| | |  Business News | October 2008 
Mexico Gets the Wall Street Jitters
 Frontera NorteSur
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Monday’s Wall Street plunge also sent the Mexican stock market into a dive, with the Bolsa plummeting by more than 6 percent, though it quickly regained ground the following day like its deeper-pocketed big brother in the north.
After months of denials, a dose of reality is starting to sink in with some Mexican government officials. While still insisting that the economic fundamentals in Mexico are sound, Calderon administration officials are beginning to join others in voicing concern about events north of the border.
Monday’s Wall Street plunge also sent the Mexican stock market into a dive, with the Bolsa plummeting by more than 6 percent, though it quickly regained ground the following day like its deeper-pocketed big brother in the north.
Illustrating the close ties between the US and Mexican companies, several Mexican-owned firms that trade on Wall Street were among the big losers September 29, including cement giant Cemex, construction king ICA and Homex, the popular developer of working and middle-class homes in Ciudad Juarez and elsewhere in the country.
On a recent visit to Ciudad Juarez, Gustavo Enrique Madero, coordinator of the conservative National Action Party (PAN) in the Mexican Senate, admitted he was chilled by talk comparing the current economic scene with 1929.
“I believe the crisis in the US could favor Obama,” Madero added.
Already, three key Mexican economic sectors are experiencing repercussions from the crisis on Wall Street and on Main Street USA- tourism, export manufacturing and migrant remittances.
Hosting few foreigners overflowing with wads of cash like in the good old days, tourist communities have been feeling the pinch for some time now.
Important international flights have been cancelled because of high fuel costs, and some development projects put on hold. Originally scheduled to begin service this year, a Spanish-owned cruise ship, “The Ocean Dreamer,”
postponed sailing the Mexican Pacific Riviera until next year.
In the state of Chihuahua alone, more than 26,000 jobs were lost in the export-for-assembly sector since the first of the year, while auto exports to the US decreased 2.4 percent during the first 8 months of the year.
“We are in a complicated stage in that the US market is falling 16.6 percent and that affects all of us who export to that country,” said Eduardo Solis Sanchez, president of the Mexican Automobile Industry Association.
Budget and Taxation Secretary Agustin Carstens predicted last week that the economic malaise in El Norte means that remittances from Mexican migrants will decrease between 7 and 8 percent this year, adversely impacting hundreds of thousands of Mexican families which depend on dollars sent by relatives. Remittances brought $25 billion in income to Mexico in 2007, but were already slowing down compared with past years.
Ironically, the best news dollar recipients have received in a good while came this week when the peso lost value to the dollar. For much of 2008, the dollar has bought far fewer pesos than in previous years.
Agreeing that the remittance and export sectors faced tough times, Bank of Mexico President Guillermo Martinez still maintained that his country’s financial system is well-capitalized and unlikely to be as affected as the remittance and export sectors.
The question of credit availability, however, is beginning to stir anxiety in Mexico. Most Mexican banks are owned by foreign corporations which could turn off or tighten up the money spigot. For instance, Citigroup-owned Banamex is estimated to control nearly 30 percent of consumer credit in Mexico.
Early this week, it was announced that Citigroup is gobbling up the troubled Wachovia bank in the US for two billion dollars.
“To the extent that Citigroup needs capital, all of its branches and entities that are scattered across the globe could obtain this capital and have a direct impact on lending,” observed Luis Garcia Pena, director of the Investra Inteligencia Patrimonal economic analysis firm.
A high Citigroup official, meanwhile, raised another red flag about bad Mexican credit card debts. Although the number of bad credit card debts in Mexico officially stands at 6.6 percent, studies attributed to Banamex have identified the six main banks in Mexico as holding an overdue credit card debt portfolio of 16.2 percent. Banamex’s own percentage of such bad loans sits at 8.2 percent.
“We are still in a good position to correct it,” said Manuel Medina Mora, president of Citigroup for Mexico and Latin America. “It does not benefit anyone in the country that the level of debt of many of our families and individuals is high and causing them credit problems…”
According to the Bank of Mexico, 26 million credit cards are circulating in Mexico; the country’s bad credit card debts increased 53 percent during the past year.
Mexico confronts still another potential problem with its oil exports.
Until now, high prices have helped stave off some effects of the US slowdown on the Mexican economy, but sliding prices for crude spell trouble for a country dependent on petroleum exports for nearly half its social services budget.
As in the US, economic issues are taking front and center on the political stage. Speaking to a large Mexico City rally against the privatization of the national Pemex oil company on September 28, former 2006 presidential candidate Andres Manuel Lopez Obrador proposed an emergency 10-point program. Drawn partly from his Alternative Project of the Nation, Lopez Obrador called for spending $40 billion on emergency public sector jobs, pensions for all senior citizens and more grants for students, among other measures. Also, he proposed building three new refineries to cut down on gasoline imports and save money.
The left opposition leader said his economic stimulus package could be financed by re-shaping spending priorities in the Calderon administration’s current budget.
“It is undeniable that the economic situation of the country is in genuine deterioration and if the direction is not corrected, the situation is going to get worse and it will be the poor people who will be the most impacted.” Lopez Obrador contended. “All of us will suffer, though, because in a society the destinies of some are tied to the destinies of others,”
In a departure from past statements that there would be zero negotiation with the political right, Lopez Obrador invited all the nation’s political actors to come together around a common rescue package. The former Mexico City mayor, however, conditioned an agreement on the non-privatization of Pemex.
Asked about Lopez Obrador’s proposal, PAN Senate leader Madero said he was grateful for the initiative but not the preconditions.
“I would like to respectfully tell Mr. Andres Manuel Lopez thanks for the proposals, but it is not necessary to put conditions,” Madero said.
“Dialogue is constructed in a situation of debate, and not by impositions and restrictions for the dialogue.
In Mexico’s executive branch of government, officials reaffirmed they were prepared to weather any economic storm. “I have been instructed that we should be on top of the markets and give them punctual follow-up, so as to take pertinent measures if necessary,” said Calderon cabinet official Agustin Carstens.
Sources: Univision, September 30, 2008. El Diario de Juarez/El Universal, September 30, 2008. International Herald Tribune/Associated Press, September 30, 2008. El Sur, September 29, 2008. Article by Xavier Rosado. El Universal, September 29 and 30, 2008. Articles by Ricardo Gomez, editorial staff and the Notimex news agency. Lapolaka.com, September 27, 2008. La Voz de Nuevo Mexico/Agencia Reforma, September 26, 2008. La Jornada, September 25, 26, 28, 29, 2008. Articles by Victor Ballinas, Andrea Becerril, AFP and Notimex. El Diario de Juarez/Agencia Reforma, September 22, 2008.
Center for Latin American and Border Studies New Mexico State University
Las Cruces, New Mexico
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