies promoted by the World Bank, the IMF and the North American Free Trade Agreement (NAFTA), Mexico lacks a strong internal market that could compensate for the decline of demand from the United States.

According to the OECD, since 2008, informal employment in Mexico has grown steadily while the creation of formal jobs has dropped sharply, particularly among young people. In fact, during the 12-year tenure of the National Action Party (PAN) under Presidents Vicente Fox and Felipe Calderon, 10.8 million new jobs have been created. Three out of every 4 of these new jobs are in the informal sector, where workers lack the benefits and pensions to which they have a right. Also, under Calderon, salaries in Mexico have lost 42% of their purchasing power. As a result, during Calderon’s term, more than 10 million people have joined the ranks of the poor. According to official statistics 51.3% of Mexicans now live under the poverty line (and 18.8% suffer from hunger).

2. Financial instability and exclusion

Mexico's financial performance is characterized by increasing levels of illicit transfers, high concentration of foreign ownership in the sector, an increase in speculative flows, and rising indebtedness.

Illicit transfers

During Calderon's term, the illicit transfer of funds increased by 150% compared to the previous term. According to the Bank of Mexico, some 47.3 billion USD have flown out of Mexico through "nonindentified channels." A recent study by the Global Financial Integrity finds that illicit financial flows from Mexico have more than doubled since 1994, reaching a yearly average of 12.7% of GDP, given that "NAFTA removed many barriers to trade and investment between Mexico, Canada, and the United States; it also freed up the market for legal and illegal transactions."

Foreign ownership

Another risk to Mexico's financial stability is the high concentration of foreign ownership of its financial system. According to the IMF "concentrated loan portfolios increase credit and contagion risks, which are not sufficiently monitored and addressed by current regulations and supervisory practices." Two of the four major banks in Mexico are Spanish and the deterioration of Spain's economy has affected their ability to provide credit to Mexican clients.

This situation makes it more difficult for Calderon's to achieve his aim of increasing "financial inclusion." Far fewer Mexicans have bank accounts compared to the Latin American average. The percentage of Brazilians with such accounts is twice as high as in Mexico.

Speculative flows

The share of foreign investors holding Mexico's internal debt has quadrupled since Calderon took office (to 28% in 2010), which in part reflects the entry of massive amounts of speculative money. Several institutions such as the World Bank and the United Nations express concern that these flows could suddenly reverse course. Mexico would need to draw down its foreign reserves and resort to greater reliance on debt. In 2010, the level of portfolio investment (stocks and government bonds) surpassed the level of foreign direct investment for the first time. In 2011 FDI and portfolio investment reached 19.4 billion USD and 41.1 billion USD respectively.

Rising indebtedness

In contrast to Europe and its financial crisis, Calderon presents Mexico as a haven of financial stability. However, Mexico's stable image rests on growing indebtedness. During Calderon’s term the total debt (internal and external) of the public sector has more than doubled from $1,985 billion pesos to 4,848 billion pesos (or 346.5 billion USD) in 2011, which equals 34.2% of the GDP. Moreover, the Bank of Mexico is increasingly in need of using foreign reserves to keep the peso afloat from heavy devaluation pressures.

3. Food insecurity and the jump in food prices

Calderon's pretense of leading food security and tackling the volatility of commodity prices is preposterous given the exclusion of farmers from the credit system, the lagging agricultural GDP, the rise in food imports, and the steep rise in food prices during his Presidency. Moreover, the governments of the National Action Party (2000 to date) have vigorously continued the process of dismantling Mexico’s food security system. This process was started by policies imposed by the IMF and the World Bank in the 1980s and by NAFTA since 1994.

Financial Exclusion

Financial exclusion can doom Mexico's small farmers because their lack of access to credit puts them at a disadvantage vis à vis large subsidized agroindustrial giants. In 2007, the percentage of farms with access to credit and insurance was only 2.6% and 0.2% respectively, compared to 16.9% and 4.3%, in 1991.2 Also, when Mexican farmers borrow, they are charged exorbitant interest rates ranging from 8 to 20% compared to the rates for producers in the U.S. (0.5% to 2.5%) and Brazil (0.5 to 3.0%). Also, only 10% of persons older than 15 in rural Mexico have a bank account (compared to 33.6% in rural Latin America, 44.4% in Argentina, and 51.9% in Brazil).

Lagging Agricultural GDP

Since 2000, Mexico’s agricultural GDP has grown at a paltry yearly rate of 1.3% on average, which is half of the annual 2.6% rate that prevailed during the previous decade. From 1940 to 1982, before the adoption of the neoliberal model (when state support mechanisms were in place), the sector grew at rates ranging between 3%-8% annually. In fact, since 2000, Mexico has had one of the worst agricultural growth rates in Latin America and the Caribbean, only superior to Cuba and Haiti.

Food Imports

While some Mexican agro-exports have grown under NAFTA, food imports have grown more rapidly, resulting in an increasingly negative agricultural trade balance. Mexico's accumulated deficit under NAFTA amounts to 31.9 billion USD (agriculture and livestock) and 45.5 billion USD (food industry). These trends have grown under the PAN presidencies.3

Since 1994, food import dependency has continuously increased in Mexico. The percentage of grain and oil imports jumped from 23.1% to 37.8% between that 1994 and 2010. In the last five years of Calderon’s presidency, Mexico has spent 53.18 billion USD to import food. The price of tortillas, the basic Mexican food staple, has tripled since 2005, largely because of the increased use of maize to produce ethanol.

The outcome has been an unprecedented increase in hunger in Mexico. In 2011, the U.N. Special Rapporteur on the Right to Food Olivier De Schutter noted that Mexico’s public agricultural budget is "highly regressive" because "most agricultural programs fail to target the poor." He further points out that although "the right to food is recognized as a constitutional right in Mexico," the country lacks "a comprehensive national strategy for the realization of the right to food." He recommends, among other things, that Mexico "ensure that its agricultural policies make a more effective contribution to combating rural poverty."

4. Environmental deficits and violation of indigenous rights

Calderón strives to present himself as an environmental president. But, in reality, his government has a disastrous environmental record. For example, it has granted mining concessions to hundreds of foreign companies that extract gold, silver, copper and other metals. These companies pay few or no royalties and leave behind a highly toxic legacy. As of 2010, 724 mining projects were recorded across the country. Mining concessions dominate almost a third of Mexico's land area (56 million hectares) and the government emphasizes the "potential" for mining in the remainder of the country.

Mining companies have extracted more gold and silver under the Fox and Calderon regimes than they did during the three centuries of Spanish colonial period. This has occurred without respect for the indigenous rights established under the ILO Convention 169, including the right to consultation and associated property rights. The Calderon government has given rights to Spanish wind energy companies to operate in the region of the Tehuantepec Isthmus. This has violated the property rights of indigenous communities which have not been consulted and do not benefit from these projects. The struggle of communities to protect their environment from mining and energy projects has resulted in persecution, imprisonment, exile and the assassination of community leaders.

During the Climate Change Summit in Cancun (COP16), Calderon said that the world needed "a new paradigm" and promised that Mexico would take steps to increase the use of renewable energy. Yet, despite the fact that Mexico's oil reserves will last only 10 more years, the government has done very little to establish a transition to renewable energy.

Tourism also plays a role in Mexico's environmental degradation. All along Mexican coasts tourist projects are threatening or destroying the natural environment, including Cabo Pulmo, which is close to the G20 Summit site of Los Cabos. Seventy five percent of the country’s mangroves have already been destroyed as well as several coral reefs.

Rather than promoting agroecology approaches that would provide greater self-sufficiency in food production, Calderón has continued to support export oriented, agroindustrial, monocrop farming based on pesticides, fertilizers and the overuse of water and energy. The use of genetically-modified organisms is also an important issue. The use of genetically-modified organizations is also an issue. UN Special Rapporteur De Schutter states, "the cultivation of transgenic maize in Mexico poses acute risks to the diversity of native maize landraces4, given the unknown effects of genetically modified maize coexisting with non-genetically modified maize in the country’s complex environmental conditions."

Mexico's environmental deficit (officially accounted for with the Total Costs for Exhaustion and Environmental Degradation indicator) reached roughly 70 billion USD in 2010 (7.2% of the entire GDP). This means that the reports of Mexico’s paltry economic growth in the last years are over-optimistic; its economy has actually contracted.

Conclusion

In leading the G20, Calderon has a major challenge because, according to many indicators, Mexico is clearly lagging. The obstinate pursuit of "structural reforms" (labor flexibility, private investment in the oil and energy sector, regressive tax reforms) that deepen the neoliberal model demonstrates the Mexican government’s incapacity to understand the nature of the global economic and financial crises. Calderon has been blatant in his defense of the failed system. For instance, in reference to the sovereign policies of countries, including Brazil and Argentina, he declared that "the big mistake of Latin America is to think that the way out is to protect national markets from trade and to protect national interests from foreign investment." On the contrary, while trade and investment can be engines for growth, the G20 leaders should seek to address the causes of the present global crises by strengthening production for the internal markets, applying capital controls to stem capital volatility, increasing support to small farmers and local companies, and transitioning to renewable energies with the full consent and participation of indigenous and local communities.

References

1. With thanks to Nancy Alexander, Sarah Anderson, Enrique Pérez and Victor Suarez at ANEC, Alberto Arroyo and Alejandro Villamar at RMALC.

2. Mexico’s national agricultural and livestock census.

3. The information on financial exclusion, lagging agricultural GDP and food imports, unless otherwise cited, was taken from the document "La agricultura mexicana en la primera década del siglo XXI: El fracaso de la alternancia de derecha y de la continuidad neoliberal" by Víctor Suárez Carrera .

4. A "landrace" is a local variety of a domesticated animal or plant species which has developed largely by natural processes, by adaptation.

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