If the United States catches a cold, Mexico gets pneumonia. Or so they say. All metaphors and folksy knowledge aside, anything happening north of the border usually has some degree of consequence here. So what would happen in Mexico if the members of US Congress can’t reach an agreement on the debt ceiling before Tuesday?
Most Mexicans do not seem to give the matter much thought. And even though is seems a preliminary agreement has been reached, the nightmare scenario of a divided US congress unable to settle the debt matter by Tuesday is still dreaded amongst economists here. Should the United States stumble into a situation in which it finds itself unable to pay its debts, a devaluation of the dollar is in order, which means inflation and a fall in purchasing power. The Mexican economy is heavily dependent on the US. Some 85% of Mexican exports travel north. Less purchasing power north of the border means less sales south of the border, which then would severely threaten the fragile recovery of the Mexican economy, unemployment, et cetera.
Mexico suffered a great deal in the last economic crisis. In 2009 alone, Mexican GDP shrunk no less than 6%. And even though recovery hasn’t been bad in 2010 and 2011 continues to show positive figures, our economy is far from being out of the woods. With youth unemployment at its highest level in years, a new wave of nation-wide loss of employment would ruin prospects for an entire generation.
CONEVAL, a government agency monitoring social development, stated last week that some 52 million Mexicans (almost half the population) are living below poverty level. Job creation is sluggish and not in par with GDP growth. Analysts indicated last year that it will take years for the country to recover from the 2008 financial crisis.
But it is not just a matter of people buying things and youngsters losing jobs. Mexico has almost a 100 billion dollars in foreign reserves. Dollars, mind you. Should the dollar as a currency lose value rapidly, then Mexican reserves would lose much of their value too, causing the federal government to suddenly have less means to shield itself from an economic downturn.
Should the US be unable to meet its financial obligations, the hammer might strike first (and hardest) in Mexico. In recent years the Mexican government tried to make its economy less dependent on the United States, with a reasonable degree of success. But the US is still the factor that dominates whatever happens south of the Rio Bravo.
In other words: if Americans can’t buy our stuff, we go broke.