Mexico’s Poor Forgo Goods as Income From U.S. Drops

Jens Erik Gould
Bloomberg
Thursday, Aug 7, 2008

In the Mexican town of Tarimbaro, construction has stopped on new homes, so sales at a hardware store are half last year’s total. A butcher who slaughtered a head of cattle a day now slays two a week. And Rocio Rangel feeds her son and daughter bread and coffee for dinner.

Rural Mexican towns are suffering as money transfers from relatives working north of the border dry up, the result of a weak U.S. economy. Remittances equaled 2.7 percent of gross domestic product last year and are Mexico’s second-biggest source of dollar flows after oil exports.

“My children need more than this, but we don’t have anything,” said Rangel, 36, whose husband hasn’t sent funds home from Florida in nine months.

Shrinking transfers, inflation at a three-year high and a peso that has appreciated 10 percent this year are eroding the purchasing power of Mexico’s poor, the 35 percent of the population that can’t afford basics such as clothing, housing and health care. Residents who depend on funds from abroad are cutting back on spending because of weakness in U.S. industries such as construction, the biggest employer of Mexico’s migrants.

In the first half of this year, remittances fell 2.2 percent to $11.6 billion, the first decline for the period since Mexico’s central bank began tracking the data in 1995. For the entire year, the bank forecasts they will drop as much as 3 percent.

Remittances grew only 1 percent in 2007 to $24 billion after a record 39 percent expansion in 2003.

Danger for Calderon

The dwindling flow of cash this year may shift support from President Felipe Calderon to the opposition Party of the Democratic Revolution, which attracts lower-income voters.

``The worse the economy is, the better'' the PRD will do, said Daniel Lund, president of consulting group Mund Americas in Mexico City. The party's former presidential candidate Andres Manuel Lopez Obrador refused to recognize a razor-thin defeat to Calderon in the 2006 election and set up his own quasi- government that opposes the president's initiatives.

Lopez Obrador, whose campaign pledge was ``the poor come first,'' promised to reduce privileges for the business elite. Calderon is backed by the business community, who endorse his efforts to promote free trade and boost private investment.

An increase in popularity for Lopez Obrador ``is the great danger'' for Calderon, said Gabriel Casillas, an economist at Banco UBS Pactual in Mexico City. ``It's a priority for the presidency to try to prevent him from gaining more support.''

Diversified Exports

So far, the economy is benefiting from diversified exports and Calderon's plan to spend 2.5 trillion pesos ($250.7 billion) in public and private funds on infrastructure projects during his six-year term, creating construction jobs, building ports and expanding roads. The government estimates GDP expanded 3 percent in the second quarter.

``Mexico has had a complex economic situation in recent months,'' Calderon said in a Mexico City news conference today. ``I'm convinced that with the measures we've adopted and will keep adopting, Mexico will have a solid economic recovery next year.''

In May, Calderon announced a program to boost aid to more than 5 million of Mexico's poorest families by 22 percent to 655 pesos a month. His goal is to shrink extreme poverty, defined as families unable to pay for a basket of basic foodstuffs, by 30 percent in the next five years. In 2006, 10.6 percent of the population was in the lowest income group.

Program Benefits

Tarimbaro Mayor Baltazar Gaona Sanchez said Calderon's anti-poverty program benefits only about 6 percent of the townspeople and isn't having a significant effect. Residents work mainly in agriculture, growing corn, tomatoes and onions.

``There's still a lot lacking,'' he said. The economy of the municipality, which is 200 kilometers (124 miles) west of Mexico City, ``has sunk,'' he said. ``There are a lot of people who come to ask for help to eat.''

Maria Sebastiana, 50, who lives about an hour away in the town of Zinapecuaro, said her husband was fired from his construction job in Oregon and hasn't sent money to her since November. Still, her pregnant daughter's boyfriend has left for the U.S. in search of employment to support the couple and their child. ``Here, there's no work,'' Sebastiana said.

In the San Fernando Valley of Los Angeles, Mexicans who once had full-time construction jobs are now looking for day employment on street corners, said Antonio Bernabe, day-laborer organizer at the city's Coalition for Humane Immigrant Rights.

'Noodle Soups'

``They are living in very poor conditions, eating noodle soups at 25 cents each,'' Bernabe said.
Only half of Latin American immigrants in the U.S. said they sent money home in February, down from 73 percent two years ago, according to a survey released in April by the Inter- American Development Bank.

Agustin Garduno, wearing a paint-stained sweatshirt, said he sleeps in cars and on floors at friends' houses because he can't afford rent. As noon approaches and no contractors have pulled up to the corner of Van Nuys Boulevard and Oxnard Street looking to hire, it will be the fifteenth day he has gone without work.

``If you gave me a ticket, I'll go back to Mexico because here, there's nothing,'' said Garduno, 48, who used to make $1,300 a month and now makes about $500.

To contact the reporter on this story: Jens Erik Gould in Tarimbaro, Mexico and Los Angeles at jgould9@bloomberg.net
SOURCE: Bloomberg