Tuesday, April 12

Mexico: Truth, lies, and damning statistics

Mexico is so dependent on the United States that it's a cause of resentment among Mexicans. Mexico's ruling class knows this so to divert attention from the real problems, they pull the time-honored maneuver of blaming the problems on somebody else--in this case, America.

From the American side, more than half century of Natoist (NATO oriented) thinking and the Cold War agenda means that the American national media, which is dominated by an Eastern establishment, couldn't find the American southwest much less Mexico on a map if you paid them. Thus, national headlines about Bush's proposed guest worker program, illegal Mexican immigrants, and loss of US manufacturing jobs feed into a highly distorted or completely wrong view of Mexico.

Readers who missed yesterday's post, kindly go there first and study the 2001 Statfor report mentioned in the essay. The informal energy alliance between Mexico and the US, which flummoxes Chavez's plan to use OPEC as a bludgeon against the United States, is greatly dependent on the relationship between Vicente Fox and his political party and the Bush administration.

The catch is that there is price tag for Fox casting his lot with America rather than the Latin American alliance Chavez is trying to forge. The price is that the US get more greatly behind policies toward Mexico that Fox's administration wants the US to implement.

The question is whether those policies are sound; i.e., actually help the vast majority of Mexicans; if they are not sound, they play into resentments that keep radicalism alive and the Communist party in business. To put this less politely: historically Mexico's ruling class doesn't have a good report card when it comes to noblesse oblige; the grade tends to hover in the Let Them Eat Cake range.

And because the Mexican ruling class (MRC) is aware that few Americans outside the deep southwest know much about Mexico, they get away with a lot, such as convincing President Clinton that Mexico's poor would be helped if the US bailed Mexico out of a financial crisis brought on by a burst speculative bubble.

The latest scheme by the MRC has been to convince the Bush administration and the World Bank that the way to help Mexico's poorest is make it even easier for Mexicans working in the US to send remittances back home. What the MRC wants, Vicente Fox wants, which is why Pundita wrote an essay titled Vicente Fox is going straight to hell.

New readers kindly skim the essay for an introduction to the topic of remittances and to learn why encouraging the remittance economy is a horrible idea. It doesn't take a doctorate in economics to figure out what's wrong with remittances, but since publishing the essay Pundita has learned that sometime this month three academics at Colombia University are publishing a study that tends to support the points I made.

The Miami Herald got an early peek at the study results, or at least conversed with the authors about the results, and reported the news. Yale University's Global Online republishes the Herald article with a helpful summary.

With regard to Mexico, one must look at the downside about remittances against some damning statistics:

Pundita doesn't recall the placement for the year 2000 but it's fairly accurate to say that so far this century, Mexico has been hovering between the world's 9th and 10th largest economies. That will come as a shock to Americans who think of Mexico as a 'third world' country.

The real shocker is that oil is not Mexico's largest source of foreign exchange. As of November 2004 oil export is second, remittances are #1. In other words, Mexico's largest source of income comes from Mexicans who work for US employers and return a portion of their wages to Mexico.

Only a tiny fraction of those workers are illegal; in 2001, when the US economy was very slow, about 700,000 Mexicans legally commuted across the border every day to work and/or shop in the US. I haven't researched the current number but can say with assurance it's much higher since the US economy picked up. Indeed, that's just why remittances have gone from #2 to #1 in the past year as Mexico's largest source of income.

The number I cited lumps together the workers and the shoppers--the latter not an insignificant number--but 700,000 daily commutes explains how it could be that Mexico's largest source of income derives from a portion of paychecks from US employers.

If I were Mexican I would be very scared of that statistic; one's economy doesn't get more vulnerable than that, if the economy has to depend on portions of paychecks earned from working in another country. But that's exactly the case for Mexico.

How could a country rich in oil, with a 90% literacy rate, and brimming with entrepreneurial spirit, get themselves into such a vulnerable position?

But here the reader might reasonably ask why, given the peso-dollar exchange rate, many Mexicans prefer to shop in the US. For the same reason Mexican businesspeople prefer to borrow money in the US: without a bank account you can't get a credit card.

Less than 40% of Mexicans have bank accounts, and the Mexican commercial banking system is an outgrowth of the Byzantine regulatory system in Mexico. So, Mexican entrepreneurs and shoppers prefer doing their banking in the USA. This is so they don't have to wait 20 years to see a loan come through or pay hurry-up money. It's the same with India and China and the world's poorest countries, I might add.

I interject this is why reports about increased UFO sightings in recent years are probably true. The gold rush is on. Banks galaxy wide are sending reps to China, Mexico, and India in a push to convince rubes that the thoroughly modern thing to do is get into credit-card debt up to your eyeballs.

Intergalactic bankers would have stiff competition from Citibank and every other transnational commercial bank based in a country with modern banking regulatory rules. So it's not for nothing that Secretary Rice's first stop in Latin America was to visit a USAID micro-finance project aimed at broadening access to banking opportunities for Mexican small businesses.

The World Bank and IMF have also gotten greatly interested in modernizing the banking system in Mexico and for the same reasons that USAID has taken up the interest. Not all the reasons are on behalf of Western banks scrounging new credit card customers. Of course you can't have a competitive economy without your banks writing lots of loans to business, and the banks can't do such without a good deposit cushion.

However, USAID's five-year program to help sort out Mexican banks is with an eye to making remittances easier to process.

Here the reader might reasonably ask, "What is USAID doing helping Mexican banks to modernize? Isn't US aid money supposed to directly to the world's poorest and the most crushing problems, such as AIDS and drought?"

Pundita's answer is: Since when has the American public noticed what USAID has been up to during the past 15 years? Pundita's sidebar, before I took it down for repairs, was specifically designed to bring the reader's awareness into the 21st century. That's why the sidebar posted a link to USAID, the World Bank, the IMF, and so on.

Yes, the Mexican government is perfectly capable of modernizing the banking system without US aid money--or World Bank loans. But what Mexico's ruling class wants is for the US and Mexican banks to make it not only easy but very attractive for Mexicans to keep up remittances. This is to take the heat off calls for tax reform in Mexico and the delicate business of collecting taxes from the ruling class.

Yet unless a country has an adequate tax base, pouring aid and soft loan money into Mexico is pouring money into a sieve. Every other issue with regard to Mexico--and the world's poorest nations--is a distant second. All attempts to evade this bald truth are misinformed or outright lies; Pundita's Paw, a Revenuer's at the door... embarks on explaining why this is so.

For links to other Pundita essays on Mexico, US-Mexico relations, immigration from Mexico and the Mexico-US border situation/war on terror, see Mexico Desk.

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