The Official James Petras website

The New York Times (January 16, 1997) reported that “The repayment of the loan?three years ahead of schedule?was marked by a celebration at the White House today presided over by Mr. Clinton and Treasury Secretary Rubin.” In Mexico President Zedillo celebrated the occasion, declaring that his government had made a “bold step toward the economic recovery of Mexico.” According to Zedillo “the early retirement of the debt demonstrated the coherence and responsibility the Mexican people and Government have shown in these times.”

While Clinton, Rubin, and Zedillo claimed the debt repayment was a reflection of the successful recovery of the Mexican economy, Guillermo Ortiz, the Mexican Finance Minister, clarified the issue by stating that Mexico raised the money for the final payment to the U.S. Treasury by selling bonds to investors in Europe, Asia, and the U.S. Hence the net debt stays the same, and while the rates of interest decline (the U.S. Treasury pocketed a profit of half a billion on the loan) the payment of the debt was not the result of any boom in the economy.

The transfer of debt payments overseas has depressed the Mexican economy via exorbitant interest rates (between 35 and 75 percent annual rate) that undermine industrial and agricultural producers. Widespread and severe domestic indebtedness, a precarious financial system dependent on state subsidies, and a growing rate of bankruptcy are some of the immediate consequences that afflict the private sector of the Mexican economy. On the other hand, the high interest rates attract the return of overseas speculative capital, who invest in short term investments in government bonds and in bargain price purchases of mineral concessions. On the Mexican side, local investors feel the whole financial system is insecure and have been investing heavily in the United States. The subsidiaries of overseas U.S. banks and enterprises, also ship most of their profits out, thus draining valuable and scarce earnings out of productive investment in Mexico.

On the social front, the minimum wage as well as general wages and salaries continue to plummet; the rate of inflation continues to exceed the annual salary adjustments that the government imposes through the State controlled Mexican Labor Confederation (CTM); and the bulk of agricultural producers, farmers, and peasants, suffer from declining income, unequal competition (from the U.S. and Canada), and lack of credit.

On the political front, while the state-party, the PRI, continues to engage in electoral fraud, political assassinations, and vote buying through “poverty programs,” it is losing its political stranglehold on the country.

Making Mexico Safe for Wall Street (and Unsafe for Mexicans)

It should be clear that in analyzing any country today in the so-called “free market” era, it is important to specify the impact that policies have on different social classes and sectors of the economy. Thus terms like “macro-economic indicators” or increases in the stock-market are meaningless in themselves unless the analyst tells us who benefits, who pays the cost, as well as specifying the long-term, large-scale structural effects on class relations, income distribution, and development of productive forces. For example, this past year the biggest increases in stock prices occurred in countries going through very severe socioeconomic crises. Among what stock speculators and investment brokers refer to as “emergent markets” Russian stocks grew by 156 percent, Venezuela’s by 132 percent, Hungary’s by 95 percent, and Poland’s by 71 percent. Among the top 5 performers, China, with a growth of 89 percent, was the only country which has experienced sustained growth. What all these countries have in common is a severe un/under- employment problem, a precipitous decline in overall living standards, the auctioning off of lucrative public enterprises to private overseas investors and opening their raw materials to foreign exploitation. Brazil, with 30 percent increase in the stock index, Argentina with 19 percent, and Mexico with 16 percent also provided lucrative returns to overseas and local speculators. The liberalization of the markets in both Russia and Venezuela which attracts foreign capital is also responsible for the growth of poverty that encompasses 70 percent of the Venezuelan and over two-thirds of the Russian population. In the case of Mexico the 16 percent increase for bettors in the stock market was accompanied by further decline in wages. The government fixed-wage adjustment for 1996 was at least 10 percent below the actual rate of inflation.

Further evidence of the lucrative profiteering for U.S. speculators in Latin America was revealed in a study by a New Jersey-based research group which found that Latin American funds performed better than all other U.S.-managed international equity funds. The study found that the average Latin American fund returned 27 percent in 1996 putting it ahead of U.S. equity funds which averaged only 19 percent. The biggest profiteers among the funds have taken advantage of the privatization of publicly owned mineral resources, energy, precious and industrial metals, timber, and real estate. One of the most lucrative fields for speculators in Latin America was debt funds (buying and selling of public overseas debt) returning 42 percent. The strongest bond funds in the world had heavy exposure in Latin America with the top performer GNO Emerging Country Debt returning 66 percent?containing a 10 percent weighing in Mexico and a 32 percent weighing in the rest of Latin America.

The consequences of the high returns to U.S. speculators, however, are largely negative, even for many Mexican investors and businesspeople. In order to attract foreign capital with high interest rates, the Mexican government has forced huge increases in the cost of borrowing for Mexican businesspeople. The result is large-scale poverty, declining incomes, and the depression of the internal market; the growing political and social discontent that accompanies the stagnant market has generated widespread insecurity among large and small Mexican investors, causing them to ship their money across the border, thus further undermining any economic recovery. Mexican deposits in U.S. banks has more than doubled since 1994?from $12.2 billion to $26.3 billion by July 1996?according to the U.S. Federal Reserve. Thus, while savings deposits in Mexico declined by 4 percent in 1996; Mexican deposits in the U.S. increased by 8 percent in the first half of the past year. The deposits accumulated in the first seven months of 1996 in U.S. banks, is around one-third of the potential savings that the national private sector deposited in Mexico at the same time. This outflow does not include the Mexican share of the approximately 45 billion dollars that has been estimated to be transferred by U.S. subsidiaries to the tax paradises in the Bahamas, Cayman, and Virgin Islands. Clearly the Mexican government’s early payment of its external debt obligation has not created a secure and favorable climate for Mexican savers. Thus the flight of Mexican capital becomes a further pretext for greater overseas indebtedness, which encourages the continuance of excessive interest rates which further undercuts local production and encourages greater capital flight. The Mexican regimes policy of an “open economy” that liberalizes capital flows has had a boomerang effect by increasing debt outflows and encouraging local capital flight. This undermines any bases for financing the recovery of the productive economy while enhancing financial and speculative returns.

The influx of so-called “portfolio investments” of overseas speculators does not create jobs for the 65 percent of the Mexican labor force which is under or unemployed (in the so-called “informal sector”). The State’s tight control over wages ensures that the 60 percent of the labor force working and living in poverty will not benefit from any dubious projections of economic growth. The Mexican Confederation of Chambers of Industries (Concamin) listed 6 major obstacles to the government’s plans to overcome unemployment: the weak stimulus of the internal market for private investors; the persistent debt among families and firms; the persistent low private consumption levels; the unbalancing of external accounts via the import of inputs by expanding industries. The private sector expects low levels of real investment and little likelihood, that whatever growth occurs will not be jeopardized by political and social conflict. The latter is inevitable given the persistence of record high unemployment and deepening rural poverty generated by the free market policies.

Meeting Foreign Obligations

Mexican minimum wage levels are among the lowest in the semi- industrialized world and have suffered severe deterioration as the Mexican government seeks to attract more foreign investment on the basis of cheap labor.

As of January 1 the general minimum wage ranges (by regions) between $3.40 and $2.90 a day. Even among skilled workers and professionals minimum salaries do not allow for minimum living conditions. For example, the minimum wage for truck drivers in the higher-paid regions is $5 a day; certified nurses have a minimum of $5.50, auto mechanics $5. In the countryside agricultural workers average about $2.50 a day, if and when they receive full payment. While salaries and wages continue to decline, basic food prices have been skyrocketing thanks to free market deregulation. Over the last 18 months the consumption of basic food items has declined 29 percent. Over the same period while nominal salaries increased 38 percent, inflation increased by 66 percent. Basic food items like beans increased 240 percent, tortillas 86 percent, wheat flour by 305 percent, cooking oil by 70 percent.

In January 1997 in Guasave Sinaloa over 3,000 agricultural workers, most from southern Mexico, went on strike and fought the police demanding the end of a 4 peso weekly deduction to fund the government controlled CTM union and an increase in salary to 25 pesos($3.20 a day). The strike paralyzed the export of 40,000 boxes of vegetables?mostly tomatoes. Faced with the threat of rotting fruit and the militancy of the workers, the owners accepted the 70 cents a day raise.

As malnutrition stalks the land, Mexican agricultural economy shows all the signs of deformed growth characteristic of the “free market.” Overall the agricultural sector grew a mere 1.5 percent, which still failed to compensate for the 3.5 percent decline in 1995. The net balance between agricultural food exports and imports was negative to the tune of 1.5 billion dollars in 1996.

The problem is the basic inequality of trade between Mexico and its North American neighbors. Mexican farmers suffer from a lack of financing and high rates of interest. In addition the infrastructure is inadequate and the commercial networks are inferior to that of their U.S. and Canadian competitors. These material conditions make it impossible for Mexican producers to compete within the framework of the free trade agreement. In the specific area of corn production Mexico’s average output is about two tons a hectare while the U.S. output currently runs to 7 tons with projections to increase output to 17 tons. But the aggregate figures hide basic socioeconomic differences: while 5 percent of the large corn producers grow over 5 tons per hectare, there are 1.5 million small farmers producing for subsistence. In the past year the ranks of the “subsistence producers” were swelled by the addition of 300,000 corn farmers who were so heavily in debt and lacking in capital financing, that they were unable to incur new loans to upgrade production to become competitive. While government financing rose slightly to 31.3 billion pesos in 1997 over 26 billion in 1996 (nominal?not corrected for inflation) the great bulk of the financing goes to the large agro- business firms. For example, the regimes main development promotional agency Alianza para el Campo’s 22 programs designed to increase income and output, reached only 10 percent of the producers. The overall impact in the agricultural sector was negligible. The result is deeper social polarization between those big farm exporters who are linked to the state and the small producers who are excluded from the government’s subsidy programs. Because of its commitment to meeting external debt payments and gross corruption of agricultural officials who pocket funds destined for the agro-sector, there is growing social protest in rural areas. One typical example of peasant protest occurred early in 1997 in the state of Chiapas. In January over 350 police attacked thousands of peasants in the La Frailesca zone who were blocking highways protesting the government’s failure to carry out previous agreements signed in November of the past year. The original agreement stipulated that the peasants would accept depressed corn prices and, in exchange, the government would implement a Program of Temporary Rural Employment which supposedly would fund 3 million person hours of work. The peasants thought that the added income from this work would compensate for lost income from depressed prices. The prices stayed low, but the jobs never materialized. The peasants took to the streets, the PRI sent in the police, scores of peasants were injured and jailed. But the government was able to save money and pay its debt to the U.S. two years early.

The problems of Mexican agriculture go far deeper than the impoverishment of the poor peasant. Middle and even many larger farm owners are suffering from the squeeze of high interest rates and declining international prices. The size of the rural debt continues to increase and the number of farmers who cannot meet debt payments is growing. In 1996 over 20.9 billion pesos in loans were far in arrears, compared to 17.4 billion in 1995. The total internal public debt in Mexico amounted to 13 percent of the gross internal product.

To avoid foreclosures, Mexican debtors have organized a nationwide movement call BARZON which claims two million members and demands government relief, lower interest rates, postponement of payments and an end to foreclosures. Organized protestors have effectively blocked bank takeovers of farms in many states. BARZON leaders recently met with Zapatista leaders in Chiapas and have announced support in some states for oppositionist left-wing candidates.

Finance and the State

While Mexican government officials constantly proclaim that a repeat of the financial crash of 1994 is “remote” the economic fundamentals to provoke a new crash are still in place. The government’s obsession is to keep the current financial system afloat, no matter what its cost to the rest of the economy. This reflects the regime’s increasing dependence on overseas financial flows and the fragility of this external relationship. Today Mexico doesn’t seek external finance to produce, rather it produces to sustain the financial markets. In 1996 the Mexican government’s bail out of banks and large-scale debt holders exceeded 8 percent of the GNP, a bill that taxpayers will be paying for the next 29 years. With ballooning external debt payments in the tens of billions coming due in 1997 and Mexican savings and subsidiary profits flowing outward, the government is intent on maintaining the free market economy. President Zedillo’s only solution is to apply new and more severe “adjustments” or downward pressures on the already low wages, privatize social security funds, and increase the exploitation of nonrenewable resources (oil, metals, forestry, etc.) to attract speculative capital from overseas “money funds.” There is a direct relation between the decreasing income available to Mexicans and the increasing dependence on money flow via narcotics traffic. Corruption and drugs have permeated all levels of government?while social rebellion grows in the Southern states and electoral protest spreads in the northern and central regions of Mexico.

The Decline of the Party-State

The party-state dictatorship that has been running Mexican politics for the greater part of this century is being challenged: electorally in most of the country by social movements in a wide range of social sectors, and by at least three guerrilla movements in the South. In the electoral field, political analysts project the combined vote of the conservative PAN and left of center PRD total close to 55 percent, while the PRI hovers around 31 percent. In 1997 nearly 50 million Mexicans will vote for state governors, municipal officials, and federal deputies. The past year was a time of electoral triumphs for the PAN, increasing its vote in the municipal elections by 27 percent, the PRD advanced by 4 percent, while the PRI declined by 15 percent. Over the last 5 years the PAN has gained 15 million new voters and will likely win elections in the most populous Northern and Central states.

The party-state’s trade union arm, the CTM, concedes that workers have lost over three-quarters of their purchasing power over the last 15 years. In response it has launched a government financed “beans and rice” give-away program aimed at the poorest villagers and urban squatters, coinciding with the electoral campaign. The Zedillo government can be expected to continue to give free rein to the PRI paramilitary forces responsible for killing an average of 2 PRD leaders or activists a week?over 200 since Zedillo’s inauguration?none of whom have been arrested.

Despite coercion, corruption, and fraud, the opposition has made significant inroads, even at the local level. The PAN has demonstrated strong electoral support in the northern industrial zones, in the agro- industrial central western region and in the State of Mexico, including the capital. The center-left PRD has its electoral support in the industrial and middle sectors of the State of Mexico and particularly in the agricultural south. Despite its decay and the violent internal struggles for power and control over narcotraffic (including numerous murders), the party-state still has a vast apparatus that penetrates every village and neighborhood, every sector of the economy, a vast range of print and electronic media and billions of pesos of taxpayers’ money and oil revenues to spend on the elections. As in the past, the U.S. government continues to back the PRI and the U.S. mass media continue their support for the Zedillo regime that controls and runs the party-state.

Washington is not too perturbed by the decline of the PRI since the PAN shares the neoliberal program promoted by the PRI. In fact the PAN would deepen the process of “globalization” and “liberalization,” if and when it took power. In the event that neither party gains a majority, it is likely that the PAN would form a coalition with the PRI rather than the PRD, despite the fact that the latter’s leadership has been offering to be a junior partner in a coalition for the upcoming Congressional elections.

While the electoral opposition is led by the PAN, the picture changes dramatically when we look at the social movements. In the countryside particularly in Oaxaca, Chiapas, Guerrero, Tabasco, and among the Indian communities, and particularly in a number of important trade unions (transport, teachers, university, electrical, and communication workers), the left-wing of the PRD and the radical left have been gaining influence. Through direct action, occupying municipal buildings, blocking highways, land occupations, urban marches, as well as strikes, the extra-parliamentary left has sharply undercut the PRI’s stranglehold over workers, peasants, and neighborhood organizations.

Many Mexicans who are disgusted with the electoral fraud of the PRI prefer to engage in direct action rather than vote in elections in which the outcome is decided by the local PRI bosses. The problem is not the size or scope of these social movements, but their dispersed and localized nature. This is beginning to change. The debtor organization BARZON, the new national coordinating organization set up by Indian organizations last June in Chiapas and the efforts by the Zapatistas to establish a now inclusive political movement?a new National Zapatista Liberation Front (FZLN)?all speak to the growth of a national challenge to the PRI.

Another source of opposition is found in the newly emerging guerrilla movements in the South. The FZLN or the Zapatistas with their powerful political appeals throughout the country?despite their limited geographic sway?and the People’s Revolutionary Army with its key cadres in some of the more radicalized and impoverished Southern rural states. Other smaller armed groups have also manifested signs of activity. While the government has militarized the regions of conflict, its unrelenting pursuit of the free-market doctrine ensures that social violence will continue, particularly as the agricultural policies continue be the enrichment of 10 percent of the agro-exporters, deepen the indebtedness of the 30 percent who are middle size farmers, while impoverishing the other 60 percent mostly peasantry and landless laborers.

What the U.S. and foreign investors fear most is the break-down of the party-state, the loosening of controls over civil society, and the mass eruption of the social demands of the tens of millions whose declining living standards have financed the opening of the market and the payment of the interest on the foreign debt. In this context, Washington favors a peaceful, negotiated transfer of power to the PAN, and the consolidation of a new police-military-judiciary structure that can continue to enforce the rules of the “free market.”

Conclusion

The Mexican government’s success in attracting the return of overseas lenders to Mexico following the 1994 debacle has its counterpoint in the impoverishment of the Mexican middle class and the severe pauperization of the lower class. The Clinton administration’s White House celebration of the early payback of the bailout loan has its Mexican side in the proliferation of guerrilla groups and social mobilization in the countryside. The 34 percent loss of purchasing power of salaried workers since 1994 is the other side of the coin to the exorbitant returns amassed by the managers of U.S. money funds. While the privatization process proceeds full steam ahead in 1996, salaries remain 78 percent below what they were in 1982 when the current crises emerged. The conditions for foreign capital inflows are precisely those that create massive poverty and social discontent which in turn encourages the outflow of Mexican savings. By making foreign debt payments the number one priority, the government has made the recovery of Mexican living standards its lowest priority. Whether through ballots or bullets, Mexico in 1997 is ripe for political change.

February, 1997