The Great Gouge of 2010

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Inaugurating a hospital in Acapulco for his first public appearance of 2010, Mexican President Felipe Calderon predicted good times for his country. Shielded by soldiers but striking an upbeat message, Calderon wished Mexicans a good year as “we celebrate our 200th birthday as Mexicans and 200 years of being free and independent.”

But for many Mexicans, 2010 is starting off on the wrong note, especially when it comes to the sound of money. Across the board, price increases for all manner of goods and services threaten to rip apart citizens’ pocket books in a historic year when Mexico commemorates both the 1810 War of Independence and the 1910 Revolution.

Approved by the federal Congress before Christmas, numerous tax increases will mark 2010. Among the biggest hikes are a jump in the national sales from 15 to 16 percent (from 10 to 11 percent in the northern border zone with the United States); an increase in the income tax from 28 to 30 percent for anyone making above 10,000 pesos monthly, or about $800; and a three percent bank deposit tax on accounts greater than 15,000 pesos. Previously, accounts greater than 25,000 pesos were taxed. Besides a new three percent telecommunications tax, hefty new “sin” taxes are slated for beer, cigarettes and gaming.

Faced with declining oil revenues that fund government, the Calderon administration and Congress agreed last year that it was necessary to increase taxes in order to keep schools open and other basic services functioning.

In the Mexico-US border region,the federal government authorized a one peso fare increase for vehicles using two international bridges between Ciudad Juarez, Chihuahua, and El Paso, Texas, and approved a $20 hike in the annual fee charged to use the express lane on another bridge leading to the US city.

Yet the federal tax hikes are just a sampling of a broad range of higher costs coming this year. State and local governments are also levying higher taxes and fees, including a one peso bus fare increase in the state of Jalisco, a fifty centavo increase for riding Mexico City’s famed metro and a variety of property and other tax hikes in the capital city.

Mexicans long have been accustomed to post-holiday, beginning-of-the-year price increases sarcastically dubbed the “Cost of January”, but this year’s crunch will take an even bigger bite than normal from shrinking paychecks. Food and beverage inflation is on the rise, with price increases as much as 25 percent reported in recent days.

As the new year rang in, Mexicans paid more for tortillas, sugar, eggs, tomatoes, powdered milk, and more. In the style of New Mexican cuisine north of the border, the food staples of beans and corn are seemingly treated like gold these days. Restaurant diners might be startled by servings of beans and rice which can be measured by tea spoonfuls or counted in grains.

What´s more, energy inflation is threatening to fuel other manifestations of inflation. Continuing a federal program began in 2007, the Calderon administration is gradually upping the price of gasoline and diesel on a monthly basis. And with the wholesale price of natural gas up more than fifty percent over last year’s cost, electricty rates could creep up four percent this year, according to some reports.

In Ciudad Juarez, many residents already have reported receiving very high bills from the privately-owned Juarez Natural Gas Company. Freezing winter temperatures which struck the borderland early this year had residents in sticker shock even before the new year hit.

Retirees Mario and Maria Rendon characterized as “highway robbery” a $200 bill for the operation of one heater.

More Political Jockeying

The avalanche of tax increases and price hikes is threatening to snowball into a new political storm during an election year when governorships are up for grabs in 12 states. In recent days, sharp comments have flowed from from all sectors of the country’s political class as well as other important social actors.

Fulminating against price increases this week, Beatriz Paredes, president of the former ruling Institutional Revolutionary Party (PRI), fulminated questioned the Calderon administration’s economic competence.

In dramatic form, PRI Senate leader Manlio Fabio Beltrones threatened to scuttle a landmark political reform if the Calderon administration did not put a brake on inflation. For his part, Congressman Jesus Zambrano of the center-left Party of the Democratic Revolution pointed the finger at both the PRI and Calderon’s conservative National Action Party (PAN).

Criticisms from the PRI were especially noteworthy, considering that most PRI legislators voted for the current round of tax increases and earlier went along with the 2007 fuel price increase scheme.

Mexico’s influential Roman Catholic Church issued a plague on all houses declaration.

“We live in two worlds in this country,” said Hugo Valdemar Romero, spokesman for the Archdiocese of Mexico. “On the one hand we have the people with their disadvantages and miseries,” he said, “and on the other we have the politicians with their privileges.”

In response to the torrent of criticism, President Calderon suddenly appeared on national television the evening of January 6, the end of the long holiday season as well as the day the Three Kings deliver gifts to Mexican children.

In an unusual 10-minute address that invoked the names of the heroes of the 1810 and 1910 rebellions, Calderon appealed on Mexicans to exhbit the same spirit of sacrifice that the national martyrs showed to make Mexico a free and democratic nation. Lashing out against unnanmed “pessimists,” Calderon pledged his government will make the creation of new jobs and the curbing of extreme poverty the two most important priorities of the year. “2010 will be the year of recuperation,” the president vowed.

A distinct mood, however, is evident on the streets and in cyberspace. Scattered protests are beginning to take shape against the bicentennial Super Cost of January. In Guadalajara, the Metropolitan Front for Dignified Urban Transporation quickly organized a small protest when word of the bus fare increase came right before Christmas. A truckers and bus drivers group with connections to the PRI staged brief highway blockades against higher diesel prices in the states of Veracruz, Hidalgo and Puebla this week.

Edmundo Delgado Ramirez, president of the National Confederation of Merchants and Transporters, criticized the government for pegging energy prices to US standards. Mexico’s level of development, Delgado argued, is still far behind that of its northern neighbor. Delgado’s group held out the possibility of a national transportation stoppage if diesel prices are not rolled back to levels of three years ago.

One group actively supporting a national strike is the embattlled Mexican Electrical Workers Union, which continues to resist the Calderon administration’s liquidation of the publicly-owned Central Power and Light Company and the firing of 44,000 workers. The union is also urging utility consumers to conduct payment strikes as well as demanding emergency salary increases for all workers.

The Regressive Costs of Crisis

This year’s price crisis once again laid bare structural problems in the Mexican economic model. Largely reliant on diminishing oil resources to keep the state afloat, the government is feverishly searching for alternative revenue sources.

On the food and energy front, Mexico’s dependence on imports was underscored by the steep increases in powdered milk prices, which were blamed on droughts in the producer nations of New Zealand and Australia. Although Mexico is an oil producer, it imports large quantities of gasoline and diesel from the US, where prices could go higher because of cold weather and increased demand. The price of Mexico’s emblematic corn crop, meanwhile, is dependent on speculative trends in the Chicago futures market.

In the current crisis, the issue of migrant remittances, from which many households especially in rural areas pay routine expenses, also exposes structural contradictions. Falling to their lowest level by late last year since 2005, remittances nevertheless bought more in Mexico in late 2008 and early 2009 when the peso devalued nearly 40 percent in relation to the dollar. But with the peso stabilizing more recently between 12 and 13 per dollar, remittances are worth far less at a time when they are needed more than ever. The only good news about remittances is that the fall in the amount of sendings is not as abrupt as several months ago.

Frequent visitors to Mexico should notice that their dollar buys much less than one year ago.

All in all, many analysts expect tax and product price increases to batter the middle and working-classes this year. Dr. Gerardo Esquivel, economist for the College of Mexico, noted that while food prices are outpacing overall inflation, which could be five percent or more this year, job growth is falling far short of need in spite of some signs of economic recuperation. “This makes us think that poverty could continue increasing, because of food inflation and unemployment,” Esquivel said.

A 2009 Mexico City price survey by Mexico’s Attorney General for Consumer Protection of 15 products that make up the basic basket of goods found that the commodities rose 10.7 percent in price, or 7.1 percent above the general inflation rate which covers many products people do not consume on a daily basis. According to the survey, sugar was up 79 percent while rice jumped 24 percent in price.

Raul Feliz of the Center for Economic Research and Instruction stressed that inflation does not affect all persons equally.

“There is strong pressure on the poorest sectors of the population, because it consumes more (basic food) products,” Feliz said. For 2010, Mexican workers are seeing a rise in the minimum wage of just over four percent, or about 20 cents daily.

Manuel Padron, a researcher for the non-governmental Center for Reflection and Labor Action, said the drag on workers’ wages continues a pattern established during the De la Madrid administration 27 years ago. Padron estimated that it would take five minimum wages to meet each worker’s basic, daily expenses.

Additional sources: Agencia Reforma, January 2, 4, 5, 6,7, 8, 2010. Articles by Arturo Rivero, Alma Hernandez, Mayolo Lopez, Victor Fuentes, Veronica Martinez, Rafael Aceves, Karla Rodriguez, Gustavo de la Rosa, Noel Garica, Juan Carlos Orozco, Daniela Rea, Monica Ramirez, and editorial staff.

Proceso/Apro, January 5, 2010. Articles by Jesusa Cervantes and Jesus Cantu. CNN en Espanol, January 5, 2010. El Universal, January 1 and 5, 2010. Articles by Ruben Mireles Tenorio and David Aguilera. El Diario de Juarez, January 4, 2010. Articles by Juan de Dios Olivas and Gabriel Simental. La Jornada (Jalisco edition), December 24, 2009. Article by Anibal Vivar Galvan.

 


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