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 Mexico Recession Shows Downside of Close U.S. Links
Pedro Nicolaci da Costa - Reuters
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August 04, 2009
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 | If everything was going right Mexico should be growing huge amounts, but that never happened. In the worst of times, Mexico really did get knocked off its perch.
- Peter Hakim |
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Mexico City - Mexico's economic slump, one of the worst in its history, has exposed the perils of a one-sided development strategy that ties the country's fate to the whims of U.S. consumers.
When the going was good, Mexico's closeness to the United States had its benefits, even if it never yielded the blockbuster growth promised by proponents of open trade.
Yet the U.S. recession has left Mexico in a state of disarray. The Mexican economy is set to shrink at least 6.5 percent this year, its most severe contraction since the Great Depression and one of the deepest in all of Latin America.
The weakness can be traced not only to Mexico's dependence on its northern neighbor, but also on a failure to make the sort of investments in education and infrastructure required for broad-based economic progress.
"Having the U.S. as a single market was a mistake," said Rogelio Ramirez de la O, economist and head of the Mexico-based research firm Ecanal. "But even worse was not properly pursuing an industrial strategy."
That, de la O said, would have meant taking a more cautious approach to trade agreements, such as the North American Free Trade Agreement, or NAFTA, and channeling more resources into value-added manufacturing, which would in turn might have nurtured a greater emphasis on high-skilled labor.
This could still be accomplished, he argued, by seizing the opportunity afforded by the crisis to renegotiate some of NAFTA's terms, particularly with regards to agriculture.
"That would give us a great deal of relief," said de la O.
In addition, the Organization for Economic Cooperation and Development recommends that the government move away from what OECD calls "regressive" stimulus policies and use its fiscal powers to directly create jobs.
"Shifting more of the stimulus to support employment and incomes would enhance its impact on demand and protect workers from falling into poverty," argues OECD economist Piritta Sorsa.
Analysts note an emphasis on education and jobs have brought great benefits to large Asian economies like Korea, China and India, whose growth rates have far surpassed those seen in Latin America.
"If everything was going right Mexico should be growing huge amounts, but that never happened," said Peter Hakim, president of the Inter-American Dialogue in Washington. "In the worst of times, Mexico really did get knocked off its perch."
ELUSIVE PERKS
Mexico's U.S.-centric economic strategy was cemented in 1994, when NAFTA came into effect. Yet while the commercial agreement created a number of factory jobs across the north of the country, it failed to bring the sort of expansionary burst commensurate with an emerging powerhouse.
Indeed, explosive growth has eluded Mexico despite NAFTA, even as Chile and Brazil, which are less dependent on exports to the United States, have expanded rapidly. Mexico's output growth over the last 10 years failed to surpass even the United States' own subdued 1.8 percent rate.
But overall, Mexicans felt as if they had hitched their comet to a rising star. Until, of course, that star began to plummet in 2007, as house price declines accelerated and triggered the worst financial crisis of the modern era.
The loud thud of the falling star was heard all over Mexico.
"When the economy shrinks by 6 or 7 percent, the tectonic plates start to rumble," said John Bailey, professor of government at Georgetown University and an expert on Mexico.
In a February poll conducted by Parametria, nearly half of Mexicans said the crisis was America's fault.
"We are tied at the hip," said Pompeyo Salmoran, a lawyer in Mexico City. "It would be better if we had alternative destinations for our exports."
Instead, the fate of Mexico's growth outlook rests squarely on the ability of U.S. consumers to buy products manufactured in Mexico, like cars and televisions.
That possibility looks at best shaky. The Federal Reserve, the U.S. central bank, conceded in the minutes of its last policy meeting that the U.S. economy would not return to its "potential" rate of growth for another five to six years.
Data on the U.S. gross domestic product, released on Friday, showed that the pace of contraction had abated significantly, but also pointed to renewed deterioration in consumer appetite.
FAULT LINES
This is not to say that Mexico can pin all of its woes on the misfortunes of its primary trading partner. Many analysts are quick to note that the country's political class has missed many a chance to reform a wasteful energy sector and to revamp a shoddy taxation system that yields a pitiful 10 percent of gross domestic product in public revenues.
These gaps, in turn, have left the government without the cash flow needed to address grueling gaps in income and educational achievement -- including the 20 percent of the population that struggles to buy enough food.
"We could do more in order to strengthen our economy in order to make it more ready for shocks but that does not mean we should be walking away," said Jaime Zabludovsky, executive president of the Mexican Council for the Consumer Products Industry and a chief NAFTA negotiator for Mexico.
"You cannot fight geography," Zabludovsky said.
That may be true in the short run. But as this historic external shock to the country's economic system attests, sustainable progress will one day require that Mexico stand on its own two feet.
(Editing by Leslie Adler)
San Sebastian: Buried Treasure and a Curse
Alan Ferguson - Vancouver Province
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August 05, 2009
| | A ghost town in the Sierra Madre takes travellers four centuries back into Mexico's colourful colonial past. (photos by
PromoVision) | |
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San Sebastian, Jalisco, Mexico - It's a simple enough matter to hire a guide and a mule in this town and go riding off in search of buried treasure in the caves of the Sierra Madre mountains - but you had better beware of The Curse of the Sunken Mine.
| | Nestled within the lush, mountain region of the Sierra Madres exists one of Mexico's most tranquil, magical hideaways, San Sebastian's Hacienda Jalisco.
For more information click HERE. | |
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San Sebastian is a mere 70-minute drive from the Pacific coast resort of Puerto Vallarta, but it takes the traveller four centuries back in time, deep into Mexico's colourful colonial past.
Nestled in the folds of mist-wreathed mountains, the former gold and silver mining town is a living museum of the 16th-century invasion of Mexico by the Spanish conquistadors who uprooted an ancient Indian civilization.
Today, only about 600 people still live in the yellow, mud-brick cottages lining the narrow cobble-stoned streets. But, at its peak, the town had almost 50,000 residents. The New York Life Assurance Company maintained an office here, the only one in the entire country.
So important to Spain were the precious metals unearthed here that during the late 18th century, King Charles IV dictated the town's affairs by personal fiat from his palace in Madrid.
A handful of Spanish families controlled the mines, inter-marrying to produce a "pure" line of succession through several generations whose descendants survive to the present day.
The immense fortunes in precious metals exported from the area are incalculable.
How many lives were lost in the process is equally unknown. Legend has it that in one incident alone hundreds were buried alive because of an angry priest's curse.
According to a local historian, the priest had gone to a mine to solicit funds for his church.
The miners refused to surrender their hard-earned cash.
The natives of Mexico may have been forcibly converted to Christianity, but to this day indigenous tribes are not entirely convinced the god of their foreign conquerors is any improvement over their own deities.
They were happy enough to appropriate Christian feast days as an excuse for another fiesta.
But they were also known to conceal their own icons in the walls of newly built Christian churches, so that when compelled to worship there they might do so with an untroubled conscience.
But in this particular case the vengeful priest was not to be put off lightly.
He removed his sandals and slapped them together to summon the wrath of God down on the recalcitrant natives. Thereupon, the roof of the mine collapsed, dooming all those inside to a horrible fate. It is said that on stormy nights their terrible screams can still be heard. And each year on Holy Friday, their spirits come to haunt the precincts of the San Sebastian Martyr Church.
The church, like most buildings in San Sebastian, has seen better days. Swallows build their mud nests among the rows of plaster saints gazing, guilt- ridden, from its peeling walls.
In fact, the town's remarkable heritage was in dire peril of itself being buried under the relentless approach of the jungle. Just in time, federal and state grants are helping to preserve and restore the historic settlement.
Guest books in the local museum are filled with the names of Canadian visitors who have come to marvel at the treasures currently in the care of Maria Guadaloupe Encarnacion, a direct descendant of one of the old families. Four generations of her ancestors look down from the walls with a stern, Old- World dignity. From ancient, iron-bound trunks, Maria exhibits women's and babies' clothes imported from Europe more than 100 years ago.
Oddly absent is any remnant of the rich metals on which the town's fortune prospered - not a silver coin, not an ounce of gold.
I asked the mayor, Efren Alvarez Lopez, about that. We were sitting in his town hall office where the photographs of his predecessors hung, crazily askew, on the walls. This was no evidence of disrespect, but rather the effect of a recent tremor in the quake-prone region.
Lopez said that during the Mexican revolution of 1910, a revolt against the established order that resulted in a multi-sided civil war, chaos ruled the land. Privately held hordes of gold or silver were either plundered or hidden away in caves.
So is it possible that somewhere in the remote mountains, 1,600 metres above sea level, a secret cache waits to be discovered?
"Si, si," said the mayor, nodding enthusiastically. In fact, he told me, his own uncle had once acquired a map marked with an X supposedly indicating the location of buried treasure. The uncle entrusted the document to a nephew who found no gold - no sign of any human presence at all. But soon afterwards, a man looking for amber resin the same area stumbled upon a great pile of golden ingots, weighing five tons in all.
Should you want to look for some gold of your own, local tourist officials would be pleased to provide a guide for around $30 a day, slightly more if you want the mule. Even if you find no gold, the natural splendours of the region, and the rich variety of flora and fauna, will be their own reward.
Accommodations, from the primitive to the luxurious, are available in San Sebastian. A bed in a spartan room opening on to the garden courtyard of a former hacienda can be had for as little as $15 Cdn a night. Or you can choose a suite at the lavishly renovated Mansion Real starting at $120 a night.
I should warn you there's not a lot to do in town, but if you've got the head for it, you can tour a boutique distillery where the wild green agave plant is processed into a smooth racilla, a powerful version of tequila. One tot at a time, please! The first sign you have over-indulged is when can't get back on your feet.
You can expect to eat like the King of Spain. Proprietress Marison Lobera puts on a feast fit for any royal at her El Arriero restaurant. We dug into a dish of guacamole as delicious as any I've tasted - just avocado, onion, cilantro and spices, without the adulterations dear to the hearts of some Canadian chefs. The chicken in mole sauce was tender and juicy, the sauce rich and chocolatey. The tasty flesh from a giant pork hock fell easily from a bone the size of a Fred Flintstone snack.
And for amateur prospectors, here's a tip. On a back wall in a corner of the restaurant is an old blueprint of the mines that could give you an edge on your competition. Before you set out for the treasure caves, however, you might do worse than shovel a few pesos into the collection box back at the eerie little church in San Sebastian.
It would be a shame if the last sound you heard after your pick struck a chest of ingots was of a pair of priestly sandals slapping madly in the mountain air. |
Agoda is the on line company that we book through when we travel.
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Jaltemba Sol Copyright 2009
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The founder of Puerto Vallarta Real Estate Buyers' Agents (PVREBA), Jim Scherrer is a retired entrepreneur who has owned property in Puerto Vallarta for 24 years. Utilizing his experience and extensive knowledge of the area, Jim has written a series of informative articles about travel to and retirement in Puerto Vallarta, which you can read on his website at 
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