Mexico Faces Its Deepest Crisis Since 2008. Why?

 

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Courtesy Facebook

 

Analysis Reporting San Diego

Jan 9, 2016 (San Diego) Over the last almost two weeks there have been mostly peaceful demonstrations against the rise in gasoline by about 20 percent increase. This is what Mexicans have dubbed the “gazolinazo.” This is not just going to affect drivers, but every member of civil society. Gas is essential to transport goods and services, including tortillas, beans, and rice, which are already going up across the country. Partly, the subsidies that used to exist were partially or wholly removed over the course of the Enrique Pena Nieto administration. It is not just gas that is going up. On January 1 electric rates, as well as prices of natural gas also have gone up. The minimum wage went up from 76 pesos a day to 80, that is about $5.00 dollars a day. Across the country, many of these demonstrations are now ending with those attending singing the Mexican national anthem.

We at Reporting San Diego want to give you a context to these protests. They are not just happening because people are angry due to the increase in the price of gas. This is the end result of a few years of government policies where the people have seen a deepening cynicism from government officials, Nor are these protests against the structural reforms just happening now. They have been going on in places like Oaxaca for the last almost four years. In Oaxaca members of the Consejo Nacional de Trajajadores the la Educación (CNTE) have closed roads, taken over government buildings and resisted  the imposition of an education reform that they feel will hurt them and their students.

Then there is the other focus of anger. The disappearance of the 43 students at Ayotzinapa has never been solved. This created quite a bit of anger among Mexican citizens, as well as Mexican expats.

Poverty and Food Insecurity

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Caption Red, increase in poverty over 40 percent of national average, yellow, decrease, and green to the national average

 

Because of the number of people who do not make enough to buy food, food insecurity and poverty in Mexico is deep. The increase in gas, which a pyrrhic increase in the minimum wage, will deepen food insecurity. According to Veronica Morales Gonzales of the Red por los Derechos the la Infancia en Mexico, this will negatively affect 22 million youth and children. The reason is that it will deepen food insecurity since food will be too expensive. This will lead to an increase of chronic malnutrition.

While many in the American press have stated that this anger is sudden, in fact, it is not. The “gazolinazo” is just the proximal cause of the protests Mexico’s depending deepening crisis, started with the 2008 Great Recession. Back then the president was Enrique Calderon from the very conservative National Action Party. Some of his measures, including the planning for the structural neoliberal reforms that were passed under Pena Nieto started.  Under the Pena Nieto administration those reforms, have partially privatized some sectors, such as the energy sector, as well as telecommunications, have led to the slowdown of the economy. The growth of the Gross Internal Product has hovered around 1 percent. This has also led to Mexican elites becoming much wealthier.

Energy reform

Specific to gas prices, that has to do with the energy reform that has semi-privatized Petroleos Mexicanos and will fully open the energy sector in 2018 to foreign companies. It is critical to understand that This will allow foreign companies to participate in the extraction and processing of fossil fuels for the first time since 1938 when then-President Lázaro Cardenas declared all fuel reserves to be the property of the Mexican people. His administration expelled, among others, Standard Oil and took over all Mexican exploration and production. Over the last 15 years, the road has slowly been plowed, by both the PAN and PRI to privatize a company that is the pride of many Mexicans. Secretary of Hacienda Luis Videgaray, is considered the architect of these reforms. He is expected to be the candidate from the PRI for the presidency in 2018.

Right now many politicians and members of Congress are trying to blame Pena Nieto, but in reality, it was members of their parties that approved these reforms. Granted, due to no reelection laws, those who voted for those reforms in the House, are not power right now. They are elected for a single term. They were approved in 2013.

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Courtesy Israel Castellon Alatorre

Pemex

Pemex is the fossil fuel monopoly, that has been in charge of exploration, processing and in general maintain since of the oil reserves in Mexico. In the last 20 years, PEMEX has undergone a series of crisis, and one of them is technical. They really do not have the knowhow for deep water exploration, and as proven reserves are harder to exploit, Mexico is not technically able to reach them. The reform allows Shell Oil, for example, to join PEMEX, do the exploration in the Gulf of Mexico and share in the profits. It is a partial privation of fuel reserves. It is also the end of a promise to the nation to never do that, given by the expropriation order signed by Cardenas in 1938

This is one of the reasons for the people’s anger. After all, Mexican oil fields will theoretically be opened to foreign companies, including Shell. Since the company is no longer public, it also has to compete with foreign entities. What is at stake are the Campeche oil reserves.

“Pemex has now been privatized and foreign exploration companies are invited to explore for oil and gas both offshore and onshore Mexico. A new Petroleum Agency, the CNH (Comisión Nacional de Hidrocarburos), has been formed to regulate these new activities. In 2015 the CNH developed a five-year plan for bid rounds, which is considered an excellent opportunity in the exploration community, despite the current low oil price. Several international oil companies see these Mexican bid rounds as some of the best investment opportunities in the world.” 

So what does this have to do with the increase in gasoline prices? Part of the reform includes competition at the pump, starting next year. Meaning, not just PEMEX will have gas stations, but theoretically any foreign company as well. In 2017 the only regulation in the price of gas will be market forces. Why this is a neoliberal reform.

However, in 2016 the Congress authorized a band of prices that the state can use to raise and lower prices in response to changes in world prices. The excuse for the increase in Mexico given by the president was that fuel prices have gone up worldwide. Either we in San Diego have not been living through the global market, or he was lying. Also, much of the gasoline is no longer processed in Mexico but in Texas, under contract for PEMEX.

Comision Federal de Electricidad

The other half of the energy sector in Mexico is the Commission Federal de Electriciad. It is getting partially privatized and it will compete with other electric generators, such as SEMPRA energy. The latter is not just generating electricity using wind farms at the Sierra Juarez for the San Diego market, they are also generating energy for the Mexican market. (Insert story)

There will still be some protection for the consumer, as long as they are small, such as homes and certain rural areas. The large consumers, such as factories and other industrial users will have to deal with a fully liberalized market. This is also causing, however, an increase in electric rates in Mexico.

What is also very true is that the electric grid in Baja California is the same grid as our state. So that connection is very obvious and why SEMPRA can send electricity north, though the three connections. This is one of the first obvious connections between the two economies. There are other far less obvious connections, These include the manufacturing of goods in Maquiladoras, as well as the exchange of multiple goods and services. Suffice it to say, economically we are tied as the CaliBaja region. 

Deficit Spending and Neoliberal Reforms.

Neoliberalism is an ideology that took form in the 1970s, and it places the market at the heart of the economy. The market is wise and will do all, while regulations impede this. In the United States, we have seen its fruits with the Telecom reforms, as well as the airline deregulation. In Mexico, it started to spread its wings during the Miguel de la Madrid administration. Mexico suffered two great economic shocks, including an economic crisis unlike any seen before including a deep devaluation of the peso. The International Monetary Fund came to the rescue, with the United States, in what became the Washington Consensus. This started Mexico on the road to privatizing vast areas of the public sector, as well as tax reform.

There were two plum jewels in Mexico that foreign investors wanted. One was PEMEX and the other was the Telecom industry, which was tightly regulated,

The Great Recession had critical effects in Mexico. It slowed the national economy to the point that when Pena Nieto came in, he embarked on a policy of what was called a fiscal stimulus, that led to deficit spending. However, as much as this sounds like classic liberal policies of the mid 20th century it was not. Nor did it have the stimulative effect needed. To be kind, the policies were far from sufficient to stimulate the economy. Hence, the Mexican economy has been growing at about 1 percent for the last few years. This is hardly enough to produce even replacement jobs or to grow the economy, or a tax base to start closing the deficit.

It is also critical to understand that the Mexican economy depends on for about one-third of its income from the sale of oil. Over2016 oil remained at about $30-5 dollars the barrel. Mexico needed oil at least at double that price just to keep afloat. It was not just Mexico. There were other economies that suffered due to the low price of oil. Among them Russia, Venezuela and OPEC members, Mexico has never been a member of OPEC.

This year the Pena Nieto administration did not just announce the Gazolinazo, but also an austerity regime that will only further slow down the Mexican economy. This is a continuation of two-year-old policies, with a deepening of the cuts. The gas tax will help to get some money back into the budget since gasoline also has special taxes. So the rise, many Mexicans suspect, is also a fiscal policy. So what was the stimulus package?

Some Mexican politicians, including the president and the architect of those policies, Luis Videgaray, insist that what they were doing was a stimulus package, A classic stimulus package includes spending in infrastructure projects, What was announced in 2015 was hardly that. One of the promises made back then was the end of the rise of the price of gasoline on a monthly basis by 11 cents. another was the end of the fees for long distance calls. Essentially all calls are charged as if they are local calls. They also tried to force spending by the population by switching to digital TV, which either forced people to buy converters or new television sets. Some people never did, and are stuck with subpar images.

They also announced the reduction of electric rates by 2 percent. Also the support of small businesses and the support of southwestern states.

This created a major hole in the budget, and this deficit spending led to a real crisis since the deficit grew to about 45.7 percent of GDP .  So now that protests are continuing day in and out, the Pena Nieto administration is claiming that if they do not continue they will have to close down about half of all public schools. They simply do not have enough to pay for half of kindergarten, primary and secondary school teacher salaries. They either did raise both the electric rates, and gas rates, or they faced the need to close down public schools. 

There is more. In Mexico City austerity measures include not expanding the metro system. This is expected to grow in demand, and expanding it is the classic stimulative infrastructure project.

How will this help? They will increase the income from taxes tied to the higher gas prices, ergo they will be able to start filling the hole in the budget. They are also making an assumption that they made in 2016. Low oil prices will not continue. and that is a bet that Mexico lost in 2016.

There is another little measure that has been taken to reduce protests. In this case on the part of truckers, teamsters and taxi drivers. The Secretaria de Transportes is taking away all licenses and permits from drivers. This is in an effort to stop them from participating.

There are also rumors that the streets have been filled by what in Mexico are called “grupos de choque.” Essentially vandals and rioters paid by the government to create panic and force people to stay home out of fear. It is not like this has never happened before. In 1968 the government used those to discredit and attack the student movement. During the dirty war of the 1970s, they were used extensively.

There is more. For the first time, and none knows who produced them, but Mexicans are convinced it was the state, false twitter messages . They spoke of vandalism, and assaults in places like Xuixquilucan, in the State of Mexico on Wednesday. Nothing was actually happening, but this spread a panic. There were also messages sent to individual users through SMS using photos of unrest in other places, like Turkey. They spoke of assaults and looting. This led to the mass closures of stores.

That said, there were stores looted, which was a very small group, in poorer areas. There are rumors, which cannot be confirmed either, that the police took it’s sweet time to respond to those events. What we can confirm is that Saturday officers did open fire on protesters in the northern state of Sonora. Also, we can confirm that Federal Police was run over in Rosarito, Baja California at the PEMEX distraction center.

Shock Doctrine

This was first explained by Naomi Klein. The measures that the government is taking, including allegedly using infiltrators during marches, and bots online is a classic of shock doctrine. This is the re-engineering of societies using chaos. What is happening in Mexico looks like it Why? There has been massive social resistance at the lowest levels to the structural reforms from the beginning in 2013. This resistance has not slowed down if anything it has become deeper. Whether it is teachers in Oaxaca, or now. So they need the chaos to force the changes. It is no different from Chile under Pinochet, or for that matter Iraq after the US invasion. In fact, the privatization of the school system in Louisiana after Katrina is also a textbook example. In this case, though, the government might have miscalculated. The many complaints of the last 35 years, but especially after the disappearance of the Ayotzinapa students and the war on drugs, are deep.

How this could affect our region.

So how will this affect our region? After all, our economy is deeply tied to that of the Tijuana- Mexicali region. It is not just closing down the border crossing for a few hours, or the lack of fuel in Tijuana. It is also the environment that provides maquiladora owners with the confidence to continue operations in Tijuana, which export goods to the United States.

While most demonstrations across all Mexican states have been peaceful, what happened in Rosarito will add to the environment of fear. So will police action in the State of Sonora, where riot officers opened fire. Or for that matter in the state of Hidalgo. For that matter the temporary closing of the San Ysidro border crossing.

This could lead to a very local slowdown in business. This is especially the case directly at San Ysidro, with the concomitant slowdown of city taxes that would go to the general fund, though the sales tax. If this remains, unrest in Mexico could become far more generalized, and if there is a military coup, or any other significant disruption, this could affect our region. What is a fact is that 2018 will be an interesting presidential election; the architect of these economic measures is considered the chosen one for the PRI. The PAN is already blaming the PRI and so is the Mexican left.

 

 

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  1. Mexico in Crisis « EXPAT in BAJA Mexico
  2. Mexican Protests are part of a Successful Non Violent Movement – Reporting San Diego

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