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2009: The Year of Living Dangerously?

9 March 2010

Arturo Herrera, an economist who worked for the Federal District during  Andrés Manuel López Obrador’s tenure as Jefe de gobierno, published this in El País (Madrid), 7 March 2010 (my translation).

At a meeting in early December, President Felipe Calderón referred to 2009 as “The Year of Living Dangerously.” As some readers (at least those of a certain age) will recall, this was the title of a 1982 film by the extraordinary Australian director Peter Weir. I am thrilled to learn that our politicians are movie buffs, but I believe the Mexican president was at the wrong movie.

A few days ago the figures were released on the Gross Domestic Product (GDP) for the last quarter of last year. This allows us to try to make an initial assessment of economic performance in 2009. Given the unflattering portrait of the Mexican economy, I’m not sure the concept of narrowly escaping danger is accurate.

GDP declined 6.5 percent last year, the steepest fall since 1932 when,  amid the Great Depression,  Mexican GDP contracted by almost 15%. To put “la crisis” in perspective one needs to remember the internal financial collapse of 1995, when GDP fell 6.2 percent, slightly less than the drop in 2009.

But if the collapse of GDP was dramatic, the effects on the rest of the economy were not minor. As everyone knows, if there is no production there are no jobs:  the average unemployment rate increased from 4 percent to almost 5.5 percent in 2009, by far the highest figure since adopting a new methodology in 2000. Moreover, this indicator was shot up again in January of this year, when unemployment reached 5.87 percent, which is unfortunately a sign that the the crisis is far from dead.

Some economic sectors suffered worse than others.  And there are still sectors that suffered most. As we know, the automotive industry in the United States was affected to such an extent that both Chrysler and General Motors had to declare bankruptcy (entering so-called “Chapter 11”) and it is not surprising that this sector in Mexico – particularly the auto parts and components suppliers – suffered to the same extent.  According to figures from the Mexican Labor Secretariat, permanent jobs in the automotive processing industry fell ten percent (!) in 2009, a tragedy for that sector.

The U.S. crisis affected us in many ways, one of the most note-worthy being the aforementioned automotive industry, but another equally serious one was the fall in remittances from Mexicans abroad. Having dropped from 25.137 billion dollars in 2008 to 21.181 billion in 2009 alone, the issue is even more critical if one considers that remittances had dropped nearly five percent from 2007 levels in 2008.

This is yet another indicator that 2010 does not look necessarily like an improvement.  The decrease in remittances has a major impact on the flow of dollars entering the country, but perhaps the more significant effect is that of the fall in money transfers to the families of migrants, many of whom are among the poorest people in the country.

One of the cruelest effects of a crisis is on poverty, particularly in the so-called food poverty — the measurement of the number of persons unable to purchase adequate food supplies.  Last July CONEVAL (National Council for Social Policy Evaluation) reported that food poverty numbers rose from an affected 4.4 to 19.5 million people. This issue is even more disturbing when you consider that the 2009 figures are based on an income-expenditure survey from 2008, when the crisis has not yet peaked in Mexico.

Thus, almost every economic indicator shows a bleak picture. That’s why I was surprised by the Mexican President’s analogy to “The Year of Living Dangerously” – suggesting we had narrowly avoided a serious crises, or as if it had not yet affected Mexico.  The only thing that makes sense of the President’s cinematic reference to the 2009 economic picture is that he sees himself as director Peter Weir, and Agustín Carstens, Finance Minister until December and central bank governor today, as Mel Gibson.

FeCal's Year of Dangerous Analogies

The film, of course, told the story of a naive observer (Gibson) of a massive crisis (the Indonesian Civil War of 1965) who makes an ethical compromise that and destroys others to protect himself.

By the way, the Administration is NOW claiming that the Mexican economy will grow four or five percent this year, while a Tec de Monterrey study shows 2,000,000 Mexicans have fallen below the poverty line since Calderón was installed in office.  Of course, the Administration also claims it is “winning” a war against drug exporters.

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