Why the Recovery is Not a Recovery

Over the last two years, Mexicans have been
caught in an economic crisis of appalling pro-
portions. The peso devaluation of December, 1994,
and the ensuing capital flight and stock market
crash, plunged the Mexican economy into its deep-
est depression since the 1930s. Within two months
of the devaluation, the value of the currency had
declined by more than half; within four months the
level of unemployment had doubled; inflation
jumped from 7% in 1994 to 52% in 1995; andI the
gross domestic product (GDP) had declined by 6.9%
at year’s end.’ The economic crisis saw the collapse
of the country’s internal market, the virtual disap-
pearance of credit for small and medium-size busi-
nesses, a dramatic contraction of formal employ-
ment and an alarming growth of poverty. Twelve
months after the peso debacle, an estimated 75% of
Mexican families could not afford the “basic bas- ket”‘ of goods and services considered necessary to
bring a family above the official poverty line. 1995 was not a happy year.
1996 saw a halt to the decline, and the beginning
of what is now being touted-especially to foreign
investors-as a “recovery.” Third-quarter GDP growth
has been reported at 7.4%, leading Finance Minister
Guillermo Ortiz to tell a November press conference
that the country’s basic institutions were now sound.
Mexico, he said, could expect 4% economic growth,
800,000 new jobs, $8 billion of new foreign direct
investment and $3 billion in privatization earnings
in 1997.2
But what Ortiz says is an economic “recovery” is do-
ing nothing to improve living conditions in Mexico.
Real wages continue to fall, formal employment
continues to be hard to find and the rate of poverty
hasn’t budged. The decline of GDP was halted only by the robust performance of transnational firms in
the automobile industry and in the maquiladora
sector-firms which import and produce strictly for
export and are barely integrated into the national
economy. In fact, since the export-oriented firms
employ Mexican labor but don’t rely on Mexican
purchasing power, they have been well placed to
take advantage of the country’s economic collapse. This export-driven “recovery” is not without
precedent. A sharp devaluation back in 1982 cre-
ated similar opportunities for the automobile indus-
try to initiate a period of accelerated expansion. A
highly automated assembly plant was built by the
Ford Motor Company in Hermosillo, Sonora to pro-
duce automobiles for the US. market. Dozens of
additional plants were created by other transna-
tional firms to provide basic parts for autos being
assembled in Mexico or for use on the assembly lines
in the United States.
24NACIA REPORT ON THE AMERICAS NACIA REPORT ON THE AMERICAS 24REPORT ON MEXICO
Not a Recovery
A woman sews outerwear in a textile maquiladora.
This activity was so important, that by the end of the decade, more than one-third of the engine blocks used in cars in the United States were imported from Mexico. Almost three-quarters of the wiring harnesses and substantial parts of the brake assemblies, windows and other components were supplied from plants in northern Mexico. In
spite of the rapid growth of exports, however, at its
height, the industry only employed about 175,000
people.3
In a like manner, agro-export groups seized the
moment in the early 1980s. In many cases, local
producers joined with foreign counterparts or inter-
national brokers to obtain the technology and
finance the high costs of fruit and vegetable pro-
duction. The range and value of primary products
exported during this period increased dramatically, as producers aggressively sought out new’clients in
traditional markets, and managed to enter new
markets.
“T he opening of the economy in the 1980s and the I declining real incomes of the population rapidly eroded the market for domestic producers of many basic consumer items, especially in the clothing and footwear sectors. Without any adjustment or mod- ernization program, and with soaring interest rates and a lack of credit, Mexican firms simply could not compete with the less expensive products-despite their lower quality–being imported from Asia. The assault against domestic producers extended to other manufacturing areas, and dramatically to
the rural economy. By the late 1980s, small farmers,
who had been able to adapt to changing conditions
earlier in the decade, found that they could no
longer compete with the growing volumes of
imported grains, frequently subsidized by foreign
governments. To seal their fate, the Salinas admin-
istration introduced, constitutional changes-the
reform of Article 27,’which privatized communally
owned ejido lands-to facilitate the sale of desir–
able plots to agroindustrial interests.
What we are seeing now-in keeping with the
same neoliberal strategy–is a maquilization of the Mexican economy. With the loosening of trade bar-:
riers and the relentless cheapening of labor power,
maquila employment has grown from about
550,000 in 1994 to about 800,000 by late.1996. By:;
,contrast, employment in non-maquila manufactur-
ing has been falling for over a decade. Twenty-
seven percent of all manufacturing workers” are’
now working in maquiladoras-compared to only 7% in 1985.4 Maquila output rose dramatically in 1995 and continued to rise in 1996-from’January
through August, output was 17% higher than over the same period in 1995. But the maquila sector’s percentage of local integration-inputs bought from Mexican suppliers-has declined from 2.3% to
1.4% since 1994.5 The sector’s lack of integration into the Mexican
economy can be grasped by comparing the value of
its exports with the value of its imports. Over the
first eight months of 1996, the value of maquila
exports stood at $23.3 billion, while the value of
maquila imports was $19.9 billion. 6 Maquila imports
consist entirely of intermediate goods–like cloth
for shirts or circuits for electrical parts-which must
be worked into final goods and re-exported within
six months. So while $23.3 billion of maquila output ,
was added to Mexico’s GDP over the first eight
months of 1996, only $3.4 billion of that total was ;
actually produced in Mexico.
Crucial industries in the non-maquila sector are
also increasing exports. Transnational automakers,
for example, salvaged 1995 with a 22.5% increase
in the production of passenger cars for export and
a 131.6% increase in the production of trucks forr
export. This trend has continued into 1996. The’,
combined non-maquila export value of cars, trucks,
vehicle motors and auto parts rose from $7.8 billion
for the first eight months of 1995 to $10.9 billion
for the same period of 1996, a 40% increase. 7
All told, as the non-maquila sector turned to
export-oriented – production, its share of total.
exports (compared to the maquiladoras) rose from
56.9 in 1994 to 62.1% over the first eight months of
1996.8 The longer the current crisis continues, the
higher this number is likely to get, as more and
more non-maquila producers begin looking abroad
for their customers, and the domestic market
increasingly does without.
Why the Recovery is Not a Recovery
1. Banco de Mexico, The Mexican Economy (Mexico City), 1996,
and Indicadores Economicos, various months, 1995.
2. “Budget Aims at Economic Recovery,” El Financiero International
(Mexico City), November 11-17, 1996.
3. Institute for Economic and Geographical Statistics (INEGI),
Monthly Industrial Survey (Mexico City), various dates.
4. INEGI, Monthly Industrial Survey, various dates.
5. INEGI, Monthly Industrial Survey, various dates.
6. Banco de Mexico, Indicadores del sector externo (Mexico City),
August, 1996, pp. 23,46.
7. Banco de Mexico, Indicadores del sector externo (Mexico City),
August, 1996, pp. 18,19.
8. Banco de Mexico, Indicadores del sector externo (Mexico City),
December 1995 and August, 1996.