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 News Around the Republic of Mexico | November 2005 
Job Growth Doesn't Meet Expectations
 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 Álvaro Obregón 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.
"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 Andrés Manuel López Obrador, the 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," 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."
More Employment Needed
The Fox administration has failed to create enough jobs, says economist Luís 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. The country 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 this nation'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.
Lagging In Growth
Mexico's growth has lagged that of its neighbors. The nation'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 US250 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."
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 US12 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.
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.
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 US6 billion of emerging-market debt at Alliance Capital Management Corp. in New York.
Changes Called For
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.
López 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, López Obrador says in campaign speeches that he wants to give senior citizens pensions of 600 pesos (US55) 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 US10 billion a year that can be saved by cutting government salaries and expenses and reducing corruption, he says.
López 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 López 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.
"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 López Obrador. |
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