*Updated June 11, 2013*
An increase in the number of people living in moderate to severe poverty, combined with relentless borrowing and a consequent rise in the long term debt of Mexico's 32 states, conspired to produce a depressing economic grade card for the country this week. The report is based upon data compiled through Dec. 31, 2011.
Relentless poverty
Mexico is a country of about 112 million, with a median age of 26. The government says that in 2008, 48.8 million of its citizens lived in poverty. That number has now risen to 52 million. Of those, 10.5% are said to subsist in conditions of extreme poverty, and 35.8% in moderate poverty. Only 19% of the Mexican population is said to be outside the range of "vulnerability to poverty."
The worldwide economic downturn which began in 2008, coupled with the rising cost of food (both domestically produced and purchased from abroad), has cast more people into the ranks of the moderately or severely impoverished, according to government sources. The weakened American economy on which Mexico is so dependent, plus the yet unresolved European economic crisis which could well result in the collapse or dramatic down-scaling of the euro, are other contributing factors commonly cited by experts.
The country probably won't be able to grow its way out of these challenges in the year ahead. A report by its central bank released in December (see my first post below) carried a gloomy 2012 forecast. Mexico's Gross Domestic Product, or Producto Interno Bruto (PIB) as it's known here, grew about 4.1% in 2011. But Banxico said that growth will drop to perhaps 3.2% in 2012. Compounding difficulties, a 2011 rate of inflation which was 3.4% is expected to rise to about 3.7% this year.
Increase in long term state public indebtedness
Mexico's 32 states have been borrowing money like there's no tomorrow (maybe I should say like the U.S. government does every day - see U.S. stands at the brink). In 2011, the states borrowed 24.1% more than they did in 2010. Average state indebtedness in 2011 reached $391 billion pesos, which is about $30 billion USD (based on an exchange rate of 13 pesos to the dollar). That figure represents 2.9% of the country's 2011 PIB. Put another way, average state indebtedness last year accounted for almost 3% of the entire national output of goods and services generated by Mexico'a economic engine in 2011.
But the really significant figure is that state indebtedness now equals about 70% of federal revenue sharing entitlements. Mexico's 32 states sustain themselves, in large part, with funds from the federal government (based upon population and other factors). Most of what they're entitled to is now pledged to banks, bondholders and investors as security for long term indebtedness, leaving little room for economic development.
Last August I translated an article (from Spanish to English) dealing with Yucatán's rapidly increasing sovereign debt, most of which has been incurred during the administration of the current Institutional Revolutionary Party (PRI) governor, who will be replaced later this year (probably by another PRIsta). Long term state indebtedness is growing by leaps and bounds in Yucatán, where 48% live in poverty - usually of the most severe type. Yet for all the money borrowed, very little in the way of practical improvments seems to trickle down to benefit the masses. Here's what the author concluded:
"The Yucatán has fallen into the alarming practice of many other states of the Mexican Republic by resorting to indiscriminate borrowing, placing at risk its economic viability and limiting possibilities for social and business development in its communities. There will be fewer resources to fight endemic poverty within the State, since federal funds that would have been otherwise available to the next three generations have already been pledged as security for long term public indebtedness. Like their ancestors of another era, Yucatecans today may have been "marked" anew with a collective financial burden which, realistically, is forever beyond their means."
Those words summarize the problem very well.
June 11, 2013 - Mexico's Statistical Institute reports that the country has almost 30 million citizens between the ages of five and 17. Three million of them work outside of the home, but only about half receive pay. The young laborers typically are employed as itinerant vendors, or in small family enterprises. Their work is uncompensated, but they are indispensable to the unit's economic survival.
Nov. 16 - Gross economic disparity still a hard fact of Mexican life
Nov. 11 - Seven of 10 Mexican households report food shortages
Oct. 3 - A spendthrift Yucatán looks for cash anywhere, anyway
Aug. 21 - Yucatán state and municipal debt continue to rise, with predictable consequences for many
Aug. 24 - Mérida faces "environmental catastrophe," warns official, as trash piles up everywhere
July 23 - Enrique Peña Nieto's biggest challenges will be economy and environment, not drug cartels
Nov. 8 - Mexico's tax authority, the Secretaría de Hacienda y Crédito Público, has published stats indicating that Jalisco is among the six most heavily indebted entities in the nation. The state itself owes about 18.6 billion pesos, and its aggregate municipalities some 8.1 billion, for a total debt of 26.7 billion pesos, or $2.053 billion USD (based upon a 13 peso dollar).
Related posts:
Mexico has increased risk for a "catastrophic economic event" in 2012
Yucatán's growing public debt
What impoverished country is this?
U.S. stands at the brink
Crushed by poverty, Yucatán style
Purchasing power of Mexicans fell by over 43% between 2006 and 2012, reports The Yucatan Times
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