As US growth sputters, Mexicans face the 'R' word
Echoing US patterns, the Mexican economy has quickly gone south.
CUERNAVACA, MEXICO — Gustavo Medina stares sullenly at his half-eaten chorizo sandwich, passing salsa picante and tales of financial woe around the taco stand with his fellow truck drivers.
Last year, when his country's economy was growing at a rate of 7 percent, Mr. Medina made roughly 11 trips a month from Cuernavaca to the US border, his 18-wheeler packed with electronic goods and car parts. Paid per load, he was earning about $1,000 to $1,200 a month. These days, he's making the 14-hour trip only about five times a month, and his salary has dropped to $600 - barely enough to support his wife and two children.
It's not news to Medina that Mexico is in a recession. Earlier this month, Mexican officials acknowledged that the economy has registered two consecutive quarters of negative growth. It reminds Mexicans of how increasingly dependent they are on the ups - and downs - of the US economy since NAFTA took effect in 1994. Mexico's exports to the US have tripled, to $130 billion. Today, Mexico sends about 85 percent of its exports north of the border. During the same period, US exports to Mexico have doubled, and about half of all US exports to Mexico are from Texas.
Mexico's President Vicente Fox was concerned enough about the US economic slowdown that he half-joking told Mexicans recently: "We need to pray to the Virgin of Guadalupe that the US economy recovers."
What also prompts some to pray here is the familiarity of the situation. Mexico's economy has soared to new highs and then plunged to new lows four times in the past two decades - usually with the arrival of a new president. The last nosedive came in 1994, following a period of unprecedented growth and soon after then-President Ernesto Zedillo took office. It took a $50 billion bailout by the Clinton administration and the IMF to stave off complete collapse.
"Our hopes are re-awakened every six years," says author Guadalupe Loaeza, referring to the presidential term of office in Mexico. "And then we all say, 'how can this be happening again?' "
When President Fox swept the Institutional Revolutionary Party (PRI) from office last year, he pledged to accelerate economic growth, increase wages for workers, and create a better quality of life for all Mexicans. He brought a fresh sense of optimism - and credibility - to the Mexican presidency.
But since then, the US market has slowed, dragging the Mexican economy with it. On top of that, there is concern about "the Tango Effect." Economic turmoil in Argentina only briefly registered on the Mexican financial horizon, causing hiccups to the stock market and having little effect on the peso value. But last week's US bailout for Buenos Aries awakened painful memories in Mexico - and aroused fears Mexico too might be in for another round of serious trouble.
A surging peso has helped weaken demand for Mexican exports, leading to hundreds of thousands of layoffs. The Fox administration has been twice forced to cut its budget, and twice scale back the forecast for annual growth (now set at 2 percent).
More clearly than ever before, the gyrations of the US economy are affecting virtually all walks of life in Mexico.
Take America Sandoval, who runs a tiny lunch stand outside the Nissan factory at Cuernavaca's 570-acre industrial park. Not so long ago, she was serving up thousands of pork tacos and quesadillas every week to workers from dozens of manufacturing plants. But since the US economy flatlined earlier this year, Ms. Sandoval has watched her business plunge by more than 25 percent.
The Nissan factory here cut more than 300 workers just last month. Across the country, more than 215,000 factory workers have lost their jobs since January, according to government reports. That figure nearly doubles, say analysts, once you add in the vast informal sector, such as small family-run businesses like Sandoval's taco hut.
"This is not just a problem for the big exporting companies," she says. "It's affecting all of us in the community."
About the only person in Mexico still outwardly upbeat about the country's immediate economic future is Fox, whose relentless optimism has become as much his trademark as the cowboy boots he wears to the office.
Direct foreign investment, he points out, is projected to nearly double this year to more than $25 billion, thanks largely to a $12.5 billion deal by Citicorp to buy Mexico's second largest bank. He says the peso is more solid, there's far less debt, and foreign reserves now stand at about $40 billion, compared to only $3 billion when the economy crashed at the end of '94. Last week, Fox said "there's no value in panicking and talking of crisis when it's not the reality."
Analysts and economists generally agree, saying key reforms - particularly to the banking sector - have fortified Mexico against a 1994 repeat.
"The general economic situation is far more stable now, and there's much more international confidence in Mexico," says Mario Rodarte, who runs a Mexico City think tank that studies the private sector. "This isn't a situation where there's reason for fear."
But try telling that to people like Medina and Sandoval as their incomes plummet.