Mexico’s Economic Recovery—How Successful Is It?
BY AWAKE! CORRESPONDENT IN MEXICO
WORLDWIDE, many nations are struggling with high inflation, devaluation of currency, instability, and public anxiety. With the changes that have been taking place in Russia the last two years, the economic problems in that country seem to be worsening. The United States, although considered the wealthiest nation of the world, is trying to crawl out of a recession. Now Japan’s boom has slowed down, and the Japanese are being more careful with their finances. As for Latin America, economic problems are a way of life.
In this context it may be surprising to read some declarations about Mexico’s economic recovery. Mexico’s president Carlos Salinas de Gortari stated: “We have reduced inflation from almost 200 percent in 1987 to a level that has already reached 10 percent and continues to fall.” In his speech to the Foreign Policy Association in New York, he continued: “Since 1989, thirteen million Mexicans have gained access to electric power, eleven million to the drinking water supply, and eight and a half million to the sewage system.”
So some questions may arise. What does this recovery involve? Are the Mexican people improving their standard of living?
The Crisis Years
Before the ’70’s, Mexico was considered to be economically stable. With its peso having a parity of 12.50 per dollar, the economy was basically steady, and the external debt was more or less controlled. But in the ’80’s, when it seemed that there should be an economic boom because of more oil being found in Mexico, paradoxically a crisis developed, and in 1987, Mexico reached its highest inflation index.
At that time it was very difficult to keep up with the demand for money, and the government continued printing currency that lost value every day. Large sums of money started to flee the country to be kept more secure in banks abroad. The devaluation of the peso was much the same as the rate of inflation. In 1992, when the exchange rate was 3,110 pesos to the dollar, the devaluation had surpassed 24,000 percent since the ’70’s, when the rate was 12.50 pesos.
In the two six-year periods prior to 1988, most of the action taken by the government to solve the problems mentioned above seemed self-defeating and undermined the Mexican economy. The distrust, both inside the country and in foreign countries, started to spread, all the more so when in 1982, Mexico advised that it was not able to pay even the interest on its external debt.
Drastic Changes in the Mexican Economy
Changes have taken place during the presidency of Carlos Salinas de Gortari, who took office December 1, 1988. President Salinas, an economist and graduate of Harvard University, surrounded by a group of financial experts, faced the task of restructuring the Mexican economy. There were two options to choose from: a mixed economy or a market economy. A mixed economy is one in which the State controls a greater part of the industries and services, while giving opportunity for private enterprise to exist. A market economy is one in which the country is given full freedom, and industry and the private sector are allowed to operate with minimal interference from the State. The Salinas government chose a mixed economy, reversing the process that had been pursued in previous years. The former government had loaded itself with many enterprises and service agencies that, instead of being productive, needed State subsidies in order to survive. Now private companies were given more opportunity, and therefore some State enterprises began to be sold—almost 400 up to now—which created a cash flow and eased the burden on government finances.
With the privatization of enterprises and the concomitant austerity policy in public expenses, it has been possible for Mexico to refinance its external debt, which in 1993 amounted to over $103 billion. In this situation some countries now view Mexico more confidently as a country for possible investment.
The North American Free Trade Agreement (NAFTA)
Since 1990 a free trade agreement has been negotiated involving Canada, the United States, and Mexico. During 1993 the debate over final approval of this accord continued, especially in the United States. Ratification had to be completed by the end of 1993 so that the agreement could go into effect on January 1, 1994. While the agreement was negotiated during the administration of former U.S. president George Bush, during the present Clinton presidency there have been many opponents to the pact in the United States and in Canada. Why the controversy?
There are different opinions about the possible effects of NAFTA. The Mexican viewpoint is understandably positive. Jaime José Serra Puche, Secretary of Commerce and Industrial Promotion for Mexico, stated to a group of American businessmen in Detroit: “NAFTA makes a great deal of sense. That is, NAFTA will help us to create more jobs, it will help us become more competitive, and NAFTA will help us improve the environment as well.” That last assertion is one that many Americans doubt—they allege that the environment has not been a prime consideration of Mexican businesses on the U.S. border. It is also reported that U.S. unions fear that NAFTA will cause significant job losses for the American work force. The answer of President Salinas is: “Mexico is the fastest growing market for U.S. exports.” He said that Mexico is “the third largest buyer of U.S. goods, behind only Canada and Japan.”
Besides the United States and Canada as trade partners, Mexico is opening its doors to other countries. Japan has shown interest in investing in Mexico. In fact, one of the enterprises (Teléfonos de México) that was privatized was acquired with mostly Japanese capital.
The Mexican Nuevo Peso (New Peso)
One of the government’s strategies for better control of finances is the modification of the Mexican currency. With the devaluation of the peso against the U.S. dollar, great sums in pesos were necessary for business transactions. Up to 1992, it took 3,150 pesos to equal one dollar, which meant that a value of 1,000 dollars required 3,150,000 pesos. Can you imagine larger amounts of money, such as one million or 100 million dollars? This would require too many digits to be practical for business transactions. Therefore, in 1993 it was decided to take three zeros off the peso. Now the rate is 3.20 pesos per dollar, and the use of cents has again become possible in the domestic economy.
The New Economy—Repercussions in the Country
For some years now, there has been an agreement in Mexico among employers, industry, and the banking sector to try to control prices. Labor unions have also agreed not to demand increased wages. This has been a way to control inflation. However, how effective has this control been? Some people think that while the increase in wages has been controlled, prices have increased. Even though inflation, according to official figures, was kept under 10 percent in 1993, ordinary people, including housewives, felt that each day they could buy less with the same amount of money. The London Economist summed up the situation, saying: “The fiesta has given way to siesta.”
This leads to the question: Has the economic improvement fostered real improvement in Mexican society? Unfortunately, poverty continues its gallop. It is said that the minimum wage for workers, which hardly surpasses 150 dollars a month, makes it impossible for them to avoid poverty in many places. In some Mexican states, the minimum wage is even lower. An average worker or a bricklayer may earn the equivalent of $200 or $300 a month, which makes it very difficult for him to support a family. According to a recent study, “of the 91.9 percent of Mexico’s population living in poverty, some 30.1 percent are in extreme poverty.”—El Universal, March 31, 1993.
In this setting, over 380,000 of Jehovah’s Witnesses are preaching a positive message to the 85 million Mexicans—that soon poverty and injustice will be done away with worldwide under God’s Kingdom rule in the hands of the resurrected Christ Jesus. The Bible promises: “Here I am creating new heavens and a new earth; and the former things will not be called to mind, neither will they come up into the heart.” “They will certainly build houses and have occupancy; and they will certainly plant vineyards and eat their fruitage. They will not build and someone else have occupancy; they will not plant and someone else do the eating. For like the days of a tree will the days of my people be; and the work of their own hands my chosen ones will use to the full.” (Isaiah 65:17, 21-24) At that time poverty will cease, wherever it may have existed.
[Blurb on page 20]
“Mexico is the fastest growing market for U.S. exports.”—President Salinas