Evidence of more poverty in Mexico

In the first year of the Vicente Fox administration, there was a serious attempt to develop an agreed-upon measure of poverty. A commission of specialists led by Enrique Hernández Leos, Miguel Székely, and other reputable scholars worked on the project. Before that, there was little consensus in academic and policy-making circles on poverty statistics in Mexico. Basically, each source had its own calculations and methodology, that the others suspected. And the party in power, the PRI, was known for cooking the books.

For years, the INEGI (Mexico’s official statistics agency) had been conducting a periodic survey of household income and spending (the ENIGH). Over time, the frequency of the survey became biennial and then — in the last couple of years — annual. The resulting database was to be used to compute the official poverty rate. There were some quirks, but the commission had the humility and good sense to agree on simple solutions. The sample didn’t give good information at the local or state level, but it was fine at the national level — and even at the male/female and urban/rural level.

The benchmark figure, in 2000, six years after NAFTA was implemented, was estimated in 54 per cent, that is, over half of Mexico’s population was poor! Rural areas and women were most affected. Improving matters in a situation so dismal, with a benchmark so low, had to be relatively easy for the new government. Or so people thought in 2000. But before I get to Vicente Fox’s performance in economic and social matters, let me say a few words about the social disaster he inherited.

What the 54 per cent poverty rate showed was the social devastation wrought in Mexico by the debt crisis of the 1980s. From 1982 to 1991, Mexico’s economy either shrunk or stagnated. It got a little lift from the depths of hell in the years prior to the implementation of NAFTA in 1994 (the years when Mexico joined the GATT, got a modest reduction in its debt burden, slashed tariffs and import permits, privatized state firms and banks, passed legislation to allow the full ownership of firms by foreigners, and the U.S. business press hyped these reforms incredibly). But then, precisely the year when NAFTA was put in place, the economy collapsed. That became known as the Tequila crisis (1994-1995).

After a year and a half (and a U.S. bailout that yielded a nice return to U.S. taxpayers), in the late 1990s, the average income of Mexicans grew, albeit very modestly in comparison to years bygone. (In the 1950s and 1960s, Mexico’s economy was stable and playing serious catch-up with the U.S. economy.) But some relief was felt in the late 1990s. By some more than by others, as it became clear that during those “NAFTA golden years,” wealth distribution regressed.

Economists infected with the “Washington Consensus” malaise (privatizations, “free” trade, tight fiscal and monetary policies, and de-regulation as panaceas) had predicted that Mexican workers and U.S. capitalists would be the big winners of NAFTA. They were right about the latter, but couldn’t be more wrong about the former. (They invoked a well-known result in trade theory, the Stolper-Samuelson theorem.)

To be fair, studies show that NAFTA alone had a rather modest impact on the average income of Mexicans — that is, NAFTA abstracted from other economic reforms Mexico implemented in the late 1980s and early 1990s, and separated from the peso crisis in 1994-1995 (which economists believe wasn’t the result of NAFTA, a view I tend to agree with).

But just as NAFTA may not be the culprit of all the bad things that have happened to Mexico in the last 12 years, it is clear now that “NAFTA’s golden years” had very little to do with NAFTA! This is not the claim made by a lefty. William Grubben, an economist from the Dallas Fed, has shown convincingly that Mexico’s growth in the late 1990s resulted mainly from the prior peso drop and not from NAFTA proper. In other words, the conditions that enabled the short-lived maquiladora boom of the late 1990s pre-existed NAFTA or resulted from the peso fall in 1994-1995.

How has Vicente Fox performed? He has been a complete disappointment. He promised growth at 7 per cent a year. He had it easy, relatively speaking. During this tenure, population growth decreased steadily, from almost 2 per cent to less than 0.5 per cent a year. The rate of incorporation of youth into the labor force slowed down from the explosive late 1980s and early 1990s. Although the U.S. economy slowed down in 2001 and 2002, Mexico should have been buffered by — manna from the heavens — the increase in the prices of oil and other raw materials that Mexico traditionally exports.

Here’s the real (not per capita, so subtract 1 per cent plus/minus to get an approximate per-capita figure) GDP growth that Fox accomplished:

2000 6.6%
2001 0.0%
2002 0.8%
2003 1.4%
2004 4.2%

In matters of economic policy, Fox spent most of his political capital trying to pass a mediocre “fiscal reform” in Congress that went nowhere. He went to Davos and spoke big words there, met the King of Spain a few times, and conducted himself as a pompous ass. There was no whole enchilada in migration matters. Not even a half-chewed corn chip, not in a midterm election year when immigrants become a handy scapegoat in the U.S.

So, Fox — as they say in Mexico — “nadó de muertito” (played dead) during his economic tenure. And that’s pretty much the PAN’s economic record as the ruling party. How about poverty? The poverty rate improved (i.e. went down) in 2002 (to 51 per cent) and 2004 (to 47 per cent). Rather modest gains, given the pre-existing high rates.

What happened in 2005? If the ENIGH was conducted on time, then the poverty rate should have been announced by now. But it hasn’t — at least officially. Again, officially, because in the last few days, Diario Monitor (http://www.diariomonitor.com.mx/hemeroteca/1153546150/tema-04-22072006.pdf) has been publishing notes saying that the ENIGH data was collected and crunched since early this year. However, the government kept the news on poverty a secret, not to hurt Calderón’s campaign. Who’d have guessed it — rural poverty increased 2.4 per cent from the previous year!

López Obrador has been claiming this was a “state election” (an election in which the government blatantly used the public resources to support the PAN candidate). He could easily use this as Exhibit ZZZ999999: Not to hurt Calderón’s prospects, the government kept poverty statistics from public view.

But, aside from the politicking, there’s nothing that shows the utter incompetence, the faith-base approach, the pompous vacuity of Vicente Fox as a public administrator like this statistic. And he had solid reasons to keep this information from the public. It could have damaged Calderón, his team — even the PAN as a whole. After all, Calderón was the minister of energy while his campaign coordinator, Josefina Vázquez Mota, was the minister of social development.

Sources and reference:

Mexico’s official time series on poverty and inequality:


Mexico’s GDP growth series:

http://www.banxico.gob.mx/eInfoFinanciera/FSinfoFinanciera.html; http://dgcnesyp.inegi.gob.mx/cgi-win/bdieintsi.exe; http://pwt.econ.upenn.edu/php_site/pwt61_form.php

Willian Grubben’s study:



One Response to “Evidence of more poverty in Mexico”

  1. Clueless in Latin America « The Fanonite Says:

    […] “La pobreza una bomba de tiempo” Diario Monitor, 12 de julio 2008 –  cited in “Evidence of more Poverty in Mexico“ Posted by m.idrees Filed in Globalization, US Politics, Venezuela, War of Terror Tags: […]

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