With the global economic crisis still dominating headlines following inconclusive results from Davos, I’d like to focus on two effects on Mexico’s economy.

One indicator is remittances.  Worldwide, remittances bring in several times more money than foriegn aid.  In Mexico, these bring in the second-largest amount of foreign money after oil.  In 2008, remittances slowed 3.6% to $25 billion (BBC World News).

Second is trade.  With reduced US consumption, Mexican exports are declining.  Interestingly, NAFTA’s duty-free access to the US market caused the Big Three Auto makers to move production to Mexico.  Consequently, exports over the last decade have moved up the value-added chain, with automobiles and textiles being the two largest gainers.  Since the American auto industry has been granted a temporary lifeline by the US government, this will keep the auto industry in the border regions above the water.

To be honest, few know the scale of the crisis.  But Mexico’s coupling to the US market will ensure that most movements in the American market will affect the Mexican market.  Fortunately, the country is in a much better position than during the 90’s, but will nevertheless feel the effects of the current downturn.

FPA blogger Rich Basas on the crisis of remittances in Mexico.  Read more here.

Fourteen years after its passage, the North American Free Trade Agreement (NAFTA) is still widely debated, with concerns over issues such as job movement, workers’ rights, and environmental protection. Laura Carlsen, Director of the Americas Policy Program in Mexico City, testified before the U.S. Congress on December 6th that NAFTA has been disastrous for small farmers in Mexico. A detailed report with the findings and analysis she presented to Congress can be found here.

The full text of NAFTA is available here on the website of the Organization of American States (OAS).

An article I authored examining Mexico's “Oportunidades” anti-poverty initiative and its influence on New York City's new “Opportunity NYC” program, is featured on the Foreign Policy Association's website.  Oportunidades is Mexico's conditional cash transfer program that has had considerable success in addressing poverty over the past ten years.  Now, New York City Mayor Michael Bloomberg has introduced “Opportunity NYC,” based on the same model, which he examined first-hand during a visit to Mexico earlier this year.  Click here for the article.

In the first 6 months of the year, Mexican immigrants sent $11.4 billion to their native country, according to estimates by the Central Bank of Mexico.  That is about the same as last year, which is seen as a significant slowdown, since earlier figures grew by 10% each year, reflecting population growth.  Overall, 64% of Mexican immigrants sent money home during the evaluated period, compared to 71% last year.

The Inter-American Development Bank surveyed Mexican immigrants living in the U.S. in order to shed light on the slowing remittances. The poll found the 56% of the 2 million Mexican immigrants in states with newer immigrant populations sent money back to family in Mexico this year, compared to 80% last year. The “new migration” states, including Louisiana, North Carolina, Pennsylvania, and Georgia, have seen a recent surge in laws targeting immigrant groups including English-only laws, increased penalties for those who employ illegal immigrants, and legislation making it more difficult for migrants to obtain driving licenses and other documentation. The report showed a distinction between the “new migration” states, due in theory to these new laws, and the traditional migration states such as California and Texas, where the remittance rates have not fallen.

Remittances, transfers of money from foreign workers to their home countries, constitute the second largest financial inflow to many developing countries, exceeding international aid. Contributing to economic growth and livelihoods worldwide, remittances promote access to financial services for both the sender and recipient. The concept is not new, but rather a normal centuries-old practice as historic as migration itself. In the 19th and 20th centuries, several European countries including Spain, Italy, and Ireland were highly dependent on remittances received from their emigrants, with the practice accounting for 21% of Spain's current account income in 1946. Italy in 1901 became the first country to enact a law protecting remittances.

With a slowing of remittances from Mexican immigrants in the U.S., who account for 95% of all remittances sent to Mexico, the economic impact will become more evident over time. What the findings of the Inter-American Development Bank suggest is that U.S. state laws targeting immigrant populations have important consequences that are felt far beyond their jurisdictional reach. In a globalized and interdependent economy, the impact is in turn felt at home as well.
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See here for an announcement and explanation of the survey results from the Inter-American Development Bank.

Often referred to as “banking for the poor,” microcredit programs provide collateral-free small loans to those too poor to qualify for traditional bank loans.  Originating in developing countries, microcredit has provided a successful model for enabling impoverished individuals to engage in self-employment projects to generate income.  It is part of the larger microfinance movement, and often focuses on lending to women, who have shown to be more reliable in repaying the loans and also more likely to devote their earnings to benefit the entire family.

Two organizations, BanComun de la Frontera and Grameen de la Frontera, focus on microlending in Mexico's northern regions.  The latter is named after the famed Grameen Bank in Bangladesh, which is credited with developing the microcredit model that is now widely replicated worldwide.  BanComun loans, which range from just $50 to $800 per person, have reached over 1,500 residents in the poorest neighborhoods of Nogales.  Approximately 85% of the clients are women, and the program has a 95% repayment rate.  BanComun is expanding to other cities including Juarez and setting up a social investment fund that will allow people to help finance the socioeconomic welfare of its clients. 

Meanwhile, the Dallas-based Chiapas Project has helped more than 4,000 impoverished women in the state of Chiapas, through a partnership with Alternative Solidaria. The loan repayment rate has been 98%, encouraging organization leaders to further expand their reach through the Grameen Foundation. According to the Chiapas Project, with loans as small as $50, women can buy chickens and sheep to raise, plant trees to produce and sell fruit, purchase a corn grinder to make tortillas for the market, or buy cloth to create and sell handicrafts. The hope is that through microfinance, women such as those in Chiapas who typically live on less than $2 a day, are able to earn the income necessary to rise above poverty.

As highlighted recently in the newspapers El Financiero and Milenio.com, new studies show that community forest management in Mexico has reduced poverty and social inequity while conserving natural resources.  Over 2,300 forest communities in Mexico have been given “forest use permission,” resulting not only in effective conservation, but also in economic growth within the communities. 

The following articles (in Spanish) provide details:
Informa BM, manejo comunitario de bosques contribuye a reducir pobreza en Mexico  Milenio.com); Reduce la pobreza el manejo comunitario de los bosques (El Financiero)

New York City Mayor Michael Bloomberg traveled to Toluca, Mexico this week to learn about the Oportunidades anti-poverty program.  Serving approximately 25 million people, Opportunidades is Mexico's conditional cash transfer program and principal anti-poverty initiative. The program awards cash grants to economically disadvantaged families for keeping their children in school and providing them with healthcare.  The focus on breaking the cycle of poverty by taking a long-term approach has gained praise from the World Bank and several countries that have looked to it as a model. Now, New York City is doing the same.

Mayor Bloomberg's Center for Economic Opportunity has introduced Opportunity NYC, a conditional cash transfer program that will be the first of its kind in the U.S. It is based on similar programs throughout the world, including Mexico's. As a pilot program, Opportunity NYC will begin with 2,500 families and could be scaled up from there, depending on the results.

In Mexico, the Oportunidades program is credited with decreasing the percentage of Mexicans living in extreme poverty by 17% since 1996. Strides have also been made in education and healthcare, with measureable improvements in nutrition, preventive healthcare access, prenatal health visits, school-readiness skills, and decreases in drop-out and failure rates among participating children, among other indicators.

According to Mayor Bloomberg, “The bottom line about Mexico's conditional cash transfer program is that it works, and during this trip we want to study the details of what they’re doing right, so our program in New York can also succeed.” (See press release.)

The Mayor's delegation included city representatives along with Dr. Judith Rodin, President of the Rockefeller Foundation, a participant in the Opportunity NYC program. Delegates saw the Oportunidades program in action in Toluca and also visited Mexico City to meet Mayor Marcelo Ebrard and President Felipe Calderon.