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Mexico sinks into worst foreign debt and recession

Mexico sinks into worst foreign debt and recession

By Gustavo Castro Soto

In the context of the global crisis of capitalism, more acute than that of 1929, Mexico began its own since 2007 when the World Bank (WB) already calculated that 40% of Mexicans lived in poverty. And the recession was inevitable and the Mexican government just made it worse with the media coverage of the flu.


In the context of the global crisis of capitalism, more acute than that of 1929, Mexico began its own since 2007 when the World Bank (WB) already calculated that 40% of Mexicans lived in poverty (1). In that year, Axel van Trotsenburg, director of the World Bank for Mexico, during the delivery of the report "Mexico 2006-2012 Creating the foundations for equitable growth", confirmed that there had been "no progress in Mexico in the last 15 years" (2) Since then it was warned that the debt of the Pidiregas (3) generated to create the energy infrastructure in the country would cost 138 billion pesos a year until 2012, equivalent to 16.9% of annual GDP, the same amount destined to the budget of the Judicial Branch and government pensions. (4)

Today, between the historical indebtedness of Mexico with the multilateral banks, inflation, capital flight, the debacle of tourism and Foreign Direct Investment (FDI), unemployment and influenza, the country is sinking into misery. The indicators since 2007 were preparing the ground for indebtedness. In 2009, Mexico received from the World Bank the largest loan it has given in the world and the largest that the Inter-American Development Bank (IDB) has provided in the region. Axel van Trotsenburg declared that they are "among the highest in the history of relations with Mexico, comparable to what we have granted in the late 1980s and early 1990s and after the tequila crisis." Even the Mexican crisis of 94-95, the head of the International Monetary Fund (IMF) at that time called it the first crisis of globalization.

The Secretary General of the Organization for Economic Cooperation and Development (OECD), José Ángel Gurría Treviño, who was Secretary of the Treasury in Mexico during the six-year term of Ernesto Zedillo (1994-2000), affirmed that the country has already been 18 months of recession, a time when citizens' savings have lost 50% of their value. He also accepted that “in 2009 we have lost what we had gained in many years, so this is not a cycle, this is a disaster. This is not an evolution, this is a demolition. And yes, we miscalculated. Guilty of charge, absolutely. And I am not saying this only for the OECD, but also for regulators, supervisors and private initiative, that we had a massive failure… We were not even moderately competent in this matter ”. Gurría estimates that by the end of 2010 there will be 50 million more unemployed in the world. (5)

The depth of the Mexican crisis

Finally, the federal government, in the voice of the Secretary of the Treasury Agustín Carstens, accepted that Mexico has entered a recession. (6) The recession is decreed in theory after two consecutive quarters of economic contraction, although it has been hidden in Mexico for more weather. However, let's just look at the last two quarters.

In the last quarter of 2008 the contraction was 1.6% and in the first quarter of 2009 it was 7% of the Gross Domestic Product (GDP) according to the Ministry of Finance and Public Credit (SHCP), and 8.2% according to the National Institute of Statistics Geography and Informatics (INEGI). The worst drop in the last 14 years. (7) In this quarter, oil revenues fell 17.6% less than in the same period in 2008, and federal tax revenues fell 11.6%. By the end of this year, an average contraction between 4.1 and 4.8% is expected. On the other hand, last April inflation reached 6.17% mainly due to the rise in prices of fruits and vegetables. (8) And industrial production fell by 9.9%.

Comparatively, the IMF reported in May 2009 that Europe has entered "a deep recession." This year, it forecasts a 5.6% GDP contraction for Germany; France 3.0%; UK 4.1%; Spain 3%; Russia 6% 0 percent; Poland 0.7%; and Czech Republic 3.5. (9) Added to this crisis are the millions of dollars in foreign currency that the Mexican government has stopped receiving from remittances from migrants in the United States. According to the Latin American and Caribbean Economic System (Sela), almost half a million households in the country (7% of the total) have stopped receiving remittances during 2009 for a total amount of 1,615 million dollars, which is equivalent to 0.2 percent of the Mexico's GDP, very close to the 0.3% that the government calculated would be the economic consequences of the influenza health emergency. (10) Chiapas was one of the most affected states, with remittances sent by more than 20%.

For its part, foreign exchange for tourism, the third entry of foreign currency in the country after oil and remittances, fell by 8.8% in the first quarter of the year, amounting to 3 thousand 623.5 million dollars. (11) Only in the sector tourism, more than 100,000 direct jobs were lost due to the influenza health emergency.

Unemployment in the first quarter was 5.1%, which is equivalent to 2.3 million unemployed people of the Economically Active Population (EAP), while informal workers reached 12.1 million, which is equivalent to 28.2%; and the underemployed amounted to 3.4 million, which represents 8% of the PEA. (12) In the first quarter, GDP per capita fell 28.3% (13) and 5 thousand 639 million dollars (million dollars) left the country, adding up to 44.2 billion dollars. expatriates to banks or foreign companies so far this six-year term. (14) Agustín Carstens confirmed in May of this year that the federal government will have to use the resources of the Oil Stabilization Fund, the coverage insurance and the operating surpluses of the Banco de México in order to maintain the 2009 expenditure plan, which already has a deficit of 300 billion pesos due to the fall in tax collection, which is equivalent to 10% of this year's budget and 1.5% of GDP. . For 2010 these funds will not exist, so a more complicated scenario is expected between cuts, layoffs in the bureaucratic sector and other measures. Therefore, to cover the fall in income, the Secretary of the Treasury proposes the same recipe as always, one of three or three: spending cuts, increasing debt or more taxes. However, none of these measures will be applied before the July 2009 elections so that the social reaction does not charge the bill to the party in power.

The crisis had been growing for a long time, so at the end of 2008 the Mexican government began the procedures to receive loans from the IMF, the World Bank and the IDB, thus obtaining the largest credits from these International Financial Institutions (IFIs), more than no other country in the world. And the recession was inevitable and the Mexican government just aggravated it with the media coverage of the flu.

Always, along with these enormous indebtedness, there are signs of the conditions that the indebted government must abide by. During the paralysis of the country due to influenza, several laws were approved that were pending on the country's political agenda, before the federal elections are held in July of this year, where the correlation of forces between the congressional legislators. In the context of the Mexican crisis, progress was made in the Merida Initiative or Plan Mexico through the financing of the United States for the supposed fight against drug trafficking and the greater violence generated by it; the approval of the National Security Law; Mexico's military participation in joint UNITAS exercises with the United States; the health emergency and state of exception; the militarization of the country; the start of political campaigns and a terrible social crisis.

Many will think that it is conspiracy theory or plot paranoia. The only thing we note is that, looking back, the scenario of the inevitable recession also made an unprecedented loan inevitable, with a historic debt that neither the World Bank nor the IDB had granted years ago to another nation. Inevitable are also the conditionalities that accompany them.

For this reason, influenza, regardless of its origin and severity, or the actual moment of its emergence, seemed to offer the Mexican government the opportunity to implement and comply with some of these conditions.

Mexican debt

In general, governments do not report adequately and transparently on the amount of debt for political, financial or social reasons. When we look at a journalistic or investigative note about debt data, different criteria are implicitly used to measure it without clarifying the criteria used. For this reason, the figures seem to dance without coinciding, especially when various sources make their balance sheets (Treasury, Bank of Mexico, INEGI, private banks, research centers, etc.). There are those who refer to the private and public debt (but only the federal one), or only to the internal public debt and of the three levels of government, or to the private one or both; or only the external one, or both; or to the internal, external and contingent; or to the restricted, expanded federal public debt, or to the total real debt, including those debt mechanisms that governments hide under other modalities, etc.

When the IMF, the World Bank or the IDB approve a project at the end of a year, there are those who take it from that year but there are those who add it for the following year, which is when the contract is signed and the loan begins to be used. Sometimes the total of the projects approved by the banks are added when there are some that are donations or technical cooperation that are not reimbursed. If we add to this that some financial mechanisms are difficult to understand for the common people, the understanding of the dimension of the debt becomes more distant for society.

Therefore, the figures that we mention below are measured with several criteria already mentioned, therefore they apparently do not coincide. Far from confusing, we want it to only reflect the seriousness of the debt from various angles.

1) In 1995, in the last government of the Institutional Revolutionary Party (PRI), under the administration of Ernesto Zedillo Ponce de León, the public debt (internal, external and contingent) was 837 thousand 213.7 million pesos. In the midst of the crisis and devaluation, Ernesto Zedillo had to pay 30 billion dollars for the debt service, for which he received a loan of 50 billion dollars from the IMF, the World Bank, the IDB, the Bank International Payments and the United States Treasury. By 1997, the debt had grown 9%, reaching 913 thousand 737.4 million pesos. (15)

2) As of the year 2000, when for the first time in the country's history the business sector arrived to the government with the arrival of Vicente Fox from the National Action Party (PAN) to the presidency of the Republic, the public debt has gone gradually increasing. Fox receives the country with a public debt of 2 trillion 318 thousand 200.1 million pesos. By the end of 2002, it had already added 2 trillion 729 thousand 842 million pesos, which is equivalent to an increase of 17%. At the end of the six-year term, the debt was 3 trillion 364 thousand 650 million pesos.


3) At the end of 2008, two years after the presidency of Felipe Calderón Hinojos, the debt had increased 28.7%, reaching a total of 4 trillion 333 thousand 123.5 million pesos. (16) This means that each of the 107 million 551 Mexicans owe 40 thousand 289 pesos that is equivalent to 25.7% in relation to the beginning of the six-year term. It is the administration that has borrowed the most in the last 15 years during its first two-year period when the country's oil sales recorded historical foreign exchange records for the country.

4) For comparative purposes, in 2000 for the concept of "public debt" each Mexican owed 23 thousand 700 pesos. Today it amounts to 40,800 pesos per person (not including the 47 billion dollars that the IMF has lent this year). (17) In these eight years of the PAN government, the public debt increased by 307 thousand 975.9 million of pesos that are equivalent to 38% more. Only the external debt that added 802 thousand 418.6 million pesos in the year 2000, at the end of 2008 amounted to one billion 110 thousand 394.5 million.

5) In December 2006, when the current government began, the amount of internal debt was one trillion 702 thousand 665 million pesos. The debt contracted by the federal government in the local financial market reached a historical maximum of 2 trillion 529 thousand 252 million pesos in April, an amount that is equivalent to 20% of GDP and which represented an increase of 48.5% compared to the balance registered at beginning of the Calderón government. (18)

6) From the beginning of the six-year term until April 30, 2009, Felipe Calderón contracted every 24 hours, 939 million pesos in new internal debt that, together with the external debt, is equivalent to 32.4% of GDP (in December 2008 it was 21.4% and in 2007 of 17.4%). The total debt, excluding the Pidiregas, was equivalent to 24.2% of GDP last March, the highest percentage since 2003. (19)

7) Thus, since the beginning of the current federal government and until the first four months of this year, the internal debt of the public sector grew by 826 thousand 587 million pesos, which at an exchange rate of 13 pesos per dollar is equivalent to 63 thousand 583 million dollars. This amount is equivalent to 4.5 times the annual budget in government programs to overcome poverty, which in 2009 will add 180 thousand 936 million pesos. (20)

8) At the end of the first quarter of this year, the total gross debt (effectively owed) of the federal government amounted to 3,061 billion pesos, which went from representing 27.4% of GDP. However, there is another level. The traditional restricted concept of Public Sector Debt includes internal and external debt, that of public bodies with direct budgetary control, and those of development banks.

This grew in the last 15 months and reached 3.9 in the first quarter, which is equivalent to 32.4% of GDP. In addition, the government wiped out its foreign currency assets. If at the beginning of the year it had $ 32.62 billion, at the end of March there were only $ 1.475 million left. (21)

9) The expanded public debt (22) includes other debts that the government seeks to eliminate as such. This debt includes the debts of the Fobaproa / IPAB, the road rescue, the Debtor Support Program, the Pidiregas. All of it reaches 4,499 trillion pesos in the first quarter of the year and represents 40.2% of GDP, of which the internal debt represents 29.1% of GDP, and the external debt 11.0%. Of this external debt, the balance of the Pidiregas (786 billion pesos in December) was converted almost entirely (except 43 billion) into formal debt of public organizations and companies.

10) The total real public debt is even higher if we take into account all the direct, indirect or contingent debts of the three levels of government, federal, state and municipal, their agencies, parastatal companies, the Bank of Mexico, the bank of development, funds and trusts; the obligations contracted (by not creating reserves) for pensions (and other benefits) of the IMSS, the ISSSTE, etc. This means that this total real public debt is equivalent to approximately 100% of GDP and is one of the most indebted countries in the world. (2. 3)


IMF loans

In April, the IMF approved a historic loan of 47 billion dollars to Mexico within the framework of the new Flexible Credit Line (LCF). Mexico is the first country to use this type of loan. (24)

Projects approved by the IDB

During 2008, the IDB approved loans to Mexico for $ 5.9 billion, which included $ 2.5 billion for Sociedad Hipotecaria Federal; 2,000 million for the Oportunidades program; 1,200 million for Banobras, and other operations in support of the climate change agenda in Mexico, which includes a first loan for $ 200 million. (25)

In the same way as the World Bank, housing, the Oportunidades program and infrastructure are among the projects that attract the most attention. In addition, the IDB announced (26) at the end of April that it will approve loans for $ 3 billion this year for Mexico, in support of its efforts to face the effects of the global economic crisis and the emergency caused by the swine flu.

It also intends to donate one million dollars "to support the detection of new cases of infection, strengthen epidemiological surveillance systems, and carry out informational and operational campaigns in Mexico." According to the IDB, "the volume of operations for 2009 represents almost a tripling of the loans approved to Mexico last year, which amounted to 1,095 million dollars." (27)


Projects approved by the World Bank

In the mid-1990s, Mexico's debt with the World Bank reached 14 billion dollars. At the end of last November, it was 4,100 million dollars. For 2009, the World Bank loans to Mexico amount to 2,991.99 million dollars. There are three loans that attract the most attention: to combat influenza, for the housing sector and for the Oportunidades program.

In April 2009, the Mexican government and the World Bank formalized the loan for $ 1,503.76 million for the conditional cash assistance program called "Oportunidades", which would cover the years 2009 and 2010 with the in order to benefit 5 million families, equivalent to approximately 25 million people. (28)

The 1,010 million loan consists of strengthening the housing construction business sector through the Federal Mortgage Society (SHF) with its Private Financing Markets Strengthening Project, implementation of the SHF Strategic Plan 2008-2012 (29).

Curiously, this is one of the axes of new impulse of the Mesoamerican Plan (formerly Plan Puebla Panama) for the Mexican region. SHF promotes the private housing finance market and provides long-term loans to financial intermediaries that provide mortgages. The WB loan will help SHF restructure its short-term debt and increase mortgages through Limited Purpose Financial Companies (SOFOLES) and Multiple Purpose Financial Companies (SOFOMES). This loan will begin to be paid by the government for the next six-year term and will benefit six private financial companies: Casa Mexicana, Crédito Inmobiliario, Fincasa, Hipotecaria Su Casita, Hipotecaria Patrimonio and Hipotecaria Vértice, who finance home builders, as well as people who they acquire a house or apartment. In this way, the SHF will guarantee up to 65% of the commercial paper debt of the six companies before banks and private investors in the local stock market. (30)

The other loan that attracts attention is the one announced on April 26 by the World Bank to support Mexico with 205 million dollars to combat the spread of the influenza A (H1N1) virus.

In addition, another 25 million dollars from the Program for Quality, Equity and Health Development (Procedes) financed by the same World Bank will be diverted to buy medicines and other products (gloves, soaps, etc.) designed in the federal government's strategy. As if that weren't enough, the World Bank has started the preparation of a project for US $ 180 million using the Global Fund for Avian Influenza. (31)



Other instruments

They also acquired 30 billion dollars in swaps that are not taken into account as public debt because it is supposedly an exchange of dollars for pesos and vice versa between the Bank of Mexico and the Federal Reserve of the United States Treasury (Fed, for its acronym in English). This is intended to give liquidity to companies that need it, for example to pay their debts with foreign creditors, mainly from the United States. At another time we can talk about debt swaps (CDS, Credit Default Swaps) which is the worst financial monster ever invented.

Gustavo Castro Soto placeholder image - Other Worlds, AC - www.otrosmundoschiapas.org
San Cristóbal de las Casas, Chiapas, Mexico; May 2009

Notes

1- La Jornada, October 19, 2007

2- La Jornada, September 21, 2007

3- The Pidiregas is a tricky debt mechanism to avoid exceeding the limits established by Congress, payable in the following six-year terms and in order to create infrastructure for PEMEX and the Federal Electricity Commission (CFE).

4- Center for Studies of Public Finance (CEFP) dependent on the Chamber of Deputies. La Jornada, Sunday May 20, 2007

5- Madrid, May 22, Gurría conference at the Palace hotel in Madrid, on the occasion of a meeting organized by the New Economy Forum.

6- Thursday, May 07, 2009, http://www.notisistema.com/noticias/?p=178347

7- See www.inegi.org.mx; Notimex, 05/20/2009 3:11 PM

8- Data from Banco de México in its report for the first quarter 2009.

9- Notimex, 05/12/2009 8:35 PM. IMF, Regional Economic Outlook for Europe.

10- La Jornada, May 17, 2009.

11- Ibid.

12- INEGI; Afp Posted: 05/15/2009 3:56 PM

13- INEGI

14- Bank of Mexico

15- La Jornada, Monday April 13, 2009.

16- SHCP, Report on the situation of public finances for the fourth quarter of 2008.

17- Data from Banco de México, quoted this week in a Banamex report. Roberto González Amador, La Jornada, May 6, 2009.

18- Ibid.

19- Ibid.

20- Ibid.

21- Reports on the economic situation, finances and public debt, (4th quarter of 2008 and 1st of 2009), the Ministry of Finance and Public Credit. David Marquez Ayala. UNIDAD TÉCNICA DE ECONOMÍA SA de CV • Mexico City • Telephone / Fax: 5135 6765 •[email protected] See The journey, May 11, 2009, “México. Evolution of public debt ”.

22- SHCP, Historical Balance of Public Sector Financial Requirements (SHRFSP)

23- Reports on the economic situation, finances and public debt, Op. Cit.

24- See http://www.imf.org/external/pubs/ft/survey/so/2009/car041709a.htm

25- IDB, Press Release, December 17, 2008; http: //www.iadb.orgNEWS/ (…)

26- IDB, Press Release, April 30, 2009.

27- Ibid.

28- See http://web.worldbank.org/external/(…)

29- Press release No. 2009/134 / LCR. Washington, DC on November 6, 2008-, Axel van Trotsenburg, Director of the World Bank for Mexico and Colombia.

30- La Jornada, May 13, 2009.

31- WB press release Nº: 2009/329 / ALC / EXC, Washington, April 26, 2009. For more information see www.worldbank.org/alc


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