: MEXICANS DIFFER ON THE EFFECTS OF FINANCIAL

UNCLAS SECTION 01 OF 03 MEXICO 003108 SIPDIS DEPT FOR DRL/AWH AND ILSCR, WHA/MEX, USDOL FOR ILAB E.O. 12958: N/A TAGS: ELAB ECON SMIG SOCI PINR PGOV MX SUBJECT: : MEXICANS DIFFER ON THE EFFECTS OF FINANCIAL CRISIS ON EMPLOYMENT, REMITTANCES AND MIGRATION ¶1. Summary: Mexican opinion makers, academics, legislators and government officials are expressing vastly different views with regard to the effect on Mexico of the ongoing US financial crisis. Beyond the purely financial crisis, the areas of primary concern for Mexicans in this broader economic crisis are unemployment, the decline in remittances and possible reverse migration. Almost everyone expressed concern over the significant drop in remittances from migrant workers in the United States. Many opinion leaders and academics are concerned that this drop will increase poverty levels in Mexico. They are also concerned about the negative impact on employment if the downturn in the US economy prompts large-scale reverse migration back to Mexico. One of the main spokespeople for the GOM on employment, Secretary of Labor Javier Lozano, has suggested that only a limited number of migrants would return home. He has assured the Mexican Congress and the public that these returnees could easily be accommodated within currently projected rates of job growth. The position of most legislators on the potential return of migrant workers seems largely determined by political party affiliation, with the legislators in the ruling National Action Party (PAN) more or less supporting Lozano,s position. Opposition legislators (and even Mexico,s Central Bank) are much less inclined to agree with Secretary Lozano,s somewhat optimistic position, at least with regard the country,s job growth projections. End Summary. &A COLD CAN LEAD TO PNUEMONIA8 -------------- ¶2. One of the most frequently repeated Mexican sayings regarding the complexity of US-Mexico economic relations states that when the United States catches a cold, Mexico gets pneumonia. The truth of this saying is currently being discussed in many sectors of Mexican society as a broad range of opinion makers, labor organizations, academics, legislators and government official speculate about the affects on Mexico of the ongoing US financial crisis. The main topics of concern are the drop in the level of remittances arriving from the U.S., the possibility of large-scale reverse migration and resulting unemployment. ¶3. Although there is a broad range of opinions on many aspects of how the US financial situation will ultimately affect Mexico, there is unanimous agreement on the fact that there has been a significant drop in the level of remittances arriving from Mexican migrant workers in the United States. The Bank of Mexico has cited a 12.2 percent drop during January-August 2008 compared with the same period in 2007. As is often the case, the figure cited on the drop in remittances varies significantly depending on the political orientation of the speaker. The leader of the National Agricultural Workers Confederation (CNC),an affiliate of the PRI (Institutional Revolutionary Party),Mexico,s former ruling party, claims that some regions of the country have seen remittances drop by as much as 30 percent. INCREASE IN POVERTY RATES -------------- ¶4. The decrease in remittances has promoted calls for action in the form of increased government spending on social programs from legislators from all of Mexico,s major political parties. The main concern of many of those engaging in this debate is that decreased remittances will soon prompt a sharp rise in poverty rates. In testimony before the Mexican Senate the GOM,s Secretary of Social Development, Ernesto Cordero,acknowledged that the fall in the level remittances could prompt an increase in the number of families living below the poverty level. According to INEGI, the GOM,s National Statistics Institute, 82 percent of Mexico,s population has an income somewhere between one and five time the daily minimum wage. (Note: The daily minimum wage is about 52.59 pesos or roughly USD 4.38). INEGI calculates that the income of an average Mexican family is about 3.5 times the daily minimum wage; which is considered just high enough to keep them above the poverty level. ¶5. Mexican President Felipe Calderon has announced a five-point emergency spending plan in an attempt to protect Mexico from the challenging globabl economic environment. MEXICO 00003108 002 OF 003 The proposal calls for an additional 53 billion pesos to be spent over the next year on infrastrucuture, education, and energy, including the construction of a refinery that would in part be funded by one of the country,s oil stabilization funds. ¶6. To date, the drop in remittances has had a major impact on a number of Mexican states, according to Raul Delgado a professor of development studies at the Autonomous University of Zacatecas. Delgado noted that with severe negative implications on poverty levels, on 17 of Mexico,s 31 states: Hidalgo, Jalisco, Mexico City, Chiapas, Aguascalientes, Mexico State, Veracruz, Guanajuato, Queretaro, Michoacan, Colima, Sinaloa, Tabasco, Oaxaca, Campeche, Sonora and Yucatan. Continuing on, Delgado stated that the drop in worker remittances for the first half of 2008 when compared to the same period in 2007 in millions of dollars for the seven worst hit states is as follows: 2007 2008 Hidalgo 472.3 418.3 Jalisco 981.3 927.5 Mexico City 684.8 646.2 Mexico State 983.5 958.1 Aguascalientes 178.7 143.9 Chiapas 382.0 347.2 Veracruz 720.4 699.2 REVERSE MIGRATION? -------------- ¶7. Participants in this national debate more or less agree that Mexico should be prepared for the possibility that the economic downturn in the United States could prompt large-scale reverse migration. Several academics quoted in the national press noted that a large percentage of Mexicans migrants are employed in the US construction industry. Given the current difficulties in the US job market in general and the housing industry in particular, these academics believe that some degree of reverse migration is inevitable. The questions these academics pose is how large will this reverse migration eventually be and what will Mexico do with these returning migrants? ¶8. The most conservative estimate of the number of migrants who might return to Mexico was put forth by GOM Labor Secretary Labor Javier Lozano who believes only some 200,000 migrants will return home from the US. The CNC calculates that some 350,000 migrants will come back to Mexico looking for work. Thus far the only governor to speak out openly on this matter is Amalia Garcia of Zacatecas. Governor Garcia explained that Zacatecas is especially concerned about the possibility of large scale reverse migration since her administration estimates that fully fifty percent of the state,s population has migrated to the US over the last decades. ¶9. Taken in context, neither the figure cited by Labor Secretary Lozano nor the one offered by the CNC are particularly large given that the GOM,s National Migration Institute calculates that 10 percent of Mexico,s estimated population of 106 million people now lives in the United States. In a worse case scenario, if the financial situation in the US were to generate large-scale reverse migration, in all probability, Mexico,s governmental and social institutions would quickly be overwhelmed. However, the possibility of significant numbers of Mexican migrants returning home from the US is extremely remote. These migrants left Mexico because there was nothing to hold them in their own country and most are fully aware that they have nothing to come back to especially since, over time, many have succeeded in arranging for their families to join them in the United States. EMPLOYMENT AND OTHER CONUNDRUMS -------------- MEXICO 00003108 003 OF 003 ¶10. Although there appears to be little real chance of any large-scale reverse migration there will undoubtedly be some migrants who will choose to return to Mexico as a result of the financial situation in the United States. It is impossible tell how many migrants will decide to come back to Mexico. That being the case Labor Secretary Lozanzo,s guesstimate of 200,000 is as good a number as any. Sticking firmly to his estimate Lozano has publicly stated several times that Mexico can easily provide employment for the relatively small number of migrants that are likely to return from the US. According to Lozano, there are currently many more jobs than that available on offer at the job bank run by the Secretariat of Labor. Moreover, Lozano said, if one counts the number of jobs generated on the informal economy, the number of jobs created since the start of the Calderon administration is well over one million. ¶11. This statement by Lozano may be factually true with regard to the number of jobs on offer at his Secretariat but it is not particularly relevant to the real employment scenario en Mexico. At given time there are always a large number of jobs on offer throughout many parts of Mexico. The problem is that the potential job seeks are unqualified for many of the higher skilled jobs and the salaries being offered for unskilled jobs are only a fraction of what a worker could earn doing a similar job in the United States. Not only that, but the salaries offered in Mexico for unskilled labor are often so low that most workers do not consider them a living wage. ¶11. Labor Secretary Lozano,s statement about the existence of ready employment in Mexico for any migrants who may decide to return home (if one includes the informal economy) has been tepidly supported by PAN legislators in the Mexican Congress. Opposition legislators have dismissed Lozano,s claims. The dismissal by opposition legislators has only been reported pro-forma in the national press. Instead the real focus with respect to the Labor Secretary,s statement has been on comments made by officials of the Bank of Mexico, the country,s central bank. ¶12. According to these officials job growth on Mexico,s (formal) economy for his year is only projected to be about 372,000. If this figure holds true, the Bank of Mexico officials averred, it would be hard to credit the Calderon administration,s job creation figures. In support of this statement the officials pointed to the fact that when Mexico experienced a similar financial crisis in 1994 the country lost over 400,000 jobs. COMMENT -------------- ¶13. At this point no one in the media, labor organizations, or government has presented any compelling evidence of what impact the US financial crisis will have on Mexico. It is very unlikely that there will be any significant (voluntary) reverse migration. The drop in remittances from migrant workers in the United States is probably the most immediate problem Mexico will have to deal with and it appears that President Calderon,s administration has begun to take some steps to address this matter. Visit Mexico City's Classified Web Site at http://www.state.sgov.gov/p/wha/mexicocity and the North American Partnership Blog at http://www.intelink.gov/communities/state/nap / GARZA