Mexico's economic recovery

A one-two punch

May 27th 2010 | MONTERREY

From The Economist print edition

Just as business perks up after the recession, it is threatened by crime

FOR over a century Monterrey, in Mexico’s rocky and seemingly inhospitable north, has prided itself on being the country’s industrial capital and economic motor. It got rich making beer, steel, glass and cement. Today its quick access to both coasts of the United States enables it to export car parts, home appliances and aerospace components. At $16,000 per head, average income in the city of 3.7m people is twice the national average.

Last year this closeness to the United States did not seem like such a blessing. Mexico’s economy fared worse than any other in the Americas during the recession—it shrank by 9.7% in the year to June 2009—and its export-oriented north was the most affected area. In Nuevo León, the border state in which Monterrey lies, some 40,000 manufacturing jobs were lost in nine grim months from September 2008.

Now that the American economy has stirred back to life, Mexico’s factories are whirring into action as well. The country’s GDP grew by 4.3% year-on-year in the first quarter of 2010, beating forecasts. Industrial production rose by 7.6% in the year to March—the largest annual increase in nearly four years. In Nuevo León, manufacturing jobs are returning to pre-recession levels. Across all sectors, nearly twice as many jobs have been created there this year as were lost in 2009. Mexico’s car exports are at their highest since 1994.

Yet despite such encouraging figures, expectations are restrained. The Economist Intelligence Unit, our sister company, predicts that the economy will grow by 4.3% this year but just 2.7% in 2011. Domestic demand has been depressed by lay-offs and declining remittances. Car sales within Mexico, for example, are at their lowest in over a decade. Once consumers’ appetites do recover, inflation is expected to rise. That would force the central bank to raise interest rates, which would reduce growth.

This leaves exporters in places like Monterrey to lead the rebound, as they did after Mexico’s last recession in 1995. But those businesses have a new hurdle to surmount: the country’s raging drug “war”.

Territorial squabbles between traffickers are now affecting city life. Since last year, main roads in Monterrey have regularly been blockaded by members of the Gulf “cartel” or its estranged former enforcers, the Zetas, to prevent police from reaching crime scenes. In March, two students were killed in a shoot-out at the city’s leading university between the army and suspected gangsters. The following month, gunmen kidnapped five people from a downtown Holiday Inn.

Foreign investment in Nuevo León held steady last year, at $1.4 billion. But visitors are staying away. Hotels are less than half full: almost every week a business conference or international sporting event is cancelled. Among the missing visitors are the certifiers and auditors companies need to conduct their operations.
Medical tourism, an important new industry in Monterrey, held up well during the recession. But the fear of violence is now keeping patients away. At Christus Muguerza, a gleaming chain of hospitals where a new knee costs barely half what it would in the United States, business is down by a quarter on last year.

For now most firms are sticking it out, but they are anxious. A survey published in March by the American Chamber of Commerce of Mexico found that over a quarter of its members were reconsidering investments in the country as a result of safety worries. Some 16% had suffered extortion and 13% kidnappings. Companies based in the northern border region, and near Mexico City, felt least safe. Unless security improves, Mexico’s nascent economic recovery will be held back.

• An interview with Javier Treviño, the secretary general of Nuevo León:
http://audiovideo.economist.com/?fr_story=73dc875cf722677631dc66ae455992beea1d9729&rf=bm

Mexico and the United States

An unappetising menu

May 20th 2010 | MEXICO CITY
From The Economist print edition

Mr Calderón goes to Washington

WHEN Barack Obama invited his Mexican counterpart, Felipe Calderón, to be his guest in Washington for only the second state visit of his presidency, he was underlining that the two neighbours have become friends. Yet the timing of the trip, on May 19th, has turned out to be unfortunate. It comes amid a furious row on both sides of the border over a law approved in Arizona last month, which requires state police to check the immigration status of any “suspicious” individuals, apparently meaning Mexicans. And on May 14th a senior member of Mr Calderón’s conservative National Action Party (PAN), Diego Fernández de Cevallos, went missing from his ranch. It seems he had been abducted.

At least Mr Calderón and Mr Obama had plenty to talk about over dinner at the White House, even if the issues—migration and the drug “war”—are depressingly familiar. When Mr Calderón visited Washington shortly before Mr Obama’s inauguration, the two leaders proclaimed a new era of partnership. But relations between their two countries often seem stuck in a pattern of flare-ups and make-ups: over American protectionism, human-rights abuses by Mexico’s army, drug violence spilling over the border and the southward flows of guns and cash.

The Arizona law marks a new nadir. Mr Calderón called the measure “backward” and “discriminatory”. His government issued a travel alert, which will discourage citizens from visiting the state. The governors of Mexico’s border states said they would boycott a routine meeting with their American counterparts in Phoenix.

Will the state visit break the pattern? Diplomats from both countries note that their daily collaboration has improved. Co-operation on security is probably closer than it has ever been. American officials have begun searching southbound traffic and seizing illicit cargo. The Mérida initiative, a scheme under which the United States has offered Mexico modest anti-drug aid, has been extended and tweaked to emphasise strengthening institutions, such as the judiciary. Mexico has extradited suspected narcos in unprecedented numbers. Mr Obama shares Mr Calderón’s opposition to the Arizona law, calling it “misguided”. He would like to enact a comprehensive immigration reform.

As so often, the main obstacle to further progress is domestic politics in both countries. Many Americans in border states support cracking down on illegal migrants, and Mr Obama’s Democratic Party faces difficult mid-term elections in November. If Mexico protests too much, it risks galvanising the law’s backers, which could lead other states to copy Arizona’s policies.

Meanwhile, Mr Calderón’s party was routed in Mexico’s mid-terms last July, and will have to confront voters again in local elections this summer. He has almost no chance of obtaining the big policy reforms needed to address the country’s economic and security troubles.

Polls suggest that Mexicans are becoming sceptical of Mr Calderón’s insistence that he is beating the drug gangs. They may not be reassured by the recent leaking of an internal government estimate that 23,000 people have been killed in the violence since 2006. That is well above the 18,000 previously reckoned by the press.

The traffickers are getting ever more brazen. In March they gunned down three people with ties to the American consulate in Ciudad Juárez. Although several local politicians have been killed by the mafias, Mr Fernández de Cevallos is a far more prominent figure. He was a former presidential candidate, highly influential in the pan and close to Mexico’s security establishment. If he has indeed been murdered—or if he were to be held hostage for months—the pressure on Mr Calderón to rethink the intensity of his assault on the drug gangs might well grow. And so might the concern in Washington.

Costa Rica's new president

After Arias

May 6th 2010 | SAN JOSÉ
From The Economist print edition

Tax increases, trade deals and antidisestablishmentarianism

SHE may be the first presidenta in a long line of Costa Rican presidentes, but when Laura Chinchilla is sworn in on May 8th she is liable to disappoint advocates of women’s rights. She supports her country’s restrictions on abortion and the morning-after pill, and opposes other liberal causes such as gay marriage and the disestablishment of the church.

Instead, her uncuddly passion is fighting crime. Although Costa Rica is relatively safe, a recent increase in violence has led to panic. The outbreak has been caused by growing inequality (says the left) and the spread of drug-trafficking gangs (says the right). Mrs Chinchilla promises to fight on both fronts, strengthening the police and getting more youths into classrooms.

To do this will cost money and there isn’t much. The government collects just 14.8% of national income in taxes, and its deficit is 4% of GDP. Mrs Chinchilla says she hopes to increase revenues by taxing casinos and online gambling, which her officials hope would bring in an extra 1% of GDP. Deeper fiscal reforms will have to wait a year or two for the economy to regain strength.

Even then, to get her policies through, the new president will need to handle the legislature deftly. Mrs Chinchilla, of the centrist National Liberation Party, was elected with a thumping 47% of the vote in a crowded field of candidates, thanks in part to the popularity of her mentor and predecessor, Óscar Arias. Her party is the biggest in congress, but holds only 24 of the 57 seats.

She will be reliant on a pact with the right-wing Libertarian Movement, whose leader, Otto Guevara, won 21% of the vote in this year’s presidential election, compared with just 2% in 2002. “The door to negotiation has opened,” says the confident Mr Guevara, flanked by portraits of his free-market heroes, Friedrich Hayek and Milton Friedman. But in return for supporting the government, he wants tougher sentences for petty criminals and the publication on the internet of the names of all those who receive state benefits. He vows to filibuster tax increases.

Costa Rica is richer, more democratic and more stable than its Central American neighbours. But it faces a choice between a bigger state and more reliance on the market. That dilemma was symbolised by the battle to approve the Central American Free-Trade Agreement (CAFTA) with the United States. Mr Arias campaigned hard for the accord, but only narrowly won a referendum on it in 2007. He also signed similar agreements with China and Singapore. Central America has also concluded free-trade talks with the European Union.

“We are inserting [Costa Rica] into the world economy,” Mr Arias says. His chief opponent, Otton Solís, accuses him of selling the national interest short both with CAFTA, which obliges Costa Rica to open up the state-controlled telecoms and electricity industries, and in cuddling up to China. Mrs Chinchilla seems keen to change the subject. She plans closer ties in South America, and has toured Central America, patching up relations with awkward neighbours such as Nicaragua’s leftist autocrat, Daniel Ortega, with whom Mr Arias was publicly frustrated. One way and another, she may find her predecessor a hard act to follow.

Daniel Ortega's Nicaragua

The show goes on

Apr 29th 2010 | MANAGUA
From The Economist print edition

More blows against democracy

THE smashed windows and broken doors have been replaced, but daylight still shines through holes punched into the porch of the Holiday Inn in Managua by home-made mortars. On April 20th the hotel became the latest battleground in Daniel Ortega’s struggle to remain president of Nicaragua after his term ends early in 2012. Faced with dismal poll ratings and constitutional obstacles, Mr Ortega has taken to unleashing mobs.

The constitution allows a maximum of two, non-consecutive terms. So Mr Ortega, who was president from 1985 to 1990, is doubly barred. But last year his political allies in the Supreme Court ruled the relevant articles “inadmissible”. Faced with losing his majority on the court, Mr Ortega decreed an extension of the terms of the obliging judges. He also extended the tenure of senior officials at the national election council, which had allowed his party, the Sandinista National Liberation Front (FSLN), to claim victory in municipal elections in 2008—elections that the opposition and observers denounced as rigged.

Opposition parties, which together hold a majority in congress but seldom agree on much, have united against all this. That prompted Mr Ortega’s ruffians to block access to the National Assembly. When the opposition assembled at the Holiday Inn, that became a target. The following day, a group of legislators was trapped in a meeting room by another violent crowd.

Some in the outside world are losing patience with Mr Ortega’s thuggery. The Organisation of American States piped up to express its “deep concern” about the latest skirmishes. Britain, Sweden and Denmark have cut off aid to Nicaragua, while the United States, the European Union, Germany and Japan have either scaled back theirs or imposed more conditions. This matters in a country with an income per head of $2,600 a year, the lowest in Central America, and where horses and carts still plod the streets of what passes for the business district of the capital.

But it matters less than in the past. Mr Ortega has a firm ally in Venezuela’s Hugo Chávez, who provides loans and cheap oil worth up to $400m a year—about a third of the government’s total income—according to opposition leaders. Mr Chávez is even more anxious to prop up Mr Ortega since his other Central American ally, Manuel Zelaya in Honduras, was overthrown in a coup last year.

Nobody expects Nicaragua’s army to intervene as its counterpart in Honduras did. And though a poll last month put Mr Ortega’s popularity rating at just 27%, his supporters are well-organised. Even if next year’s election is fair—a big if, requiring international observers and a new electoral council—Mr Ortega might still be hard to beat. He won in 2006 with just 38% of the vote, because the opposition was split. “If we don’t have a sole candidate, the Sandinistas could win again,” admits Eduardo Montealegre, who leads the Independent Liberal Party and came second last time. “But if we do, they don’t stand a chance.” The mobs have other ideas.

Mexico's population

When the niños run out

Apr 22nd 2010 | MEXICO CITY
From The Economist print edition

A falling birth rate, and what it means

FENCES, soldiers, infra-red cameras: the United States goes to great lengths to hold back the teeming masses across its southern border. But the masses are teeming less. Mexico’s birth rate, once among the world’s highest, is in free-fall. In the 1960s Mexican mothers had nearly seven children each (whereas women in India then had fewer than six). The average now is just over two—almost the same as in the United States. The UN reckons that from 2040 the birth rate in Mexico will be the lower of the two.

The fall follows a government u-turn nearly 40 years ago, when a contraception campaign replaced the previous nation-building policy. Today, four out of ten married Mexican women are sterilised, a radical measure that partly reflects the continuing lack of other contraception in some areas as well as strict laws against abortion everywhere but the capital. Broader changes, such as more women in education and work, and pricier housing, have pushed down the size of families even more. (Brazil, where the government has promoted contraception less forcefully, has experienced a similar baby bust.)

The slowdown provides both relief and trouble for the state. In the 1970s each school year was 4% bigger than the last. But Carlos Welti, a demographer at Mexico’s National Autonomous University (UNAM), points out that 2m new Mexicans are still minted each year—exactly the same number as during the 1970s. Some public services are more oversubscribed, not less: UNAM used to accept nearly all applicants but now turns away more than 90%. Mexico’s total population will not peak until 2043 (at 130m).

Nevertheless, Mexicans are rapidly ageing. This trend, which took a century in Europe, has happened in three decades, Mr Welti points out. In 1980 the average Mexican was 17 years old; he is now 28. At the moment, one in ten Mexicans is aged 60 or over; within three decades, the figure will be almost one in four. A health-care system geared towards women and children must be recalibrated to deal with geriatrics.

So too must social security. The poor who clean windscreens and sell pirate CDs in Mexico City include a growing number of elderly people. Only about one in five of the over-75s has a pension, and today’s smaller families will find it harder to care for elderly relatives. Two reforms are needed to defuse this social-security time-bomb, says Jorge Rodríguez of the UN’s Economic Commission for Latin America. More of Mexico’s enormous black market must be brought into the formal economy, so as to get more companies to contribute to employees’ pensions. And a fund must be built up to help those without a contributory scheme. Other analysts, such as Santiago Levy, a former Mexican official now at the Inter-American Development Bank, point out that a fund of that kind might undermine the incentives for firms and workers to go legal.

All this could have a profound impact on the United States, which in recent years has absorbed about half of each new Mexican generation. By 2050 there will be 20% fewer Mexicans in their 20s. Farming, construction and health care in the southern states, which rely on migrant labour (documented or otherwise), will have a smaller pool from which to recruit.

Or will they? Mexicans are healthier than they were. Those prepared to make the arduous crossing are now drawn from a wider age-range; once there, they may stay up to a decade longer before heading home for their final years. In addition, Mexicans in the United States are more fertile than their counterparts back home. “Mexico has impregnated the United States,” says Joel Kotkin, an urban historian at Chapman University in Los Angeles, who points out that Mexican genes will proliferate north of the border even if immigration falls. Higher wages mean that it is easier to afford a decent family home in Houston than in Mexico City.

History teaches caution in assessing the link between demography and migration. The Mexican baby boom of the 1950s coincided with lowish emigration, whereas the exodus to the United States kicked off in the 1980s, just as Mexico’s birth rate was plummeting. Today’s falling fertility rate will curb the flow. But the main motors of migration will still be economic boom or bust—on both sides of the border.

Mexico's culture wars

Metrosexuality

Apr 15th 2010 | MEXICO CITY
From The Economist print edition

As the capital grows more liberal, conservatives are rallying elsewhere

BLOOD streaked the faces of the scores of young men dragging heavy wooden crosses up a hill in Iztapalapa, a suburb of Mexico City, on Good Friday. Looking on at this annual re-enactment of the crucifixion were tearful crowds of blue-veiled “town virgins”—and on a billboard in the background, a giant, nearly-nude model, advertising condoms with a wink. Religiosity and militant secularism have long rubbed along together in Mexico City and in the country as a whole. But the gap in attitudes between the freewheeling capital and deepest Mexico is widening, stoking culture wars of the sort more familiar north of the Rio Grande.

Since 2006 the Federal District, encompassing much of Mexico City, has been governed by a left-of-centre socially liberal mayor, Marcelo Ebrard. In March his officials performed 88 gay marriages, the first in Latin America. Paperwork is in train for the first adoptions by gay couples. Mr Ebrard’s administration has also simplified divorce and allowed the terminally ill to refuse treatment. Most polarising of all, in 2007 it approved a law granting women the right to abort in the first 12 weeks of pregnancy—something previously unheard of in Latin America outside Cuba. More is to come: a bill to legalise prostitution is pencilled in for next year, and discussions are under way to extend drinking hours to 5am.

As Mexico City liberalises, much of the rest of the country is moving in the opposite direction. Since the 2007 abortion reform, more than half of the country’s 31 other states have preventively amended their constitutions to define life as beginning at conception. Last year four states went further, introducing laws that double the penalty for abortion if it is found that the woman is of “ill repute”. Prison sentences can be lengthy: some states treat abortion as murder. And even when abortion is permitted, such as in cases of rape, the cumbersome authorisation required often makes it impossible.

Some wonder if a similar backlash may be looming with respect to gay rights. The Supreme Court, which gave the green light to Mexico City’s abortion law, is mulling whether its gay weddings infringe the constitution. Human Rights Watch, a New York-based group, hopes that the court will issue a ruling broad enough to establish a constitutional right for gay couples to marry across the country.

Paradoxically, one reason for the rude health of social conservatism is the spread of political liberalism. The Institutional Revolutionary Party, which ran Mexico for seven decades until 2000, persecuted the church with varying vigour and imposed secularism. Divorce was notoriously free and easy (Marilyn Monroe was one satisfied customer). It is an irony that “the dismantling of an authoritarian regime has led to the emergence of intolerance” regarding homosexuality, reproductive rights and religious minorities, notes Soledad Loaeza, a political scientist at the Colegio de México, a graduate school.

Conservatives are limbering up for a battle to lift the longstanding ban on religious education in public schools. But the tide may yet turn again. Mexico is not immune from the paedophilia scandals that are enveloping the Catholic church. Marcial Maciel, a Mexican priest who founded the Legionaries of Christ, an ultra-conservative Catholic movement, was a serial abuser. The conservative National Action Party, which has held the presidency since 2000, is flagging in the opinion polls, and its younger members are restless. Some state institutions are loosening up: the National Commission for Human Rights, an official body, which opposed Mexico City’s abortion law, has a new director and is not against gay marriage.

Migration is helping to spread liberal attitudes. North of the border Hispanic voters are often seen as conservatives. But Mexican politics is being influenced by migrants returning from the United States with liberal ideas they have picked up there. Less cheerily, the travails of migration all too often pose a challenge to the traditional family. Mexican wedding services have been known to include prayers for the couple to stay together should one of them move to the United States.