Mexican economy in free-fall

[Hannah Bell]

The Mexican economy shrank at an annual rate of 10.3 percent in the second quarter of 2009... a continuing deceleration for the economy, an increase over the six-month average decline of 9.2 percent for the first half of 2009...Among the worlds’ major economies, only that of Russia has contracted more than Mexico’s, about 10.9 percent.

The third second quarter contraction follows a drop of 8 percent in the first quarter and 1.6 percent in the fourth quarter of 2008...By far the largest drop was in services associated with tourism, 17.1 percent, followed by manufacturing, 16.4 percent.

The drop in GDP has been accompanied by a crisis in the peso/dollar exchange rate...

Since the imposition of the North American Free Trade Agreement in 1992, the economies of the United States and Mexico have become much more closely integrated. Mexico transformed itself from an economy that relied mostly on domestic demand — less than 10 percent of GDP was involved in foreign trade—to an export platform, with over 30 percent of its GDP involved in foreign trade...Sixty percent of Mexico’s imports...and two thirds of capital investments come from the United States. Over 90 percent of Mexico’s exports go to the US. In 2008 the total value of exports fell by 34 percent, while imports fell by 33 percent. This includes a 54 percent drop in the dollar value of oil exports.

Among the commodities that Mexico exports is labor power. US corporations depend on a supply of labor power from Mexican workers for their plants in Mexico and the United States. The remittances of the latter, a major source of income for millions of Mexican families, are crucial for Mexico’s GDP...

Since June 2008, the Mexican economy has lost 232,000 jobs, while the informal sector gained 99,000. If one adds this last group to the unemployed, the actual rate of unemployment would exceed 20 percent of the labor force. Such rates approach those of the 1930s and far exceed the jobless rates generated by the economic crisis of 1994...

At the same time, the Central Bank, with its policy of selling dollars to prevent the collapse of the peso, in effect has drastically reduced the money supply, increasing interest rates and further restricting economic activity...

The contractionary measures have been dictated by Wall Street. Last November, Fitch Ratings, a Wall Street Bond rating agency, gave a “negative” assessment of Mexican government debt. In May of this year, Standard and Poor’s also gave a Mexico a negative rating. Both agencies had threatened to reduce the government’s bond rating, presently at BBB+, three steps above junk bond status. In effect...denying Mexico, a semi-colony of the US, the kind of bailout they have granted themselves...

http://www.wsws.org/articles/2009/aug2009/mexi-a26.shtml