Tag Archives: Mexico

Mexico’s Economy Is Being Plundered Dry, by Don Quijones

Debt and corruption will be the ruination of Mexico. From Don Quijones at wolfstreet.com:

Debt is suffocating the economy, but where did the money go? 

The government of Mexico has a new problem on its hands: what to do with the burgeoning ranks of state governors, current or former, that are facing prosecution for fraud or corruption. It’s a particularly sensitive problem given that most of the suspects belong to the governing political party, the Institutional Revolutionary Party (PRI), which ruled Mexico uninterruptedly from 1929 to 2000. It returned to power in December 2012 with the election of Enrique Peña Nieto. And it clearly hasn’t changed its ways.

Some of the accused governors were so compromised they went on the run. In the last few weeks, two of them, Tomás Yarrington, former state governor of Tamaulipas, and Javier Duarte, former governor of Veracruz, were tracked down. Yarrington, accused of laundering proceeds from drug trafficking as well as helping Mexico’s Gulf Cartel export “large quantities” of cocaine to the United States, was ensnared by Italian Police in the Tuscan city of Florence. He faces possible extradition to the United States.

Yarrington’s successor as governor of Tamaulipas, Eugenio Hernández, a fellow PRI member who is also accused of close ties with narcotraficantes and money laundering, has not been seen in public since last June.

As for Duarte, he was caught this week by police in Guatemala. Like Yarrington, he wasn’t exactly laying low. Among the accusations he faces is that of buying fake chemotherapy drugs, which were then unknowingly administered by state-run hospitals to children suffering from cancer. He and his cohorts purportedly pocketed the difference. He is also alleged to have set up 34 shell companies with the intention of diverting 35 billion pesos (roughly $2 billion) of public funds into his and his friends’ deep pockets.

In just about any jurisdiction on earth, $2 billion is a substantial amount of money, even by today’s inflated standards. But in Mexico, where neither the super rich (accounting for a very large chunk of the country’s wealth) nor the super poor (accounting for roughly half of the population) pay direct taxes of any kind, it’s a veritable fortune.

To continue reading: Mexico’s Economy Is Being Plundered Dry

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Is Mexico Facing “Liquidity Problems?” by Don Quinines

Mexico isn’t in a deep debt hole yet, but it’s certainly digging. From Don Quijones at wolfstreet.com:

When it comes to debt, everything is relative, especially if you don’t have a reserve-currency-denominated printing press.

At 49% of GDP, Mexico’s public debt may seem pretty low by today’s inflated standards. It’s a mere fraction of the debt loads amassed by bigger, richer economies such as Japan (229% of GDP), Italy (133%) and the United States (104%). But when it comes to debt, everything is relative, especially if you don’t enjoy the benefits that come from having a reserve-currency-denominated printing press.

In Mexico’s case it’s not so much the size of the debt that matters; it’s the rate of its growth. In the year 2000 the country had a perfectly manageable debt load of roughly 20% of GDP. Today, it is two and a half times that size.

Last year alone the Mexican state issued a grand total of $20.31 billion in new debt, the largest amount since 1995, the year immediately after the Tequila Crisis when the country needed an international bailout to rescue its entire banking system from collapse. The money it received also helped repay a number of giant Wall Street investment banks that had gone all in on Mexican assets.

There are plenty of reasons behind Mexico’s current debt issues. Top of the list is the dramatic reversal of fortunes of the country’s shrinking oil giant Petróleos Mexicanos, A.K.A. Pemex, which until a few years ago provided as much as one-third of the Mexican government’s national budget. After decades of “bad management, lack of vision, negligence, abuse and in many cases, corruption,” in the words of Mexico’s Business Coordinating Council, Pemex is now bleeding losses and buckling under €100 billion of debt.

If Pemex is unable to service its debts, Mexico’s government will have to step in, again. The problem here is that Mexico’s government is also struggling to rein in its own debt addiction, with some states already on the verge of bankruptcy. One state governor, Javier Duarte of Veracruz, did so much fiduciary damage during his mandate that he’s now on the run after allegedly misappropriating vast sums of public funds.

To continue reading: Is Mexico Facing “Liquidity Problems?”

Invading Mexico: More Brilliance from Washington, by Fred Reed

Fred Reed’s hypothetical US invasion of Mexico is a brilliant exposition of the pitfalls of waging offensive war, a subject SLL recently examined in Riptide. From Reed on a guest post at theburningplatform.com:

Time: “You have a bunch of bad hombres down there,” Trump told Peña Nieto, according to the excerpt given to AP. “You aren’t doing enough to stop them. I think your military is scared. Our military isn’t, so I just might send them down to take care of it.”

With Trump it is difficult to tell bluster and carney-barker showmanship from serious consideration or actual intention. While clearly a threat, the remark may have been intended only to intimidate, and the ascription of cowardice to the Mexican army only ill-bred. Trump’s military record leaves no doubt as to his own courage. Given his administration’s threats of military action–war–against China and Iran, the possibility that he will send troops southward may be worth pondering. Whether the President has the faintest idea of what would be involved in very much worth pondering.

If troops are sent, what will they face in Mexico? What would they do? How many would they be?

To begin with, the narcos look exactly like everybody else in Mexico. They do not carry ID cards saying “Narcotraficante.” They can easily blend into the general population. If GIs try to operate here, the inability to distinguish narcos from everybody else will quickly lead to intense frustration. Frustrated troops become angry. They begin to hate the locals as in all such wars they hated the dinks, gooks, slopes, zipperheads, sand niggers, and rag-heads. Mexicans will begin to seem treacherous to them, as always happens when US troops go to countries they do not understand. All Mexicans will come under suspicion.

To continue reading: Invading Mexico: More Brilliance from Washington

Donald Trump and the Foreign Policy of Abuse, by Ted Snider

A critic of Trump’s foreign policy says a lot of it is just bullying and Trump throwing his weight around. From Ted Snider at antiwar.com:

On the domestic front, Donald Trump’s bullying and abuse have unfolded on the nightly news like a soap opera. When acting attorney general Sally Yates did her job by telling Trump that his suspension of visas to seven Muslim nations was possibly unlawful, he fired her. When she told him that “At present, I am not convinced that the defense of the executive order is consistent with these responsibilities, nor am I convinced that the executive order is lawful,” she was slipped a note saying, “the president has removed you from the office of Deputy Attorney General of the United States.” As if firing her for doing her job by opposing him was not bullying enough, the White House continued the bullying with the public attack that she was “an Obama administration appointee who is weak on borders and very weak on illegal immigration.”

At about the same time, White House press secretary Sean Spicer pressed the bullying, saying that State Department officials “should either get with the program or they can go.” Government officials are not supposed to advise Trump, they are supposed to be bullied by him or be fired.

When Washington State federal judge James Robart issued a nationwide injunction on Trump’s visa ban, on the grounds that it was causing “immediate an irreparable injury” and that there was a “substantial likelihood of success in challenging the constitutionality of the travel ban,” Trump took to social media to bully him, calling him “this so-called judge.”

But perhaps more consequentially, Trump has also been conducting his foreign policy by bullying. At the end of January, U.S. tanks and armored vehicles that were part of a 3,500 troop contingent fired salvos into the skies of Poland. General Ben Hodges, the commander of the US Army in Europe, said, “this is not just a training exercise. It’s to demonstrate a strategic message that you cannot violate the sovereignty of members of NATO … Moscow will get the message – I’m confident of it.” You don’t need diplomacy when you can bully your enemy by a display of brute force.

To continue reading: Donald Trump and the Foreign Policy of Abuse

 

Renegotiating NAFTA Is A Good Idea – For Mexico, by Frances Cuppola

Notwithstanding President Trump’s rhetoric, NAFTA has not been that good a deal for Mexico. Frances Coppula asks some good questions. From Coppula at forbes.com:

President Trump is not happy with the North American Free Trade Association (NAFTA). During the Presidential campaign, he described it as the ‘worst trade agreement the U.S. ever signed’. He blames it for the loss of large numbers of manufacturing jobs across the border to Mexico, where wages are lower. According to the White House website’s new page on trade, ‘blue-collar towns and cities have watched their factories close and good-paying jobs move overseas, while Americans face a mounting trade deficit and a devastated manufacturing base.’

At the same time, President Trump complains about the flow of migrants across the border from Mexico to the US. They take American jobs and American money, apparently. So, he plans to build a wall to stem the flow, and make Mexico pay for it. Exactly how he plans to make Mexico pay for it is as yet unclear: suggestions range from a 20% tax on American imports from Mexico (which my colleague Tim Worstall was quick to point out would in practice be paid by American businesses and consumers), to a withholding tax on remittances from Mexicans working in the U.S.

I sympathise hugely with the Americans who feel that they are losing out. Well-paid manufacturing jobs have indeed declined in the last decade or two, partly replaced by poorer-paying service jobs. But something is not right here. If all the good jobs have gone across the border, how come so many Mexicans have come to the U.S. to work? We should not kid ourselves that this is an easy option. The Mexican border is already heavily policed, and just about the only open route is a long and dangerous desert crossing in which many migrants lose their lives. Why would so many people risk that crossing, if all they had to do was wait for the good jobs to come to them?

To continue reading: Renegotiating NAFTA Is A Good Idea – For Mexico

Mauled by Peso Crash and Inflation, Mexico to Cut its Dependence on US Food Producers, by Don Quijones

Mexican economic crises have had global spillover effects in the past, so SLL is watching the current problems besetting the Mexicans and their economy closely. From Don Quijones at wolfstreet.com:

It’s not all NAFTA’s fault, however.

The price of tortilla, a staple in Mexico that is consumed in myriad forms, flavors and colors, is on the rise. The country’s federal consumer association Profeco has already warned of price rises across the country, with the most pronounced increases in the states of Baja California, Colima, Quintana Roo, Guerrero, Yucatán, Nayarit, Ciudad de México, Tabasco and Oaxaca.

It’s the latest spike in an ongoing trend. In the last 10 years, average tortilla prices have soared by over 90%. Early last year prices reached as high as 16 pesos per kilo in some regions. Since then the Mexican peso has accentuated its slide against the U.S, dollar, slumping 17% in 2016 and close to 5% in the first two weeks of this year.

It was only a matter of time before the traditional bugbear of inflation began to rear its ugly head. Even before the government ushered in the new year with a brutal 20% hike in fuel prices, inflation had already accelerated from historic lows to a two-year high. In January it’s expected to surpass 1% on a monthly basis, its fasted increase since 2000. And there are already rumors of further gas price spikes in February.

As the FT warns, if the cost of mainstays of the Mexican diet such as tortillas, eggs, milk and chicken start to soar, an already unpopular government can expect snowballing protests in a country where nearly half the population lives in absolute poverty.

Profeco has already detected rising prices of other staple food, including frijoles (black beans), chicken and eggs, in some regions, although the “trend is not yet generalized.”

To continue reading: Mauled by Peso Crash & Inflation, Mexico to Cut its Dependence on US Food Producers

 

Hideous Constellation of Threats and Challenges Facing Mexico, by Don Quijones

Mexico is steadily moving up the list of candidates to initiate the next global economic and financial crisis, the snowball that starts the avalanche. From Don Quijones at wolfstreet.com:

Things are rapidly going from bad to worse in Mexico. Hundreds of people were arrested and a handful of people killed over the past week as peaceful protests against the government’s hike of gasoline prices (by as much as 20% in some states) descended into widespread looting and rioting. The mood on the street was hardly helped when Mexico’s deeply unpopular president, Enrique Peña Nieto, tried to defend his actions by asking the public, “What would you have done?”

For a lot of people, the answer’s clear: a lot of things, very differently. Right at the top of the list would be launching an all-out war against the endemic culture of corruption plaguing virtually all levels of government. But now, time is fast running out as Mexico now faces a hideous constellation of threats and challenges, all at the same time.

NAFTA Hangover

There are few bigger threats to Mexico right now than the President Elect Donald Trump, who last week announced the appointment of Robert Lighthizer as the United States’ new Trade Representative. Lighthizer, a trade lawyer and vocal supporter of protectionist policies, is expected to play a leading role in the renegotiation of NAFTA, which helped transform Mexico into a low-cost industrial powerhouse while also shackling its economic fate to its northern neighbor:

The U.S. accounts for 80% of Mexico’s exports, 49% of its imports, and 60% of all its foreign direct investment.

To continue reading: Hideous Constellation of Threats and Challenges Facing Mexico