Download Public Policy: Mexico

Public Policy: Mexico
Discredited Disaster Policy Undermines
Political Regime
Post World War II Policy Making
Aimed at PROMOTING ECONOMIC
GROWTH
• Massive public investment
• Elite consensus on state’s role in economy
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Prevailed until 1970’s
State facilitated private capital accumulation
State was nation’s largest entrepreneur
State served as guiding force (rector)
• Mexican economic miracle (1950’s to 1970’s)
• By late 1970’s Mexico at upper end of World
Bank’s list of semi-industrialized countries
Early 1980’s: Exhaustion of ISI
model forces change
• 1976-82
– Term begins with
petroleum fueled
economic boom
– Corruption
– Technology
advances bypass
many ISI industries
– Oil prices plummet
• Jose Lopez Portillo
Before the Change: Distributive
Policy of PRI controlled State
Reduced Poverty
• Benefits did trickle down to the poor
• 1950-80: poverty in absolute terms
declined
• Illiteracy dropped from 35% to 15% of the
population
Dark Side to PRI Economic Successes
• Ownership of land and capital increasingly
concentrated
• Personal income inequality increased
– 1977- poorest 70% of Mexicans families
received only 24 % of all disposable income
– Richest 30% of families received 76% of income
Other Social Indicators of the
“Dark Side”
• 25% of children under five years of age
malnourished (as of 1990)
• Only 54% of those starting primary school
finished
• 57 %of dwellings had no sewerage
connections
• 51% had no piped water inside
• 70% population (classified by government) as
living in “extreme poverty”
Populist Policies & Debt Crisis
(oil boom of 1970’s ends )
• Central government revenues expands and
contracts
• Public spending for health and social security
remained constant (in real per-capita terms)
• 1982 debt crisis forces changes
– Made it impossible to maintain existing spending levels
for health and social programs
– 1986 – debt service consuming over half federal
government budget
Shift to Neo-liberalism
(1982 -1993
• Alternative to state socialism and ISI
• Rate of economic growth pushed upwards
• Rectorship of economy not completely
given up by technical elite residing in
Mexico City
• 1993 – signing of NAFTA Treaty signals
ascendancy of neo-liberalism
Consequences of neo-liberalism
• Macro-economic indicators show increase
in growth rate
• Inequality problems exacerbated because
of distributive policies
• Job creation anemic
– Influx of foreign capital purchases machinery
– Over half of investment ended up in financial
instruments – rather than in job-creating,
direct investment projects
Overall Evaluation
• Neo-liberalism facilitated macro-economic
growth
• By itself appears incapable of necessary job
creation
• Government needs to invest in upgrading
worker skills
• Danger that gains from NAFTA will bypass
the largest segment of the population
Shantytown in Ciudad Juárez
Outskirts of Mexico City
Extractive Policy and the Financing of
Development
• For most of post-World War II period
Mexico’s tax effort (rate of taxation and
performance in collecting taxes) was among
lowest in world
• Even after tax reform of Salinas
administration (1988-94)
– Over sixty percent of revenue from socially
regressive taxes
– Income tax rates for wealthiest Mexicans
reduced
Special Extractive Factor : Oil
Policy in Mexico
• 1911: Mexico begins to export oil
• 1917: Article 27 of the Constitution gives the
Mexican government a right to all subsoil
resources
• 1921: Peak of oil production in Mexico, due to
increased demand from WWI
• 1920s: Mexico is second only to the U.S. in
petroleum output
U. S. Acquiesces to Nationalization
of Petroleum Fields
• Nationalization of oil
(Lazaro Cardenas)
• 1944: Mexico pays U.S. oil
companies $24 million,
plus interest at 3 percent,
as compensation
• Mexican and U.S. officials
develop a 20-year plan to
expand Mexican oil
industry
Mexico Finds More Oil
(1974 – 75)
• Crude-petroleum deposits discovered in the
states of Campeche, Chiapas, Tabasco, and
Veracruz
• Provide an economic boost amidst rising
inflation
• Mexican oil production more than doubles
• USA – most important market for Mexican oil
PEMEX Receives US$12.6 billion in
International Credit
• Money used to construct
and operate offshore
drilling platforms,
• build onshore
processing facilities,
• enlarge its refineries
• engage in further
exploration
• purchase capital goods
from abroad
Decreased income from sale of oil
• 1980s
• Oil prices fall
• Mexico is blocked out
of the market by
refusing to lower their
prices
• Increase in debt reduces
economic activity
• 1981
• Foreign banks acquire
87% of PEMEX assets
• Recession stimulates
capital flight
• Devaluation of the peso
Mexican Petroleum Industry:
Late 1980’s
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Attempts to Modernize
PEMEX inefficiency makes
for decreasing
competitiveness
Salinas breaks the power of
oil workers’ union
Efficiency of PEMEX
increases
Production levels continue
decline
President Salinas Gortari
(Harvard trained economist)
Program for Redevelopment and
Restructuring of Energy Structure
1996
• Goal – increase energy
exports
• Improve competitiveness in
international market
• Stimulate more regional
development inside of
Mexico
Investment by 2000
• 250 billion pesos (at 1995
prices)
• 49 billion from private
sector
PEMEX Today
• Despite the $77 billion in revenue earned each year,
PEMEX is forced to pay extremely high taxes to the
government that keep PEMEX in incessant debt.
• In order to keep their company going, PEMEX has
borrowed an excess of money and is now $42.5 billion in
debt.
• With the record breaking oil prices starting in 2005,
resulting partially from the Iraqi war, PEMEX has seen a
rise in revenue.
Impact of Shortcomings within Policy
Functions: Problem of Implementation
• Despite increased profits
during President Fox’s
administration, few debts
have been retired
• Unexpected income has
been used to pay the
salary of bureaucrats and
current costs.
• Production capacity
continues to decline
Current Mexican Oil Production
• Average oil
production
decreased by
500,000
barrels per
day (2005-07)
• Political
conflict over
who should
invest in the
oil industry
Consequences of Policy: Developmental gap persists
between urban North, and rural, mostly indigenous South
Current Challenges
(Economic Policy)
– Economy that produces too few jobs to accommodate the
number of people entering the job market
– Educational system in need of modernization
– Growing impoverished population
• Half of Mexicans live below the official poverty line
– Highly unequal distribution of income
– Acute environmental problems
More Policy Challenges: Economic
– Must catch up to its international trade
partners/competitors
– Modernize its agricultural sector
– Renovate energy sector
– Expand the tax base
– Corruption
Government Performance:
Challenge of Security and Crime
• Establishing the rule of law
– Greatest failure of all
– Cannot deal with street crime
– ¾’s of crimes go unreported; why? Citizens’ low
expectations that the perpetrators will be caught and
punished.
– Real progress only by addressing underlying causes
Drug Trafficking
Cartels often more powerful than
the government
Mexico’s Political Future
State of the political
system
• Elections – more
democratic and
transparent than in
most of Latin
America
• Talk of weakening
the presidency and
strengthening
Congress
• Classification: a
democracy