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Economic Downturn Deepens in Mexico

Recession: Layoffs hit virtually all sectors--even maquiladoras--and imperil reforms pledged by Fox. Illegal immigration could rise.


SAN ANDRES OCOTLAN, Mexico — From farms and automotive plants on the outskirts of Mexico City to the industrial heartland of Monterrey and the wineries and electronics firms in Tijuana and Guadalajara, signs are that this nation's recession is becoming more entrenched.

Every day, another big company or industry is hit by layoffs, the most recent being the pivotal steel industry, where hundreds last week received pink slips. Even the maquiladoras--the factories on the border with the U.S. that have been jewels of Mexican economic development--are feeling pain as never before.

Tenant farmer or textile magnate, there is no shortage of victims who could be overwhelmed by the spreading recession. The hard times increase fears of social unrest as well as the prospect of illegal immigration, which could lead to more people dying in risky border crossings. With the U.S. facing its own economic troubles, more economic refugees won't be greeted with open arms.

The most prominent victim may be President Vicente Fox, whose ambitious plans to transform Mexican society require a good economy. A reform candidate whose election last year ended the 71-year rule of the Institutional Revolutionary Party, Fox swept to power by promising to boost prosperity, add 1.3 million new jobs in his first year and create more social programs to address grinding poverty and inequality.

Although still enormously popular, Fox has reason to be concerned. A failure to deliver new jobs and prosperity will weaken him politically and hinder efforts to carry out a bold slate of reforms ranging from boosting the rights of indigenous peoples to overhauling the judicial and tax systems.

The worsening times have farmers such as Rodolfo Hernandez in a bind. Corn, carrot and lima bean prices are sinking while the costs of diesel fuel and fertilizer are rising. All he expects to harvest from his 25-acre farm here 40 miles southwest of Mexico City are headaches and big losses.

"In the past, at least there was movement, equilibrium. Now, there are no buyers at all," said Hernandez, 40.

Times have become so brutal, he said, that his younger brother Antonio, an out-of-work tailor, illegally emigrated to Washington state, where he quickly landed a job in construction. Rodolfo said he may follow if things don't turn around soon. Antonio "knows the risks, but in spite of all that he went with seven others from the town."

Also alarmed is businessman Mayer Zaga, who has lowered prices by an average 17% on the fabrics, threads and apparel produced by his company, Zagis SA. He said his goal is to avoid having to lay off any of the 3,000 workers at his multimillion-dollar firm, the country's largest yarn wholesaler.

"This is a crisis, whether we understand it or not," Zaga said as he surveyed the gray-and-green ranks of looms on the floor of his factory in Tepeji del Rio in Hidalgo state, 50 miles north of the capital.

Mexico dipped into recession late last year, and figures are likely to show the nation having continued to be mired in one at least through the second quarter of this year, which ended Saturday, according to Ciemex/Wefa economic consultants of Philadelphia.

Mauricio Gonzalez, a director at GEA business consultants in Mexico City, said disappointment could run deep because of heightened expectations after Fox's election.

"Everyone was going to be happy and entertained. Now there is no party," he said. "People are now realizing it's not going to be as good as they thought and that maybe [the recession] will affect them personally."

Fox had counted on a recipe of free trade and his own businesslike efficiency to rev up Mexico's economic performance, generating enough income to help the government carry out sweeping new initiatives in health coverage and education. But tax collections have declined along with the economy, dropping an alarming 7% in May from the same month last year. The Finance Ministry is expected to soon announce a second round of spending cuts.

Instead of all the new jobs he had promised during the grueling election campaign, Fox has seen the loss of 200,000 jobs so far this year--and will be lucky to end the year with as many workers as he started with in January. Economist Rogelio Ramirez de la O of Ecanal, a Mexico City consulting firm, thinks that the job base could shrink by as much as 700,000. That would leave Fox 2 million jobs short of his promised 1.3 million new jobs.

"Fox will be under pressure in the coming months as the economy deteriorates and as people present him with his promises," said Raul Feliz, a macroeconomist at the independent Center for Economic Research and Teaching in Mexico City.

Feliz predicts "net zero to negative" growth in new jobs and sees serious political problems ahead. "Lower economic development makes everything more difficult," he said.

Duration of Downturn Out of Fox's Control

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