Despite Economic Upturn, Mexicans Say, 'It's The Tortilla Prices, Stupid'

By , Staff writer of The Christian Science Monitor

TOP officials from Mexico City to Washington say the beleaguered Mexican economy is on the mend. So why isn't Abraham Montero Martinez convinced?

''They can continue to tell their lies, but what I see is that there is no work,'' says the plumber. He is the leader of dozens of independent craftsmen who wait daily outside Mexico City's Roman Catholic cathedral for day labor. ''When you earn no money but every day face higher prices just to feed and house your family, it's hard to see any improvement.''

Like the Cert twins who used to argue over whether their sweet was a candy or a breath mint, it may be that both opinions on Mexico are right.

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The country has pulled back from the financial precipice it hovered over since the peso collapsed last December, reversing a negative trade balance and slowing wildfire-fast inflation sooner than many observers thought possible. The stabilized financial picture has led to official pronouncements of optimism and has caught Wall Street's eye. The Mexican stock market has recovered to its level of a year ago.

At the same time, however, the price for this financial adjustment has been almost unprecedented hardship for most Mexican families.

Unemployment has soared, while buying power plummeted. Economists say about a third of Mexico's 35 million workers are either unemployed or underemployed. Car sales have plummeted 56 percent compared with a year ago. The price of tortillas, a Mexican staple, has risen more than a third.

''The optimistic talk we hear from official circles is half political and half macroeconomically justified,'' says Alberto Lomeli, president of the Mexican Association for Consumer Defense Studies.'' The reality for average Mexicans is that this is a crisis without historical precedent for its unemployment, growth of the economy, and loss of buying power.''

This double vision of Mexico's economic state is reflected by Patricia Suarez, who sells shoes six days a week in a small shop in central Mexico City. She got her job a month ago because the shop's owner believes the economy will gradually come back. But the price hikes she sees leave her pessimistic about the future.

''I make 250 pesos [about $42 for a six-day week] which is a little better than at my last job in a cookie factory,'' she says. ''But with salaries up 10 percent when prices are up 50 percent or more, I can't consider that an improvement.''

Most economists agree that the worst is still to come.

''I don't believe we have yet reached the bottom of the crisis, either concerning unemployment or the fall in industrial activity,'' says Alberto Diaz, a political economist at Mexico City's Center for Development Studies (CIDAC). Official figures, which define unemployment very restrictively, put joblessness at 6.6 percent at the end of May - already a historical high. But Wharton Econometric Forecasting Associates in Philadelphia predicts a rate nearing 11 percent by year's end.

This jump in unemployment - and ensuing jumps in the ''informal'' (often illegal) economy - appear to have caught the government by surprise. Earlier financial crises were accompanied by important wage sacrifices, but not by skyrocketing unemployment.

While inflation has been beat back to about 2 percent a month, pressure to raise wages is high. And even though the peso has stabilized at about six to the dollar, some economists say that is still too strong a peso for Mexican industry to profit from the devaluation.

Mexico's trade surplus, reversing 1994's deficit, is another positive factor that nonetheless fails to draw enthusiasm from all quarters. The trade balance counted a $2.9 billion surplus at the end of June and should climb to at least a $6 billion surplus by the end of the year, CS First Boston of New York predicts. This simply means that Mexico is too poor now to buy the imports it is accustomed to, some economists say. It also means that Mexico is no longer attracting the foreign investment capital it needs.

While both these points are true and worrying, Mr. Diaz says, the trade surplus does indeed reflect increased exports from Mexico, indicating that Mexican industry has adjusted to some extent to take advantage of the lower peso.

''It means Mexico's trade reforms of the past few years have been effective,'' he adds.

And predictions that Mexico's economy will grow by 1 percent to 2 percent in 1996 - after a predicted retraction in gross national product of more than 4 percent this year - are hardly cause for jubilation. ''It's better than another negative,'' Diaz says, ''but hardly anything for a country like Mexico to celebrate. He and other economists at CIDAC have concluded Mexico's problem is political.

''The government has accepted the function of markets, but not really the full operation of competition,'' Diaz says.

The Mexican model has been to use privatization to create a few huge private companies to compete globally, but he says that has led to tight government-company relations that have squelched competition as well as the small- and medium-sized companies that create jobs.

Pointing to an absence of ''confidence-building rule of law'' and other key problems, Diaz says Mexico's growth will remain disappointing until those issues are addressed.

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