How 'La Crisis' Is Crippling Mexico
COLBURN, FORREST D.
TOO MUCH GOVERNMENT How 'La Crisis' Is Crippling Mexico BY FORREST D COLBURN Hermosillo Mexico's most prestigious daily, Exc&sior, publishes a magazine of news and commentary every Thursday...
...Mexican politics runs on cooptation, the trading of small favors for allegiance...
...a previous NL contributor, teaches in the Department of Politics til Princeton University...
...The volume and earnings of petroleum exports fell both in 1984 and 1985...
...The trouble is they have yet to figure out how to make the public sector worthy of its cost in a way that would in their view be politically feasible...
...A big budget means a bigger bag of favors...
...Under De la Madrid the private sector has had only one unequivocal victory against the state—the dismantling of the agency responsible for exports, which was in reality hindering the sale of goods abroad...
...A case in point is a company that manufactures bicycles...
...More persuasive is the view that spreading money around is politically useful...
...In 1970, the average urban salary was five times higher than the average rural salary...
...No one doubts that they would like to fulfill their promise...
...of the Union message on September 1, 1982, he nationalized the Mexican banking system and introduced foreign exchange controls...
...It matters little to them that nothing concrete is happening, that the private sector and the general public are simply being forced to underwrite unrestrained government expenditures...
...A study by an economist at the National University has concluded that average urban salaries are now 6.25 times higher than their rural counterparts...
...Nearly 70 per cent of its foreign exchange comes from oil, and 50 per cent of the government's revenues is derived from the state petroleum company, Pemex...
...Behind the unwitting Mexican stood a bully of an infant sporting a sash identifying him as " 1986...
...In fact, there is some evidence that the country's inequitable distribution of income has worsened...
...In 1970 there were 86 public enterprises in Mexico...
...Whispers of corruption also abound...
...Why is Mexico's President pursuing a course that is so patently empty...
...Public enterprises are said to suffer a whole host of maladies: inadequate definition of objectives, poor organization, un-derutilization of resources, lack of cost control, poor coordination with other government enterprises and bureaucracies...
...85 billion, 100 per cent inflation, rising unemployment, and the first negative growth rate since the Revolution...
...The startling expropriation of the banks was decreed "in the national interest...
...Mexico recently cut its oil prices and announced it would in the future adjust them on a monthly basis, to stay competitive with the volatile world oil market...
...Ideology may be part of the answer...
...The phenomenon was dubbed the "Mexican miracle...
...International bankers are appeased by this—or any—method of controlling the national deficit...
...Worried Mexicans and nervous international bankers alike, therefore, looked to Mexico's incoming Administration to end la crisis...
...Large segments of Mexico's population were left behind, however, especially rural Indian communities...
...In his last State Forrest D. Colburn...
...It was sold not long ago to the powerful Mexican labor union, the Confederation of Mexican Workers...
...Since the state's involvement to this degree has mushroomed in the last decade or so, there is little systematic information about its efficiency relative to the private sector...
...A Mexican economist has predicted that earnings from petroleum will fall another 13 per cent in 1986...
...In 1982, before the nationalization of the banks, there were947 public enterprises...
...TOO MUCH GOVERNMENT How 'La Crisis' Is Crippling Mexico BY FORREST D COLBURN Hermosillo Mexico's most prestigious daily, Exc&sior, publishes a magazine of news and commentary every Thursday appropriately entitled Jueves...
...If a significant part of Mexico's economic troubles can be blamed on the international oil market, it is increasingly obvious that the government itself must bear some of the blame as well...
...De la Madrid, only halfway through his six-year term, is the subject of a new bookwhosetitlefocusesonhis failure to confront the crisis, ElFracaso de Miguel de la Madrid Ante la Crisis...
...And that will necessarily entail a thorough revision of the government's business practices, or its getting out of the business of being in business...
...And there was at least the hope that the marginal poor could someday be brought into thefold...
...Instead of freeing itself of unprofitable enterprises and unnecessary bureaucracies, they maintain the government businesses boost their prices to consumers where they have a monopoly, as many do...
...By 1982, when Jose Lopez Portillo's Administration completed its tenure, Mexico had a 600 per cent devaluation of the peso for the year, a debt ofU.S...
...What the state does not run it often regulates, and here too it is accused of promoting inefficiency...
...Many of Mexico's continuing economic problems can of course be traced to the drop in oil prices...
...Although what became known simply as la crisis was brought to a climax by falling oil prices and a contracting world economy, its underlying causes were expansionary fiscal and monetary policies that had been designed to ensure growth at any cost (or, as one cynic put it, the spending of oil revenues like lottery winnings), plus the peso's continued overvaluation...
...Jealous of its independence, Mexico currently limits single-country sales to 50 per cent of its total production...
...Or else the government raises taxes to shore up undertakings that face competition and to hold together its swollen managerial groups...
...In addition, Mexico's prosperity brought legitimacy and stability to the political offspring of the Mexican Revolution, the governing Institutional Revolutionary Party (PRI...
...Announcements by toy manufacturers that their already depressed industry sold 25 per cent less toys during the 1985 Christmas season is merely one of the many indicators that show life still is getting more difficult for middle-class Mexicans...
...Wit h the folly of his economic policies revealed, Lopez Portillo chose a political solution to save face...
...Yet these macroeconomic statistics mask the extent to which Mexico's economic problems have gone from bad to worse...
...More troubling to Mexicans (few of whom believe the debt will ever be paid), though, is their declining real incomes...
...In the short run there may be no alternative...
...A few public enterprises have been unloaded, but invariably in an ambiguous fashion...
...The infant clutched an oversized club adorned with the greeting, "Happy New Year...
...It even runs a golf course...
...International bankers were heartened, though, by the reduction of the deficit to 8.5 per cent of GNP...
...The President and Finance Secretary Jesus Silva Herzog have pledged themselves to making the public sector more efficient...
...He pledged himself to reverse the ever-growing government budget deficit, which in 1982 was equivalent to 18 per cent of the country's gross national product (GNP...
...Most citizens enjoyed a much more comfortable life than their parents did...
...Herzog has already made his first trip to the United States in search of the $4 billion Mexico estimates it needs to borrow in 1986, assuming a precipitous plunge in the value of its crude does not send the figure up to $8 billion...
...The bankers' narrow interest is whether Mexico lives within its means...
...The persuasive argument presented by the author, Victor Manuel Cuevas, traces the country's morass to the government's steadily expanding participation in the economy...
...Efforts to promote growth through state intervention were initiated during the reign of Luis Echeverria and accelerated by L6pezPortillo...
...They had "betrayed" and "plundered" the country, it was said, by aiding and abetting the saca-dolares (individuals who had sent money abroad...
...According to the World Bank, the distribution of income here has long been worse than in El Salvador...
...Equally debilitating has been the failure of the expansive Mexican state to carefully and convincingly delineate the respective roles of the public and private sectors...
...Not surprisingly, this thrust was accompanied by an explosion of government bureaucracies that began undertaking everything from rural development projects to the promotion of popular culture...
...Indeed, the ability of the rural poor to eke out a living has been called "Mexico's other miracle...
...The latest of these cite personal loans to bureaucrats that are many times higher than their annual salaries...
...The foreign debt, so alarming at $85 billion, has climbed to $96 billion in three years...
...His guess as to the precise level of the decline is probably no better than those that are less pessimistic, but the point is no one doubts earnings will slip again...
...Nonetheless, horror stories have begun to emerge that underscore what a white elephant government administration has been...
...Wage increases have not kept pace with rising prices of essential goods and services...
...Then in 1970, under President Luis Echeverria, Mexico's economy began to unravel...
...Last year, for example, they went up only around 30 per cent compared with the 57 per cent general hike in price levels...
...From 1940-70, Mexico's economy grew at an annual rate of almost 6.5 per cent—a pace surpassed only by Japan and Finland among the non-Communist developed nations and by a few advantaged developing countries, notably Libya, Korea and Israel...
...The government regulates the prices of basic grains, for instance, and sets them uniformly for the entire nation...
...Furthermore, the statistics available apply largely to the middle class...
...The year just passed was difficult for Mexicans, and this one will be equally rough...
...The issue that ushered in 1986 had a grim cover: A poor Mexican—one shoe missing, his clothes tattered, his body beaten and bruised— excitedly waved goodbye to a seer wearing a toga emblazoned with "1985...
...But if the country is ever to relive the "Mexican miracle," it must put its own economy in order...
...Meanwhile, Mexico is going about trying to service its astronomical debt in a period of falling oil prices in predictable fashion...
...Despite denials, it is hard to believe this is doing anything more than borrowing from Peter to pay Paul—or perhaps merely borrowing from Paul to pay Paul...
...Today the government is by far the largest employer in the country, and according to several estimates accounts for half of Mexico's GNP...
...Since the union is allied with the Administration (much rhetoric to the contrary notwithstanding), it is not clear to what extent thefirmwillbemadeto stand on its own feet financially...
...The following year, Mexico's GNP declined by 5.3 per cent and inflation was 81 per cent...
...But the move could not be justified on economic grounds, even if it did temporarily save Lopez Portillo from public humiliation...
...More changes may be forthcoming, possibly including an easing of restrictions on the sale of oil to Mexico's principal customer, the United States...
...According to preliminary figures, Mexico managed to attain positive economic growth in 1985, while holding the deficit at 9.6 per cent of GNP and bringing inflation down to 57 per cent...
...With the nationalization of the financial institutions, government responsibility increased further: Not only did the state become the banker, it assumed responsibility for the myriad of companies that were either partially or totally owned by the banks...
...Consequently, agricultural producers in areas with higher than average costs, such as northwest Mexico, no longer find it worthwhile to cultivate basic grains...
...Mexico's steady economic growth was nonetheless impressive...
...Miguel De la Madrid assumed the Presidency on December 1,1981, and quickly committed Mexico to a program of austerity and efficiency tailored by the International Monetary Fund...
...Besides owning and managing the all-important petroleum industry, it presides over an eclectic conglomerate consisting of textile mills, most of the movie industry, real estate companies, luxury hotels, lumber mills, sugar refineries, and virtually every other type of business imaginable...
...Cuevas and other critics argue that De la Madrid has sought to reduce Mexico's deficit by raising revenues when he should be reducing unproductive outlays...
...the more fundamental issue of the economy's true productivity is not their concern...
...Because it feels the "rules of the game" are not clear, the private sector inclines toward caution rather than risk-taking...
...everything suggests that the poor, who always have had a hard time in Mexico, are now having an even harder time...
Vol. 69 • January 1986 • No. 1
