Mexico’s Economy Is Being Plundered Dry

Yves here. Most Americans know on some level that Mexico has become an economic and political disaster, save for those at the very top of the food chain. This post gives vignettes that bring home how much of a failed state it has become. And needless to say, the US had no small role in that outcome.

By Don Quijones, Spain & Mexico, editor at Wolf Street. Originally published at Wolf Street

The government of Mexico has a new problem on its hands: what to do with the burgeoning ranks of state governors, current or former, that are facing prosecution for fraud or corruption. It’s a particularly sensitive problem given that most of the suspects belong to the governing political party, the Institutional Revolutionary Party (PRI), which ruled Mexico uninterruptedly from 1929 to 2000. It returned to power in December 2012 with the election of Enrique Peña Nieto. And it clearly hasn’t changed its ways.

Some of the accused governors were so compromised they went on the run. In the last few weeks, two of them, Tomás Yarrington, former state governor of Tamaulipas, and Javier Duarte, former governor of Veracruz, were tracked down. Yarrington, accused of laundering proceeds from drug trafficking as well as helping Mexico’s Gulf Cartel export “large quantities” of cocaine to the United States, was ensnared by Italian Police in the Tuscan city of Florence. He faces possible extradition to the United States.

Yarrington’s successor as governor of Tamaulipas, Eugenio Hernández, a fellow PRI member who is also accused of close ties with narcotraficantes and money laundering, has not been seen in public since last June.

As for Duarte, he was caught this week by police in Guatemala. Like Yarrington, he wasn’t exactly laying low. Among the accusations he faces is that of buying fake chemotherapy drugs, which were then unknowingly administered by state-run hospitals to children suffering from cancer. He and his cohorts purportedly pocketed the difference. He is also alleged to have set up 34 shell companies with the intention of diverting 35 billion pesos (roughly $2 billion) of public funds into his and his friends’ deep pockets.

In just about any jurisdiction on earth, $2 billion is a substantial amount of money, even by today’s inflated standards. But in Mexico, where neither the super rich (accounting for a very large chunk of the country’s wealth) nor the super poor (accounting for roughly half of the population) pay direct taxes of any kind, it’s a veritable fortune.

And when the country’s public debt is already growing at an unprecedented pace, rampant corruption becomes a serious problem.

In the year 2000, Mexico had a perfectly manageable debt load of roughly 20% of GDP. Today, it is almost two and a half times that size. Last year alone the Mexican state issued a grand total of $20.31 billion in new debt, the largest amount since 1995, the year immediately after the Tequila Crisis when the country received an international bailout to rescue its entire banking system from collapse and to make whole the Wall Street investment banks that had gone all in on Mexican assets.

To make matters worse, much of Mexico’s new debt is in foreign-denominated currencies. Between 2015 and 2016 alone, the total amount of euro and dollar-denominated debt it issued rose by 46%. Unlike debt issued in pesos, Mexico’s central bank cannot just print dollars and euros to bail out bond holders or inflate away the debt. This debt must be serviced the hard way.

In recent years, Mexico’s public debt has mushroomed in order to make up for lackluster growth, a weakening peso, much lower global oil prices, and the dwindling contribution to government coffers of the country’s erstwhile sugar daddy, Pemex. The state-owned oil giant has itself been systematically plundered dry by its burgeoning ranks of senior managers and administrators, the untouchable, unsackable leaders of the oil workers’ union, all closely aligned to PRI, and legions of Pemex contractors.

Between 2008 and 2016 Pemex’s contribution to the government’s tax revenues shrank from 40% to 13%. During roughly the same period (2009-2016) its debt grew 187%, to nearly $100 billion. Its pension liabilities amount to $1.2 billion. The losses and debt keep growing in tandem, while its production and reserves are shrinking. The company was already bailed out once last year.

The more Pemex’s financial health declines, the larger the shortfall in public finances and the faster Mexico’s public debt will grow.

The really twisted part? The more the debt grows, the more opportunities the country’s corrupt politicians will get to feather their nests. It’s not like there’s much deterrent. In recent years only 17 of 42 serving or former governors suspected of corruption have been investigated, according to a study by María Amparo Casar, executive president of the advocacy group Mexicans Against Corruption and Impunity. Before the latest rash of detentions, only three of them ended up in prison.

“The decades of impunity have generated a level of shamelessness we’ve never seen before in Mexico,” Max Kaiser, anti-corruption director for the Mexican Institute of Competitiveness (IMCO), told the New York Times. The excesses are more public than ever and have brought Mexicans to the verge of bankruptcy.

Mexico’s debt continues to grow at a much faster pace than its economy, whose growth is forecast to slow this year to 1.5%, compared to last year’s 2.4%. In February Mexico’s top auditor, the Federal Audit Office (ASF), warned that Mexico’s debt situation was just a step away from becoming unsustainable. A number of states are already facing bankruptcy, including Duarte’s Veracruz.

Last August, Standard & Poor’s lowered the outlook for Mexico’s sovereign bonds from stable to negative and saw “an at least one-in-three possibility of a downgrade over the next 24 months.” Mexico’s foreign currency sovereign credit rating, which is what matters with bonds denominated in a foreign currency, at BBB+, is just three notches above junk. A downgrade would raise the cost of borrowing, pushing Mexico’s finances even closer to the brink. In the meantime, the plunder must go on. By Don Quijones.

When it comes to debt, everything is relative, especially if you don’t have a reserve-currency-denominated printing press. Read…  Is Mexico Facing “Liquidity Problems?”

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  1. Loblolly

    And needless to say, the US had no small role in that outcome.

    Can you elaborate on this? What responsibility do average US citizens bear for Mexico’s crisis? Given the massive wealth transfer upwards in the last decade do we not have the same corruption issues in the US, regardless of it being under cover of law?

    1. jpj

      I don’t know if this is what was meant by that comment or not but, at the very least, it is the US’ appetite for drugs that has allowed the cartels to flourish into practically nation states unto themselves.

      1. Arizona Slim


        And, guess what, legalizing drugs that are currently illegal, will put quite the crimp in the cartels’ business model.

        If legalization is too big a leap, the US could try decriminalization. I believe that this was done in Portugal.

        1. palamedes

          The problem with either is that a) The Mexican drug cartels are moving toward producing more lethal, cheaper drugs in massive quantities as the profits from selling marijuana dry up, and b) there needs to be, in the USA, a much more rigorous process regulating (as opposed to banning) controlled substances and of assisting addicts towards recovery. We’ve made periodic moves in this direction, but none have had staying power and that needs to change.

          1. Brian M

            Yet “regulating” does not seem to be very effective, either. c.f. the opioid mess in the U.S..

          2. yamahog

            The most efficacious part of drug legalization (imo) is reducing the profit margins that criminals enjoy.

            Each piece of regulation would increase the legal market costs and create more value for criminals.

            It’s unpleasant for most people to think about, but drugs like heroin and meth need to be fully legal (though probably with some age limit) to defeat the cartels and probably the maximal amount of regulation would be the regulation we apply to non-prescription drugs (e.g aspirin). A lot of the health consequences of the drugs come from impurities and cost of drugs – fewer people would inject heroin if snorting / smoking weren’t so much more expensive. And a lot of the meth problems come from the impurities in street meth as well. People who use prescription methampetamine have much better outcomes.

      2. different clue

        No. It is the laws against those drugs which have created the space for the cartels to flourish int.

        If heroin/ cocaine/ etc. were “portugalized” . . . treated as unfashionable and low class addictions for which the unfortunate victims get treatment and surveillance/maintainance from government supervised pharmacies, the demand would slowly be brought down to portuguese, great brittish , ect. levels.

        If marijuana were all the way totally legalized, like it used to be, because it is such a good multiple-use plant, the marijuana revenue streams to the Mexican cartels would dry up to zero.

        1. Ed

          The system in Portugal is often cited as some kind of ideal but it looks like the number of users is going up as time goes on. These drugs like heroin and cocaine will burn up a lot of people no matter how much counseling or care you give. As much as I don’t like prohibition it is still the most effective way of controlling use of these drugs if not sales and associated criminal enterprises.

          1. different clue

            I am sorry to hear that the rate of heroin use is going back up in Portugal. Is it still anywhere near as high as the use in the US?

            I hear UK also had a managed addict-surveillance-and-maintainance approach to heroin management in the UK. Is their rate of addicts going back up? If so, is it anywhere near as high as the use in the US?

            If the use in Portugal and UK is still way lower per capita then in the US, then prohibition still stands condemned as a conspiracy to guarantee the mass production of millions of users while keeping the price just high enough to keep the cartels in bussiness and making enough money to keep the World Money-Laundry Center Banks drug-money profitable.

      3. TG

        With respect, be careful what you wish for.

        It is not the US ‘appetite’ for drugs that is fueling the violent cartels in Mexico. After all, we don’t see that happening in Canada, do we? No, it’s the brutal crushing poverty that forces Mexicans to find some other way to support themselves.

        If the Americans either stopped using illegal drugs, or decriminalized them, this would be a disaster for Mexico. The illegal drug trade is essentially a subsidy for poor Mexicans. If we cut that off, do we think they will just starve quietly? No, they will turn to kidnapping and piracy. And that will be worse.

        If America does have some blame for Mexican poverty, it’s because they followed the advice of the Wall Street Journal and other neoliberal organizations.
        1. Deliberately created a population explosion to ensure cheap labor
        2. Raised taxes on working people to pay for bank bailouts
        3. Allowed monopolies to strangle the economy and boost prices
        4. Engaged in race-to-the-bottom trade policies instead of building up their internal markets

        1. different clue

          The AmeriCanadian Overclass and its Mulroney-Chretien-Clinton minions bear direct blame for mass-impoverishing Mexico by passing and signing NAFTA and carefully engineering the mass destruction of Rural Mexican Economies.

    2. Massinissa

      Us having no small role in crisis =/= US citizens having role in crisis.

      If you havn’t noticed yet, the government in the US doesn’t answer to the citizenry at all.

    3. Adam Eran

      @Loblolly: The U.S.’s role south of its borders has been predation and looting for centuries now. I’ve read that between 1798 and 1994 the U.S. was responsible for 41 changes of government south of its borders.

      When the Haitians, one of the two poorest nations in the hemisphere, had the temerity to elect Jean Bertrand Aristide, the candidate of the poor, the Clintons sent troops, and Bush 43 kidnapped him and took him to Central Africa.

      The Reagan administration famously sold arms to Iran right after it had kidnapped U.S. embassy staff to fund a proxy war against the other poorest nation in the hemisphere, Nicaragua. Reagan asked the Mexican president to endorse his line that Nicaragua was a threat to the U.S. The Mexican president replied he would be happy to do that if there was any way he could say such a thing without being laughed out of office.

      More recently, then secretary of state Hillary Clinton blessed the Honduran coup, installing a military junta to replace the democratically-elected government–a government which had the temerity to try to raise Honduras’ minimum wage from 60¢ an hour. (The nerve of those people!). Meanwhile, 30,000 unaccompanied minors made their way to Gringolandia to avoid Honduran chaos. (I heard from WaPo’s Ruben Navarette, deploring the treatment of these kids, but he uttered not a peep about what made them choose exile over their homes.)

      For Mexico’s current corruption and sad-and-sorry economy, we can at least take credit for NAFTA. Actually their president, Carlos Salinas Gotari, drank enough of the neoliberal koolaid with his Harvard education to propose “free trade” to Bush 41…whose administration authored the actual legislation. Clinton signed the treaty with environmental and labor provisions that just aren’t enforced.

      To demonstrate what a great idea was NAFTA, almost immediately the U.S. had to come up with a $20 billion loan to deal with the capital flight it permitted–and not incidentally to bail out U.S. banks that bet wrong on Mexico, and to rehearse the U.S. bank bailouts for any later financial scandal.

      One might guess that shipping a bunch of subsidized Iowa corn south of the border would put some subsistence corn farmers in Mexico out of business…and it did. Sure, corn is only arguably the most important food crop in the world, and those little farmers were keeping the diversity of the corn genome alive, but hey! They weren’t making any money for Monsanto!

      In the wake of NAFTA, Mexican real incomes declined 34% (says Ravi Batra in his Greenspan’s Fraud)–really saying something in a country where half the population gets by on less than $4 a day. One has to return to the halcyon days of the Great Depression to find a decline like that in the U.S. economy.

      Of course that U.S. decline provoked no great migration…oh wait! The Okies! The only more recent comparable economic decline (besides the Greeks) that I can think of is when Cuba lost its oil and subsidies from the Soviets in the early ’90s. In the U.S., Michael Pollan reports we get one calorie of food by burning 10 calories of petroleum. Without that Russian oil, I’ve read that the average Cuban lost 20 lbs.

      So…the constant attacks, political, economic and military, from the U.S. have had an effect. All those “illegal aliens” (no, not Martians with unpaid traffic tickets…actually: “undocumented workers”) came north for a reason. Ask one if he’d rather be back home, and you’ll seldom hear them say “no.”

      We read daily in nakedcapitalism how we’re sowing the wind, but we’re surely going to reap the whirlwind for the way the U.S. has treated its southern neighbors.

      1. Winston Smith

        A little anecdotal, but this ‘gels’ with what I’ve heard about NAFTA and the drug cartels from the stable manager where my son took riding lessons.

        My son almost seemed to prefer to ride with Senor Edward on the tractor than actually ride a horse. One evening Edward invited us to his home which is on the stable grounds an old Victorian farm house for BBQ and told us the story of how he ended up in the US.

        He and his brothers owned a ranch that raised horses and livestock feed (grasses, alfalfa, etc) and one evening he was riding around the perimeter of his ranch and witnessed gangsters from the local cartel burying bodies on the outskirts of his property. From then on, he was a marked man and had to leave or end up being buried in some unmarked grave. Luckily two of his sons had internships and were working at the stable where he is now the grounds manager and the owner of the stable offered to sponsor Edward.

        What was interesting was that Edward noticed that the explosion in drug related crime and problems that Mexico was going through was due to NAFTA. He remarked on how many young people from small farms in and around his community had nothing after NAFTA took root and many turned to the drug trade and the gangs to make a living. It was an interesting take and point of view from someone South of the border. Edward is a very wise man. I always use my Edward story to illustrate the impact of NAFTA on our Southern Neighbors, especially with so-called liberals and Democrats

        Edward, not his real name.

    4. lyman alpha blob

      It’s widely known that NAFTA allowed US agriculture companies that are heavily subsidized by the government to dump their cheap corn in Mexico putting farmers there off their land and out of business. And yet people still wonder why so many are immigrating to the US.

      Also, I’d keep an eye on that governor who is facing extradition to the US for facilitating the export of “large quantities” of cocaine. Speculation to be sure, but something tells me you don’t do that without the knowledge and possible assistance of Uncle Sugar.

      I’d say ask Gary Webb, but he’s dead of course after exposing a similar scandal back in the 90s.

      1. Ping

        NAFTA is directly responsible for increased cartel power. Besides corn dumping disrupting Mexico’s rural economy and legitimate income, it generated the “maquiladora’s” or Mexican factories along the US border for assembling tariff free imported materials for export.

        The large population increase the factories attracted had no increase in public infrastructure like schools, housing etc and youth gangs proliferated. The cartels then began using the gangs as enforcers for smuggling routes and distribution into the US and many associated criminal tasks. A cascade of events…..

        1. PS

          >NAFTA is directly responsible for increased cartel power.

          Precisely. This is why Panama was invaded and Manuel Noriega was captured. Noriega was a paid CIA puppet and smuggling partner of ex-CIA director “poppy” Bush. But then he went rogue and tried to organize opposition to NAFTA in latin america. King Bush used U.S. troops in Panama as his own private mercenaries to protect an invisible racket. Then his son did the same in Iraq & Afghanistan (for oil & heroin.) Noriega knows too much about the deep state and this is why prison interviews were not allowed. In January 2017 he was released from prison and placed under house arrest to prepare for surgery that would remove a benign tumor. During the surgery in March he suffered a brain hemorrhage which conveniently left him in critical condition, unable to disclose what he knows.


          This documentary details the case that the 1989 invasion of Panama by the US was motivated not by the need to protect American soldiers, restore democracy or even capture Noriega. It was to force Panama to submit to the U.S. secret government after Noriega had exhausted his usefulness.

      1. Allegorio

        We have so much to thank the Bush family for! When will any of them be brought to justice, Judgement Day, I guess.

    5. guest

      >What responsibility do average US citizens bear for Mexico’s crisis?

      1. Herb prohibition in the U.S. finances corruption in Mexico, enriching the most corrupt politicians

      2. U.S. voters routinely elect career politicians who fund the CIA, NSA, etc (corrupt agencies with secret budgets). The U.S. deep state allies with gangsters and cartels around the world – that’s why you need 1,000 foreign bases to smuggle the guns & drugs. Read the “Economic Hit Man” series and this:

  2. Jim Haygood

    Between 2008 and 2016 Pemex’s contribution to the government’s tax revenues shrank from 40% to 13%.

    A radio journalist friend in Guadalajara has been expecting and writing about this scenario for at least a dozen years. Mexico is a petro-state, but production is declining in its big oilfields and isn’t being replaced. He visited South America to check out alternate bolt holes, on the theory that when the oil runs out, it’s gonna turn ugly in Mexico.

    So far his worries proved to be early. We don’t have enough data points, but it’s worth noting that Mexico’s 1982 debt crisis occurred after a spike in US interest rates, a US recession and an oil patch meltdown in 1981.

    Similarly, the US Fed started hiking interest rates in early 1994, while the price of oil had been sliding toward $15/bbl ever since the late 1990 spike to $40/bbl in anticipation of the Gulf war. Here’s a long term chart of crude oil:

    Now J-Yel and her sidekick Stanley Mellon Fischer are once again “normalizing” interest rates, in a process they imagine to be smooth sailing. One should doubt this proposition. Among other things, recent extreme peso devaluation makes Mexico’s dollar-denominated debt more onerous to service.

    By next year, the question on everyone’s lips in Vichy DC may be “Who lost Mexico?

    1. carl

      IIRC, Cantarell, the supergiant Mexican offshore field, peaked quite awhile ago. Maybe some new discoveries have made up for some of the decline, but I hadn’t heard much about that.

    2. /L

      The 3:e world debt crisis in the early 80s was invoked by Carters “economic hit man” Paul Volcker. After a period of international negative interest rates and booming raw material prices, Volker invoked shock therapy with extortionate interests. Before it was in practice misconduct not to borrow. Far from all poor countries was it steeled or mismanaged, many did try to use the opportunity to develop.
      But then suddenly interest did go through the roof. The then central bank chief in Mexico described it, before he had his waiting room full of bankers that wanted to lend to him, the next day his waiting room was empty. Who want to lend to Mexico when US paid top dollars?
      Large parts of the 3:e world and the second, like Yugoslavia, Romania etc was on its knees with debt and interest they couldn’t pay and collapsing raw material prices and a strong dollar that made import expensive.
      Defeated and under the boot of global bankers and institutions without a bullet fired.

      1. Yves Smith Post author

        There is a lot you can criticize Volcker for, but he had no interest in creating a Latin American debt crisis, since it hit US banks, particularly Citbank, very hard. It was a side effect of Volcker’s main aim, which was breaking labor’s historical practice of negotiating cost of living increases, which white collar workers would also receive (albeit on an informal and often lagged basis). Volcker carried an index card with construction wages in his pocket as his key metric of whether his money supply experiment was working (it was widely considered not to have: both in the US and UK, efforts to manage money supply lead to results that did not correlate with any important macroeconomic variable).

        In fact, Volcker wanted to keep interest rates high longer, but the screams from the US banks over the Latin American debt crisis made him relent.

  3. Kalen

    If US establishment would go after murderous Mexican oligarchy’s Wall Street interests and support democratic movements in Mexico based of egalitarian principles, return of land to the people and establish social justice, we would have to build a wall to keep Mexicans in the US not the other way around.

    It would also stop phony war on drugs in Mexico, a war that is nothing but a modern form, a sad reincarnation of popular insurrection against Mexican aristocracy happens to be at this time funded by drug trade, as a proud Mexican tradition of noble outlaws, a country founded on “Bandits” myth as national heroes bringers of independence from Spain.

    If the US removed big Imperial foot of the throats of billions of peoples all over the world, and that includes Mexico nobody would want to go to America enjoying living in their own countries as everybody wants.

    World immigration is an artifact of exploitative globalism and wars. Nothing natural or normal or desired is in emigration of people. Tourism yes but emigration is a sociopolitical tools of global oligarchy combined with chaos and violence.

    If US let, as it were before in history (revolution of 1910-1930-ties, before PRI was corrupted to the bone) for political left to takeover the Mexican government then fate of Mexican people would have changed significantly for better.

    1. djrichard

      It would also stop phony war on drugs in Mexico

      This is an extension of the phone war on drugs in the US. See A Narco History: How the United States and Mexico Jointly Created the “Mexican Drug War”.

      My belief is that the US war on drugs is just another example of what I’m calling CJ Hopkin’s law of propaganda,

      The primary aim of official propaganda is to generate an “official narrative” that can be mindlessly repeated by the ruling classes and those who support and identify with them. This official narrative does not have to make sense, or to stand up to any sort of serious scrutiny. Its factualness is not the point. The point is to draw a Maginot line, a defensive ideological boundary, between “the truth” as defined by the ruling classes and any other “truth” that contradicts their narrative.

      Or to use your language, it’s to keep in place the foot of US authority on its own people. The damage to Mexico in the war on drugs is collateral damage – a necessary cost of keeping people in the US disciplined. Nothing personal … just bidness.

    2. Sluggeaux

      Kalen is clearly a student of Mexican and world history. Just a wonderful summation of the situation and why the international oligarchy will never allow it to change. Donald Trump’s racist ranting about building a wall was just bluster to gin-up votes from those impoverished by the exploitation of Mexicans — by Trump himself, and his class cronies.

      Neoliberal “disruption” is designed to force people to give up family connections, their culture, their community, their language, and even their cuisine in order to turn them into desperate wage slaves. The drug trade is also a product of neoliberal “disruption” of peoples’ lives and communities — targeting entire social classes for oppression and misery in the name of yet another form of “free trade.”

    3. different clue

      Even after such a Mexican Left took power, it would have to repudiate NAFTA and re-protectionize the Mexican economy to lay any basis for reversing 30 years of NAFTAfication. The beneficiaries of NAFTA would fight hard to prevent that.

      Perhaps the arisal of a Mexican Left and a Social Populist movement in this country at the same time could lead to national governments in both places which would co-abrogate NAFTA together and co-weather the shock to the OverClass who would lose big money from such a co-abrogation. The OverClasses involved would try their hardest to destroy everyone else’s anything-of-value out of terminal spite at having their plans and control reversed. Perhaps those OverClasses would have to actually be literally rounded up and literally killed en mass to prevent them from keeping NAFTA in place at all costs.

  4. Ranger Rick

    This article focuses on the oil, but where does Carlos Slim figure into this? I find it endlessly fascinating that one of the world’s richest people hails from one of its poorest countries.

    1. RabidGandhi

      Point taken, but it should be noted that in terms of per capita GDP (PPP), Mexico is 68th out of 186 in the world, meaning it is not really one of the world’s poorest countries. That said, there is rampant poverty in Mexico that makes Slim’s hoarding all the more despicable.

      1. Seamus Padraig

        Per capita GDP is just an average. Median income is what you should be considering here. There are a handful of Carlos Slims down there that bust the curve for everyone else. Oh, by the way, did I mention that Señor Slim now owns the New York Times?

  5. RabidGandhi

    Far be it from me to defend the Peña Nieto administration, but I’m not sure from where Quijones gets this:

    To make matters worse, much of Mexico’s new debt is in foreign-denominated currencies. Between 2015 and 2016 alone, the total amount of euro and dollar-denominated debt it issued rose by 46%.

    The figures I have from the Bank of México show the country ended 2015 with a gross external debt of USD $417bn, while it ended 2016 at USD $412 bn: ie not a 46% increase but rather the first decrease in Mexico’s external debt since 2009.

    What I do see is that the total external debt (in dollars) decreased but the peso lost 18% to the USD in 2016. Since GDP only grew 7% last year, Mexico’s external debt as a percentage of GDP (denominated in pesos) would have grown by around 40%. But this goes against Quijones’ correct point that “[u]nlike debt issued in pesos, Mexico’s central bank cannot just print dollars and euros to bail out bond holders or inflate away the debt.“. Therefore shouldn’t the question be the absolute external debt in dollars instead of the relative amount in pesos?

    1. Mel

      I would guess that we want to answer the question “How much Mexican production would have to be diverted to pay off that debt?” So we either work out the value of Mexican GDP in dollars, or convert the value of the debt to pesos.

    2. djrichard

      Therefore shouldn’t the question be the absolute external debt in dollars instead of the relative amount in pesos?

      Simpler to keep the currency conversions out, and just track changes on a per currency basis.

      A perennial question I always ask when it comes to trade imbalances by the US is that we send our dollars to foreign countries for goods, and it only a subset of the US dollars come back to the US for goods … what’s happening to the rest of our US dollars? In the case of Mexico, an answer in theory could be that at least some of those US dollars are being used to pay US debt. But that would mean the Fed Gov of Mexico would have to implement a tax that is denominated in US dollars. Which would then fall on their exporters, as they’re the ones hoovering up the US dollars. And they don’t want that.

      So instead they tax the losers. And they only have pesos. So the conversion rate is an issue.

      What’s interesting in all this is that while Mexico’s Fed Gov is taking on debt in US dollars, their central bank owns US treasuries (that’s how they manipulate their currency). But it begs the question, is there a way that Mexico’s central bank and Mexico’s Fed Gov could come to a deal to use the US treasuries that the central bank is holding to cancel out the US debt obligation by Mexico’s Fed Gov? I’m guessing no – it’s the principle of the matter, lol.

      To make matters worse, much of Mexico’s new debt is in foreign-denominated currencies.

      Why do countries do this to themselves? Seems to be the very definition of insanity.

      1. RabidGandhi

        “Why do countries do this to themselves?” They don’t. They have an elite that does this to the country because it benefits them as a class, with most people in the country excluded from the decision-making process.

      2. cnchal

        > . . . is that we send our dollars to foreign countries for goods, and it only a subset of the US dollars come back to the US for goods … what’s happening to the rest of our US dollars?

        They get sold to buy local currency or to pay for something priced in USD dollars outside the US.

  6. Susan the other

    I don’t get what good it can possibly do to build a wall to keep those bad hombres out when the bad hombres are all the politicians in Mexico. This is not a cautionary tale, it’s too late for that. We need entirely new thinking here. Look how complex Brexit is – which lets us know how detailed the union tried to be in order to protect its interests. Which is looking pretty futile. Victor Orban was the only leader in the EU to put up a wall to keep refugees/immigrants out and instead of sanctioning Hungary, Mutti has confessed her immigration policy was a mistake. Why on earth didn’t she say the ME war was a mistake? It’s practically genocide. Three years ago when Syrians started leaving in a panic they knew it was going to be annihilation. How did they know they were sitting on such unlucky ground? If free trade treaties had a way of maintaining decent wages and living standards as the prerequisite to that trade we could begin to set things right. And that is what we should be doing instead of going to war to kickstart the free market economy. Trump is acting like that wall is actually infrastructure. And I wonder if people are amused by the double meaning of “the war on poverty.” Everything is such a mess we can’t keep pretending that the basics we follow are right. It seems like one long and insane emergency. I’m so burned out with political failure.

    1. Seamus Padraig

      If free trade maintained “decent wages and living standards,” the neo-liberal establishment would be against them.

    2. Allegorio

      @Susan the other: Practically genocide? It is genocide plain and simple, both in Syria & Mexico. We are talking about ethnic privilege after all.

  7. curlydan

    “[Pemex’s] pension liabilities amount to $1.2 billion”…this figure seemed a bit low in today’s world of inflated pension return expectations–wondering about the source here. I saw the following study said Pemex’s liabilities were closer to $90 billion although it is Wharton.

    “Pemex’s $90 billion in unfunded pension liabilities has been a major headache”

    1. Don Quijones

      Curly Dan,

      That is a terrible typo on my part and I hang my head in shame — it should read 1.8 trillion pesos (roughly $90 billion at today’s exchange rate), though there’s some controversy around the number since some of the liabilities were supposed to have been transferred to the government’s books last year. I don’t how how the $1.2 billion crept in but I apologize with complete sincerity to all readers (and Yves) for the cock up.


  8. Don Quijones

    Hi Rabid Gandhi,

    That data point you mention was taken from an article (second paragraph down) published in EL Financiero, the third most read newspaper in Mexico and an affiliate of Bloomberg. Will look into the disparity.

    As for Mexico’s GDP, it grew by 2.3% last year, not 7%. The country hasn’t experienced such buoyant growth for decades — and certainly not since joining NAFTA.


    1. RabidGandhi

      Thanks DQ: sorry I wasn’t clear about the 7% figure; the Bank of Mexico data I cited refer to nominal GDP growth in pesos. Since the peso devalued 18% to the dollar in 2016, real GDP in dollars shrank from USD 1.3 trillion to 1.15 trillion. Might this account for why EF calculated a 46% increase in external debt– because they are stating how many dollars Mexico borrowed but calculated in pesos? If so, this figure is misleading and detracts from your argument: those obligations are in foreign currencies, so their value in pesos is beside the point.

      As I see it, the external debt is not (yet) a major issue in Mexico; more of a concern are the bonds issued by the states and semi-public companies that cannot print their own currencies and will leave the public on the hook. (Not to mention PRI whacking the public with spending cuts and utility/gas hikes, which are another story…)

      1. Don Quijones

        Thanks for clarifying, RG. And you’re probably right: external debt is not the biggest issue here. More important are the out of control public spending at the regional level, the systemic corruption at both the state and federal level, which Peña Nieto’s government has done nothing to address, and Pemex’s worsening woes, and the risk they pose to Mexico’s fiscal health.

        If the peso once again begins to fall in value, the exposure of Mexico’s corporate sector to foreign denominated debt is likely to be a much more immediate threat than the government’s.

  9. River

    Mexico has always been like this. Even prior to American meddling. Transferring all their mineral wealth i.e. silver to China for cheap, yet profitable, ceramics, and turning the Yucatan from growing food into the plants that were used to weave bags for storage containers in the 18th C., peonage and companies stores, on and on it goes.

    What’s happening now is just a continuation of the plundering that’s been happening since the 16th C.

  10. Jeff N

    this sounds like the standard bezzle:
    run up debts
    buy things
    pocket the things
    burn down the store
    collect insurance $ on everything that was “inside” the store (even though it had actually been looted long ago)

  11. Sutter Cane

    As for Duarte, he was caught this week by police in Guatemala. Like Yarrington, he wasn’t exactly laying low. Among the accusations he faces is that of buying fake chemotherapy drugs, which were then unknowingly administered by state-run hospitals to children suffering from cancer. He and his cohorts purportedly pocketed the difference.

    Shades of Harry Lime, no? The drug war has done to Mexico what it took WWII to do to Vienna.

  12. Phemfrog

    Anecdote here, but an uncle on my husband’s side who lives in Mexico City had mentioned big problems with his pension. (he works in media, and the family refers to it as a government pension). he said that pensions are being looted and they are paying out pennies on the dollar. so he withdrew what he could in lump sum and bought a small apartment near a beach somewhere. the only way to keep any of the value. they say what used to be hundreds of dollars a month to retire on is now less than $50 per month, and that no one can live off that little.

  13. McWatt

    Harry Lime: Nobody thinks in terms of human beings. Governments don’t. Why should we? They talk about the people and the proletariat, I talk about the suckers and the mugs – it’s the same thing. They have their five-year plans, so have I.
    Martins: You used to believe in God.
    Harry Lime: Oh, I still do believe in God, old man. I believe in God and Mercy and all that. But the dead are happier dead. They don’t miss much here, poor devils.
    Martins: Have you ever seen any of your victims?
    Harry Lime: You know, I never feel comfortable on these sort of things. Victims? Don’t be melodramatic. Look down there. Tell me. Would you really feel any pity if one of those dots stopped moving forever? If I offered you twenty thousand pounds for every dot that stopped, would you really, old man, tell me to keep my money, or would you calculate how many dots you could afford to spare? Free of income tax, old man. Free of income tax – the only way you can save money nowadays.

  14. ¿Hola?

    A lot of engagment around Mexico at Naked Capitalism. Does that mean we have a lot of readers in Mexico? Time for a NC meet-up?

  15. sierra7

    As Goldman Sachs has been infamously labeled the, “Giant Squid” with it’s tentacles around the necks of so many here the US is the “Giant Squid” that has been squeezing the people south of the border to achieve it’s own ends. Between the US corporate aim of crushing organized labor in America, it boosted that result by the maquilladoras; NAFTA that literally destroyed the campesino culture in Mexico driving millions of subsistence farmers into Mexico City in a dead end seeking a living; the traffic of drugs which looms in the background of how the Deep State (the 17+ intelligence agencies in the basement of the Pentagon) funds it’s infamous escapades (another commenter mentioned Gary Webb; it is instructive to read his writings on the CIA and the drug trade; also “The Politics of Heroin” book which still stands as the definitive description of how those “black jobs” are funded without any scrutiny or Congressional oversight).
    I feel very sorry for any of the countries south of the border; America has squeezed them dry thru corporate crimes that have been well documented even by our own government (see: “The CIA in Guatemala”) but who reads any of that stuff????
    The US must some day face a reckoning of it’s criminal activities beyond the Mexican border and the Caribbean; it will not take too long.
    None of this will end well.

  16. Smitty

    I bet the % of foreign or immigrant ownership of Mexico has gone up by a larger amount than their debt

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