When Mexico's economy is concerned, there are two contradicting stories going around. First there is the good news: Mexico's economy is doing well. Even though the GDP growth has been downgraded slightly this week (from 4,3% to 3,8%) in the wake of the impending global financial crisis, the rate is still quite healthy.
Foreign Direct Investment (FDI) in Mexico is also very high, with large multinational companies investing billions this year alone. In fact, even cities such as Ciudad Juárez seem to be growing well. In Juárez, suffering as it might be because of organized crime, 20.000 jobs were created in its manufacturing industry in 2010 alone.
Finance secretary Ernesto Cordero yesterday added to these healthy figures that the country's finances are sound enough to face a possible new crisis. Mexico's foreign reserves contain some 130 billion dollars ready to be put to use should things go south. On top of that, Mexico has a credit line with the International Monetary Fund, worth around 70 billion dollars. "We can respond in an orderly fashion to any external shock", mr. Cordero said.
Not all is as lovely as it seems, however. The figures are certainly healthy, and Mexico's wallet is indeed well filled. There is no doubt that the government has a very decent capability to battle any economic downside in the short run.
But numbers don't tell the whole story. Even though GDP is growing nicelt, the poverty rate is going up as well. CONEVAL, a government agency monitoring social development in Mexico, indicated last week that the number of Mexicans living below poverty line has risen to some 52 million people. That's almost half of the country's population. The average Mexican does not share in the recent increase in wealth, which partly explains how good economic news does not reflect itself in the president's approval rating (hovering just above 53% for around a year now).
And even though foreign direct investment does indeed bring big money to the country, small- and medium-sized businesses don't seem to profit a lot from it either. In Ciudad Juárez the maquila, the foreign-owned manufacturing plants, are growing. But bars, restaurants and shops have been closing at an alarming rate, with some reports stating that as of 2010 over 40% of small businesses in the city have closed.
And as happy as the IMF may be with all the good news on FDI and GDP growth, it fails to take into account that even the thousands of new jobs created through FDI pay very little in general. A worker in a manufacturing plant may earn as little as 3000 pesos per month (less than 300 dollars). Mexico, like the US, doesn't have as much a problem with unemployment as it does with underemployment. Most Mexicans simply don't make enough money to save for a rainy day.
And that rainy day may be coming soon. 80% of Mexico's total foreign trade is with the US. Should consumption of Mexican products go down in the US, a large number of Mexicans is likely to suffer. Finding a job in Mexico is already hard, and is likely to get only harder in the near future.
Another problem is political gridlock straining necesary reforms. Even though Mexico's economy has become much more open in recent years, there are still plenty of problems. The abysmal quality of public education urgently needs a solution, but the education system is still held in the iron grip of the SNTE, the national teacher's union led by Elba Esther Gordillo. Tax and labor reforms are also urgently needed.
To make things worse, the president and congress are stuck in a hopeless political stalemate on virtually any subject. The executive branch is controlled by president Felipe Calderón's conservative and business-friendly PAN, while the chamber of deputies is dominated by the oppositionary PRI, who ruled Mexico for 70 years until they were ousted by the PAN in 2000. The PRI is bent on reconquering the presidency next year and have very few intentions of helping their opponents in the runup to the next elections.
Humberto Moreira, recently elected as president of the PRI, announced several days ago that no reform will recieve support from the PRI, until the federal government allocates more funds to state governments. Out of 32 states in Mexico, 19 are currently ruled by the PRI. To approve any changes to the constitution, the federal government not only needs approval from congress, but also a yea from at least 17 state governors. A much needed political reform has already been shut down by the PRI. Needless to say, the PAN has accused the PRI of blackmailing the federal government for electoral reasons.
To withstand a new global economic slump, Mexico needs more than just 200 billion dollars in reserves. The last crisis has cost the country dearly and was a clear indication that there are a great many fundamental problems that make its economy weaker than that of competitors such as Brazil: bureaucracy, corruption, sluggish and inefficient institutions, endemic underemployment, a tax regime that brings in far less than it should, et cetera.
The good news is that there seems to be some movement. The teacher's union, with 2 million members the largest labor organisation in Latin America and a traditional power broker, seems to receive some heat from political parties lately and there seems to be some movement with regard to a number of reforms.
Is Mexico ready for a next crisis? It might be able to block the worst effects by throwing a few billion dollars at it. But in order to really withstand a new slump, some fundamental changes need to take place.