Monday, March 9, 2009

On the eve of the Mexican Revolution centennial:

Is Mexico due for a new revolution, if not outright collapse?

Of course, readers are probably already aware that a root cause of the problems in Mexico is the precipitous decline of Mexican oil production and an even faster decline in the level of oil exports. Add to that declining remittance incomes being sent home by migrant workers in America, declining tourist revenues, and lower revenue per barrel of oil exported, and the Mexican state is experiencing a severe financial crunch.

While the fiscal stability of the Mexican state is impacted by continually declining oil production and oil exports that are declining even faster, this impact is mitigated to some extent because PEMEX hedged the majority of its oil production through 2009 at roughly $70/barrel. Depending on the price of oil in 2010, Mexican oil revenues stand to drop off a cliff as PEMEX loses hedge coverage.

Does this mean the Mexican state is finished? The current crack-down by the Mexican military and federal police is, I think, best seen as a last-ditch effort to save the state. But it is also evidence that, by the very existence of this pitched battle, the state retains enough viability to pose a threat, and therefore to be targeted.

Last October, I recall journalist John Ross writing:
Sinking oil prices as energy demand tails off into a deflationary spiral will cripple investment in PEMEX, the national oil consortium Calderon so ardently wants to sell off to Big Oil - PEMEX accounts for 40% of the nation's budget. Even more ominous is the nosedive in "remesas", remittances sent south by Mexican workers in the U.S. that is the only sustenance for whole rural regions and which constitute Mexico's poverty program - one out of every four Mexican families now subsist on the remesas. Remittances are Mexico's second source of dollars, right behind petroleum.

This August, the flow of greenbacks from the north diminished by a shocking 12% and total remesas have sunk 4.4% in the first five months of 2008. Prospects for relief are dim. Mexicans working in the U.S. are the last hired and the first fired. With U.S. national unemployment topping 6% - California where more Mexicans work than any other state registered 7.9% unemployment last month and the construction industry which employs many Mexican workers is off 14% - workers are beginning to return home even though unemployment and inflation here are hitting highs not seen since the Meltdown of the 1990s.

Although the Calderon administration minimalizes the return migration, estimating that no more than 200,000 workers will come home to Mexico in coming months, many immigration watchers are calculating that the numbers could stretch into the millions. Despite labor secretary Javiar Lozano's happy face forecast that Mexico will be able to provide jobs for the returnees, it should be remembered that these workers fled to the U.S. precisely because they could not find work here.

Moreover, Mexico, which runs a serious trade deficit with the U.S., will see exports and the jobs they generate dry up in 2009. Automobile and auto parts orders, a big chunk of Mexico's export basket, have been cancelled due to sagging sales up north and workers are being laid off on both sides of the border. Manufacturing orders for border-based maquiladoras are plummeting and hundreds of thousands of jobs have been lost to even lower wage countries like China in recent years.

The news gets worse. Workers' pension funds, privatized under Zedillo to allow for investment in money markets, have lost 62.5 billion pesos since the first of the year. The credit collapse has gutted the Mexican stock market as sorely as it has eviscerated U.S., European, and Asian exchanges - the Bolsa de Valores has lost over a thousand points just in the last month, panicking the nation's top Forbes list billionaires.
Similar sorts of commentary can be found around blogtopia. For those who find some significance in the year 2012 and the Mayan calendar, there could be some sort of vindication I suppose. Something very huge is in the process of transpiring. I wonder how all these events will influence the Zapatistas and their attempts to create an autonomous society. Will they have more breathing room with Mal Goberniero collapsing? Or will they find themselves more vulnerable to drug cartels and mercenaries?

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