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Placing Blame for Mexico's Ills

The economic policies of the U.S. are at the heart of Sunday's presidential contest.

July 01, 2006|Marla Dickerson | Times Staff Writer

TLACHINOLA, Mexico — Francisco Herrera Sanchez is not an economics expert and knows little about globalization. But the octogenarian says he knows that something has gone terribly wrong with U.S.-backed trade policies that were supposed to lift millions of Mexicans from poverty.

He has seen hundreds of residents flee this farming community for the United States since 1994, when the North American Free Trade Agreement began opening Mexico's markets to more low-cost U.S. agricultural products. He feels his neighbors' absence in the meager receipts at his tiny grocery in this hamlet about 3 1/2 hours southeast of the capital. "The riches are up there," said the 85-year-old widower, referring to the U.S. Here "there is nothing, not even music. Just silence, like a dead man hanging."

Many Americans are angry that as many as 12 million illegal immigrants, mostly Mexican, are living in the U.S., driven by lack of opportunities at home. Critics are demanding that Mexico right its stumbling economy, create jobs for its people and end its de facto development strategy of shipping its problems north of the border.

But some experts say U.S. economic policies have played a role in fueling the mass exodus. Pushed hard by the United States, Mexico began embracing the Washington-backed prescription of privatization, free trade and government austerity in the early 1980s. A quarter of a century later, the results are decidedly mixed and are the heart of Sunday's cliffhanger presidential election in Mexico.

The contest pits leftist Andres Manuel Lopez Obrador, who wants to boost social spending and rethink the NAFTA relationship, against conservative Felipe Calderon, who wants to maintain Mexico's policy on free trade and open the country's state-controlled energy sector to private investment. Their divergent views reflect the soaring achievements and bitter disappointments that have accompanied Mexico's economic restructuring.

Strict fiscal and monetary discipline has helped Mexico rise Lazarus-like from its devastating 1994 peso devaluation. Inflation is tame. Interest rates are relatively low. The government's books are balanced, and Mexico's debt is rated investment grade. It was a stunning comeback for a nation that had a history of lurching from one financial crisis to another.

"It's stability," said President Vicente Fox in an interview this year. "This is a big, big change in Mexico."

Yet the so-called Washington consensus has done little to spur economic growth, reduce income disparity, create jobs and stem migration to the U.S.

Consider the landmark NAFTA agreement.

Proponents point to the nearly threefold leap in trade between the United States and Mexico as proof of the pact's success. NAFTA has vaulted Mexico into Latin America's premier exporter and given it a fat trade surplus with the United States. Yet the agreement has yielded little in the way of net job creation or in helping to build the vibrant Mexican middle class that supporters promised.

U.S. and Mexican officials touted the deal as a way to stanch the flow of illegal immigrants by creating jobs in Mexico. The tide of undocumented Mexicans in the U.S. surged after the pact was implemented. Fully two-thirds of undocumented immigrants currently living in the United States have been there 10 years or less, according to the Pew Hispanic Center.

Many of those people are Mexicans from hard-hit rural areas, the predictable casualties, NAFTA critics say, of a trade deal that forced Mexico to wrench open its farm sector without a viable transition strategy for millions of subsistence farmers.

Adjusted for inflation, Mexico's growth in gross domestic product has been flat for more than two decades. The cost to Mexico's people for this dismal performance is staggering. If Mexico's economy had grown at the same pace from 1980 to the present as it did in the period from 1960 to 1980, today it would have the same standard of living as Spain, said economist Mark Weisbrot, co-director of the Center for Economic Policy and Research in Washington. Instead, nearly half of Mexico's 106 million people live in poverty.

"It's hard to reduce poverty and create employment when you don't have growth," Weisbrot said. "To have 25 years of this rotten economic performance, you'd have to conclude something is wrong."

Some analysts contend that Mexico simply hasn't moved far enough and fast enough down the free-market path, while botching earlier reforms. Privatizations such as the 1990 sale of the state-owned telephone company essentially replaced public monopolies with private ones. Mexico's inefficient state-owned energy companies are harming its competitiveness. Red tape and corruption are strangling innovation.

But Weisbrot and others contend that some free-market policies simply haven't delivered and are contributing to the immigration friction that has become a major sore point in U.S.-Mexico relations.

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