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Cablegate: : Mexicans Differ On the Effects of Financial

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RHMFIUU/DEPT OF HOMELAND SECURITY WASHINGTON DC
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174485
2008-10-20 22:04:00
08MEXICO3108
Embassy Mexico
UNCLASSIFIED

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ZNR UUUUU ZZH
R 202204Z OCT 08
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC 3633
RUEHC/DEPT OF LABOR WASHINGTON DC
INFO RUCNCAN/ALL CANADIAN POSTS COLLECTIVE
RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE
RHMFIUU/CDR USSOUTHCOM MIAMI FL
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHMFIUU/DEPT OF HOMELAND SECURITY WASHINGTON DC
RHEHAAA/NSC WASHINGTON DC
TAGS: ELAB ECON SMIG SOCI PINR PGOV MX
UNCLAS SECTION 01 OF 03 MEXICO 003108

SIPDIS

DEPT FOR DRL/AWH AND ILSCR, WHA/MEX, USDOL FOR ILAB

E.O. 12958: N/A
TAGS: ELAB ECON SMIG SOCI PINR PGOV MX
SUBJECT: : MEXICANS DIFFER ON THE EFFECTS OF FINANCIAL
CRISIS ON EMPLOYMENT, REMITTANCES AND MIGRATION
1. Summary: Mexican opinion makers, academics, legislators
and government officials are expressing vastly different
views with regard to the effect on Mexico of the ongoing US
financial crisis. Beyond the purely financial crisis, the
areas of primary concern for Mexicans in this broader
economic crisis are unemployment, the decline in remittances
and possible reverse migration. Almost everyone expressed
concern over the significant drop in remittances from migrant
workers in the United States. Many opinion leaders and
academics are concerned that this drop will increase poverty
levels in Mexico. They are also concerned about the negative
impact on employment if the downturn in the US economy
prompts large-scale reverse migration back to Mexico. One of
the main spokespeople for the GOM on employment, Secretary of
Labor Javier Lozano, has suggested that only a limited number
of migrants would return home. He has assured the Mexican
Congress and the public that these returnees could easily be
accommodated within currently projected rates of job growth.
The position of most legislators on the potential return of
migrant workers seems largely determined by political party
affiliation, with the legislators in the ruling National
Action Party (PAN) more or less supporting Lozano,s
position. Opposition legislators (and even Mexico,s Central
Bank) are much less inclined to agree with Secretary
Lozano,s somewhat optimistic position, at least with regard
the country,s job growth projections. End Summary.


&A COLD CAN LEAD TO PNUEMONIA8
------------------------------

2. One of the most frequently repeated Mexican sayings
regarding the complexity of US-Mexico economic relations
states that when the United States catches a cold, Mexico
gets pneumonia. The truth of this saying is currently being
discussed in many sectors of Mexican society as a broad range
of opinion makers, labor organizations, academics,
legislators and government official speculate about the
affects on Mexico of the ongoing US financial crisis. The
main topics of concern are the drop in the level of
remittances arriving from the U.S., the possibility of
large-scale reverse migration and resulting unemployment.

3. Although there is a broad range of opinions on many
aspects of how the US financial situation will ultimately
affect Mexico, there is unanimous agreement on the fact that
there has been a significant drop in the level of remittances
arriving from Mexican migrant workers in the United States.
The Bank of Mexico has cited a 12.2 percent drop during
January-August 2008 compared with the same period in 2007.
As is often the case, the figure cited on the drop in
remittances varies significantly depending on the political
orientation of the speaker. The leader of the National
Agricultural Workers Confederation (CNC), an affiliate of the
PRI (Institutional Revolutionary Party), Mexico,s former
ruling party, claims that some regions of the country have
seen remittances drop by as much as 30 percent.

INCREASE IN POVERTY RATES
--------------------------
4. The decrease in remittances has promoted calls for action
in the form of increased government spending on social
programs from legislators from all of Mexico,s major
political parties. The main concern of many of those
engaging in this debate is that decreased remittances will
soon prompt a sharp rise in poverty rates. In testimony
before the Mexican Senate the GOM,s Secretary of Social
Development, Ernesto Cordero,acknowledged that the fall in
the level remittances could prompt an increase in the number
of families living below the poverty level. According to
INEGI, the GOM,s National Statistics Institute, 82 percent
of Mexico,s population has an income somewhere between one
and five time the daily minimum wage. (Note: The daily
minimum wage is about 52.59 pesos or roughly USD 4.38).
INEGI calculates that the income of an average Mexican family
is about 3.5 times the daily minimum wage; which is
considered just high enough to keep them above the poverty
level.

5. Mexican President Felipe Calderon has announced a
five-point emergency spending plan in an attempt to protect
Mexico from the challenging globabl economic environment.

MEXICO 00003108 002 OF 003


The proposal calls for an additional 53 billion pesos to be
spent over the next year on infrastrucuture, education, and
energy, including the construction of a refinery that would
in part be funded by one of the country,s oil stabilization
funds.


6. To date, the drop in remittances has had a major impact
on a number of Mexican states, according to Raul Delgado a
professor of development studies at the Autonomous University
of Zacatecas. Delgado noted that with severe negative
implications on poverty levels, on 17 of Mexico,s 31 states:
Hidalgo, Jalisco, Mexico City, Chiapas, Aguascalientes,
Mexico State, Veracruz, Guanajuato, Queretaro, Michoacan,
Colima, Sinaloa, Tabasco, Oaxaca, Campeche, Sonora and
Yucatan. Continuing on, Delgado stated that the drop in
worker remittances for the first half of 2008 when compared
to the same period in 2007 in millions of dollars for the
seven worst hit states is as follows:

2007 2008

Hidalgo 472.3 418.3
Jalisco 981.3 927.5
Mexico City 684.8 646.2
Mexico State 983.5 958.1
Aguascalientes 178.7 143.9
Chiapas 382.0 347.2
Veracruz 720.4 699.2


REVERSE MIGRATION?
------------------

7. Participants in this national debate more or less agree
that Mexico should be prepared for the possibility that the
economic downturn in the United States could prompt
large-scale reverse migration. Several academics quoted in
the national press noted that a large percentage of Mexicans
migrants are employed in the US construction industry. Given
the current difficulties in the US job market in general and
the housing industry in particular, these academics believe
that some degree of reverse migration is inevitable. The
questions these academics pose is how large will this reverse
migration eventually be and what will Mexico do with these
returning migrants?

8. The most conservative estimate of the number of migrants
who might return to Mexico was put forth by GOM Labor
Secretary Labor Javier Lozano who believes only some 200,000
migrants will return home from the US. The CNC calculates
that some 350,000 migrants will come back to Mexico looking
for work. Thus far the only governor to speak out openly on
this matter is Amalia Garcia of Zacatecas. Governor Garcia
explained that Zacatecas is especially concerned about the
possibility of large scale reverse migration since her
administration estimates that fully fifty percent of the
state,s population has migrated to the US over the last
decades.

9. Taken in context, neither the figure cited by Labor
Secretary Lozano nor the one offered by the CNC are
particularly large given that the GOM,s National Migration
Institute calculates that 10 percent of Mexico,s estimated
population of 106 million people now lives in the United
States. In a worse case scenario, if the financial situation
in the US were to generate large-scale reverse migration, in
all probability, Mexico,s governmental and social
institutions would quickly be overwhelmed. However, the
possibility of significant numbers of Mexican migrants
returning home from the US is extremely remote. These
migrants left Mexico because there was nothing to hold them
in their own country and most are fully aware that they have
nothing to come back to especially since, over time, many
have succeeded in arranging for their families to join them
in the United States.


EMPLOYMENT AND OTHER CONUNDRUMS
-------------------------------


MEXICO 00003108 003 OF 003


10. Although there appears to be little real chance of any
large-scale reverse migration there will undoubtedly be some
migrants who will choose to return to Mexico as a result of
the financial situation in the United States. It is
impossible tell how many migrants will decide to come back to
Mexico. That being the case Labor Secretary Lozanzo,s
guesstimate of 200,000 is as good a number as any. Sticking
firmly to his estimate Lozano has publicly stated several
times that Mexico can easily provide employment for the
relatively small number of migrants that are likely to return
from the US. According to Lozano, there are currently many
more jobs than that available on offer at the job bank run by
the Secretariat of Labor. Moreover, Lozano said, if one
counts the number of jobs generated on the informal economy,
the number of jobs created since the start of the Calderon
administration is well over one million.

11. This statement by Lozano may be factually true with
regard to the number of jobs on offer at his Secretariat but
it is not particularly relevant to the real employment
scenario en Mexico. At given time there are always a large
number of jobs on offer throughout many parts of Mexico.
The problem is that the potential job seeks are unqualified
for many of the higher skilled jobs and the salaries being
offered for unskilled jobs are only a fraction of what a
worker could earn doing a similar job in the United States.
Not only that, but the salaries offered in Mexico for
unskilled labor are often so low that most workers do not
consider them a living wage.

11. Labor Secretary Lozano,s statement about the existence
of ready employment in Mexico for any migrants who may decide
to return home (if one includes the informal economy) has
been tepidly supported by PAN legislators in the Mexican
Congress. Opposition legislators have dismissed Lozano,s
claims. The dismissal by opposition legislators has only
been reported pro-forma in the national press. Instead the
real focus with respect to the Labor Secretary,s statement
has been on comments made by officials of the Bank of Mexico,
the country,s central bank.

12. According to these officials job growth on Mexico,s
(formal) economy for his year is only projected to be about
372,000. If this figure holds true, the Bank of Mexico
officials averred, it would be hard to credit the Calderon
administration,s job creation figures. In support of this
statement the officials pointed to the fact that when Mexico
experienced a similar financial crisis in 1994 the country
lost over 400,000 jobs.


COMMENT
-------

13. At this point no one in the media, labor organizations,
or government has presented any compelling evidence of what
impact the US financial crisis will have on Mexico. It is
very unlikely that there will be any significant (voluntary)
reverse migration. The drop in remittances from migrant
workers in the United States is probably the most immediate
problem Mexico will have to deal with and it appears that
President Calderon,s administration has begun to take some
steps to address this matter.


Visit Mexico City's Classified Web Site at
http://www.state.sgov.gov/p/wha/mexicocity and the North American
Partnership Blog at http://www.intelink.gov/communities/state/nap /
GARZA

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