 |
|
|
 Business News | October 2005 
Fox Fails to Increase Jobs While Curbing Inflation in Mexico
 Bloomberg
| | "I'm asking you for zero unemployment," Fox said in a recent meeting with Cancun hotel operators. "I'm asking you not to fire anyone, to keep them in their regular positions or use them in rebuilding." |
Margarita Esquivel, a mother of two daughters who tends the family bakery on a street corner in Mexico City's Alvaro Obregon neighborhood, says her country is stuck.
She blames President Vicente Fox, whose election in 2000 ended seven decades of one-party rule that had caused a cascade of recurrent peso devaluations, official corruption and government lethargy.
"I thought there would be big changes for Mexico," says Esquivel, 33, sitting on a couch in her living room shielded by the iron bars that protect her front door and windows. "Everything is the same. There's really been no change."
Esquivel and millions like her are dissatisfied even as Mexico enjoys the longest period of economic stability in four decades. Since Fox took office, inflation has dropped by half, to less than 4 percent this year, while overnight lending rates have declined to 9.26 percent from 17.9 percent.
Standard & Poor's now ranks Mexico's debt BBB, the second- lowest investment-grade rating, compared with BB+, the highest non-investment-grade rating, in 2000. Confidence among bankers that inflation won't flare up allowed banks to offer credit terms not seen for three decades, such as the fixed-rate loan in pesos that Esquivel and her husband took out to buy a 2005 tan Volkswagen Polo, a four-door compact.
In Esquivel's neighborhood, these economic gains aren't enough. Echoing the sentiments of many working-class Mexicans, Esquivel says she wants safer streets, more jobs and less corruption from police officers who too often shake down motorists instead of arresting criminals.
Police Needed
"In this community, tires, hubcaps and other things get stolen," she says. "And the police, where are they?"
Although she supported Fox in 2000, Esquivel says she will not vote for the candidate from Fox's National Action Party in the next presidential race in July 2006. Election laws bar Fox from running for a second term.
She is instead backing Andres Lopez Obrador, a former mayor of Mexico City, whose populist platform focuses on fighting poverty and creating jobs rather than formulating fiscal policies, and who is leading in early polls.
"Economic stability is an instrument, not a goal," Mexican businessman Carlos Slim, whose telecommunications empire has made him Latin America's richest person, told a crowd of 3,000 at a Sept. 7 event in Mexico City to hand out scholarships from his Fundacion Telmex. "The macroeconomy is good, but the microeconomy is bad."
Jobs Needed
The Fox administration has failed to create enough jobs, says economist Luis Rubio, who heads the Mexico City-based Center of Research for Development, an economic consulting firm. In five years, Mexico has added about 300,000 jobs to the workforce, which numbers 13 million people. Mexico needs to add 1 million new jobs every year to absorb young people entering the labor market, Rubio says.
The official jobless rate hit a seven-year high of 4.35 percent in August 2004. Mexico's unemployment rate is lower than that of other Latin American countries and the U.S. because anyone who has worked at least one hour during the week is counted as employed.
This liberal calculation leads many economists to use the rate more as an index to measure if unemployment is rising or falling rather than a true reflection of how many people are out of work.
The export industry has lost the most jobs, as lower-wage Asian countries erode Mexico's share of U.S. imports. About 900 export assembly factories, mostly units of U.S. manufacturers known as maquiladoras, have disappeared since the end of 2000, and the number of maquila workers fell by 140,000 to 1.17 million as of the end of July.
Mexican Exports
China's exports to the U.S. almost doubled to $197 billion in 2004 from $100 billion in 2000, while Mexican exports rose 15 percent to $156 billion during the same period. The number of industrial workers fell to 3.8 million in August from 4.4 million in 2000. In addition, an estimated 450,000 Mexicans stream north to the U.S. each year in search of jobs unavailable in their home country.
Mexico's growth has lagged that of its neighbors. Mexico's annual economic growth averaged 2.2 percent during Fox's first four years in office compared with 4 percent for Chile and 2.8 percent for the U.S. In the first six months of 2005, growth slowed to 2.8 percent from 4.4 percent in 2004.
"Mexico should be growing 7 percent every year," says William Rudman, who helps manage $250 million of Latin American equities at WestLB AG in London. "It's a country on the border with the U.S., has a growing population, and interest rates are coming down."
Hurricane's Effect
Mexico's economic growth may slow in the fourth quarter after Hurricane Wilma devastated the beach resorts of Cancun, Cozumel and Playa de Carmen, which bring in about a third of the $12 billion Mexico will earn from international tourism this year. John Welch, an economist at Lehman Brothers, cut his forecast for fourth-quarter gross domestic product growth to 3 percent from 4.6 percent.
In October, Mexico ranked 15th on WestLB's list of 21 emerging-market countries in which the bank's fund managers invest, Rudman says. Russia and South Korea topped the list, which is revised monthly to determine asset allocations.
As jobs have grown harder to find, crime has risen. Reports of murders, kidnappings, rapes, robberies and other violent crimes rose to 1.42 million in 2004 from 1.39 million in 2000, pushing security to the top of Mexicans' concerns.
Although the job picture is bleak, the stock market is strong. The benchmark Bolsa stock index rose 41 percent in the 12 months ended on Oct. 11, compared with a 5 percent gain for the S&P 500 Index.
Spread on Debt
Investors are paying 119 basis points more to hold Mexican government debt than U.S. Treasury bonds, a bit more than the narrowest spread on record. A basis point is 0.01 percentage point. Mexico's 6.625 percent bond maturing in March 2015 is priced to yield 5.38 percent, compared with 4.26 percent for the equivalent U.S. bond.
Under Fox, the Finance Ministry set up a rotating list of 10 market makers to ensure liquidity in the Mexican bond market. In addition, ministry officials hold a quarterly conference call with investors and analysts to discuss the government's debt.
"In the local debt market, with the exception of Chile, Mexico is way ahead of the rest of the region because it has such an open and transparent local market that international investors can really take advantage of it," says James Barrineau, who helps manage $6 billion of emerging-market debt at Alliance Capital Management Corp. in New York.
Laws Needed
Fox's successor will have to pass laws improving the tax collection system, allowing more private investment in the energy industry and reducing the cost of pensions for public employees in order to make the nation competitive, economist Rubio says.
"Mexico has a severe cap on its growth simply because it hasn't liberated the enormous forces and resources it has to grow," he says.
"Mexico has to make the next step," says Jules Mort, who invests $2 billion of emerging-market equities at Threadneedle Asset Management Ltd. in London. "That's why progress on reforms is important for the next administration."
Lopez Obrador, a 51-year-old career politician who stepped down as Mexico City's mayor on July 26 to run for president, says he wants to reverse course from Fox's tight fiscal policies. "If you were to rank the various candidates, he would be viewed as the least market-friendly," Rudman says.
Spending Plans
While politicians around the world are promising to cut government spending, Lopez Obrador says in campaign speeches that he wants to give senior citizens pensions of 600 pesos ($55) monthly, provide universal health care and increase spending on public- works projects to create jobs. One of his proposals is to build a bullet train to run from central Mexico to the U.S. border.
Funds to pay for these programs will come from the $10 billion a year that can be saved by cutting government salaries and expenses and reducing corruption, he says.
Polls show Lopez Obrador's message appeals to many Mexicans. In one independent survey of potential voters in July, 47 percent chose the former mayor over Roberto Madrazo, the leading candidate for the Institutional Revolutionary Party, and Felipe Calderon of Fox's National Action Party, who each had about 21 percent.
Crowds react enthusiastically when Lopez Obrador criticizes the government for importing 20 percent of the natural gas and 25 percent of the gasoline the country consumes each year even though it's the world's sixth-largest crude oil producer. He promises to eliminate imports of natural gas and gasoline in three years by increasing state spending on Petroleos Mexicanos, the country's oil monopoly.
State Control
Lopez Obrador says he opposes doing away with state control of the oil, gas and electricity industries. When addressing business leaders, the candidate tones down his rhetoric, saying that while he would not allow private investors to control the energy industry, he might allow some limited amount of private investment.
Voters such as Esquivel view Lopez Obrador as a politician who gets things done. As mayor of Mexico City, for example, he completed an overpass near Esquivel's home that had been left unfinished for about 10 years.
"I feel he's done a lot as mayor," she says. "There have been many public works that have helped out."
Oscar Romero, 34, who voted for Fox in 2000 because he promised a stronger economy and more jobs, no longer supports the president's party. Romero, an unemployed meatpacker, blames Fox for his inability to find a job.
`Drastically Worse'
"Things have gotten drastically worse," says Romero, who does temporary carpentry and mechanic work to pay for housing and food. Like Esquivel, Romero says he intends to vote for Lopez Obrador.
President Fox, interviewed on his official plane in August, says he gets little recognition for stepping up investment to record levels using a combination of private and public funds. Fox says he has built and repaired more roads in his first four years than his predecessor did in his entire six-year administration.
During his term, he adds, 2 million families have received home loans, more than double the number during the previous administration. In addition, Fox says, he has provided health-care access to 8.5 million uninsured Mexicans and has lifted 5.6 million people from extreme poverty.
"We've constructed a very solid economy with the best fundamentals ever," he says. "It's important to highlight that we've achieved the highest investments ever in energy, housing and highways without raising taxes."
His record gives little comfort to Esquivel. "Here below, we're worse off," she says. She hopes that will improve after July's election.
To contact the reporter on this story: Thomas Black in Mexico City at tblack@bloomberg.net |
| |
|
Vallarta Weddings
Tell a Friend
Site Map
Print this Page
Email Us