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ECONOMY-MEXICO:
Crisis Drives Up Poverty Rate
By Diego Cevallos
MEXICO CITY (IPS) - Between 1994 and
1996, the poverty rate in Mexico climbed
from 52 to 69 percent due to a deep but
short-lived global economic recession that
broke out in this country. Now this country
is experiencing another depression, which
originated in its northern neighbour, and
that will last at least until 2010.
Poverty is rising again after a sustained
period of decline since 1997. In 2006, 43
percent of the population was living below
the poverty line, according to the state
National Council for Evaluation of Social
Development Policy (CONEVAL).
It is still too early to say exactly how
much poverty will increase, but it could be
by around 10 percentage points, Susan
Parker, a researcher at the Centre for
Economics Research and Teaching (CIDE) and
the author of several studies on Mexican
social programmes, told IPS.
Precise figures will be available in August
or September, when CONEVAL publishes its
biennial statistics in this country of over
107 million people.
In the first quarter of the year, GDP shrank
by 8.2 percent compared to the same period
in 2008 - the sharpest decline since 1995.
This was the third consecutive quarter of
economic contraction, the National Institute
of Statistics and Geography (INEGI)
announced Wednesday.
Furthermore, employment figures have
plummeted, industrial and tourism activity
have fallen, exports have dropped, and tax
revenues have shrunk, which the authorities
say will cause a two percent deficit in
state finances this year.
The government of conservative President
Felipe Calderón forecasts net GDP loss of
5.5 percent for 2009, less than the 6.2
percent contraction seen in 1995. Analysts
predict that figures for economic activity
will continue to be negative in 2010.
The Mexican economy is one of the hardest
hit in the world because of its close trade
links with the United States, the origin of
the current global crisis.
The outbreak of swine flu that began in
April in Mexico further exacerbated the
economic problems.
The economic crisis and its predictable
social impact raise questions about whether
Mexico will be able to meet the Millennium
Development Goals (MDGs), targets set in
2000 by the international community to cut
poverty, inequality and pollution, by the
2015 deadline.
It is still hard to say how far behind
Mexico will fall in meeting the MDGs, said
Parker, who holds a doctorate in economics
from Yale University, in the United States.
There are indications that Mexico will not
reach some of the goals.
In January, when the government was saying
that economic growth would be slight in
2009, and no one had foreseen the flu
epidemic, the United Nations Development
Programme (UNDP) warned that the global
crisis put Mexico at serious risk of failing
to comply with some of the MDGs.
In a study on public policies for human
development, the UNDP indicated that Mexico
needed to increase public spending to five
percent of GDP in order to fulfil its
obligations of reducing maternal and child
mortality, increasing educational coverage
and improving drinking water and sanitation
services.
In the report, the UNDP assumed that Mexico
would recover from the crisis and enjoy
annual GDP growth of between 3.5 and five
percent in the coming years.
Rob Vos, the director of Development Policy
and Analysis Division in the U.N. Department
of Economic and Social Affairs, said at the
presentation of the study that although
there were still six years to go till 2015,
the UNDP recommendations should be
reconsidered, because the economy had
suffered a major setback, which could affect
poverty levels.
Vos said it was yet to be seen whether the
efforts recommended, of increasing spending
by five percent a year, are sufficient.
The 1995 meltdown was triggered by economic
policies that led to a high level of
indebtedness and runs on the banks, and was
followed by spurts of growth, boosted by a
favourable international environment and
U.S. GDP growth of 2.5 percent that year and
3.7 percent in 1996.
In the present crisis Mexico's future looks
less promising, because the economy of the
United States, its main trading partner, is
expected to contract by 2.8 percent this
year and 0.05 percent in 2010, according to
forecasts by the International Monetary
Fund.
"I have no doubt that this crisis will be
worse than the one we experienced in 1995,"
financial columnist Enrique Quintana wrote
in the newspaper Reforma.
What is not yet clear is whether the spike
in poverty will be sharper than in 1995,
said Parker.
Back then there was no social programme of
conditional cash transfers in Mexico like
Oportunidades - created in 1997 under the
name of Progresa - which now covers five
million families, or 25 percent of the
country's households.
In 1995 the financial system crashed, the
local peso plunged, and there was
instability in the stock markets and serious
problems in state finances arising from a
growing deficit, as well as heavy
accumulated foreign debt. In the current
crisis, none of these factors is present.
According to Parker, "the Oportunidades
programme is definitely a cushion in the
present crisis, as a secure source of income
for poor families."
Households registered under the programme
receive between 400 and 500 pesos a month
(about 35 dollars) from the state. In
return, the children must attend school and
regular health checkups, among other
obligations designed to break the cycle of
poverty in which millions of families are
trapped.
The money, given mostly to the mothers, is
equivalent on average to 30 percent of the
families' total income, and is mainly spent
on food.
Since the mid-1990s, poverty in Mexico has
been defined under three categories.
Food poverty is the inability to afford a
basic minimum diet. Thirty-seven percent of
Mexicans were in this category in 1996, and
14 percent 10 years later.
Capacity poverty means that families or
persons find it difficult to afford
education and health expenses. Nearly 47
percent of the population was in this
category in 1996, and around 21 percent in
2006.
Cash poverty includes those who have
insufficient resources to pay for clothing,
housing, energy and transportation, who made
up 69 percent of the population in 1996 and
42 percent a decade later.
By the World Bank's method of measurement,
based on a daily income calculated in
dollars, overall poverty in Mexico fell from
45 percent in 1994 to 41 percent in 2000,
and to 32 percent in 2006.
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