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Swimming With Sharks in Mexico

MEXICO CITY – As the saying goes: when the tide goes out, you find out who has been swimming without a bathing suit. Few countries have emerged as naked from the receding waters of the global economic crisis as Mexico. Saddled with an economic contraction of 8% of GDP, higher than any other Latin American country, Mexico is also slipping in the global competitiveness index, lags behind in key social indicators, is being downgraded by investment ratings agencies, and faces the prospect of declining oil revenues, owing to a dramatic drop in production.

According to recent official data, 50.1 million Mexicans – out of a total population of 104 million – live below the poverty line, and 17.5 million do not have enough money to eat. So a country that has managed to produce Carlos Slim, reckoned to be the second wealthiest man in the world, produces millions of others who scrape by on two dollars a day. Mexico has long considered itself the leader of Latin America, but Chile, Colombia, and the rising regional giant, Brazil, are increasingly leaving it behind.

Over the past 20 years, oil functioned as a type of life jacket for Mexico’s economy. It hid economic distortions, allowing successive governments to postpone needed structural reform as it financed the status quo. Mexico was able to float along, buoyed by billions of dollars of oil revenue, without having to swim more quickly or forcefully than its competitors in the sea of emerging markets.

But now that oil production at Pemex, the state owned oil monopoly, is plummeting, the country faces some hard truths that the oil bonanza obscured. The government had become too dependent on a non-renewable resource, and therefore did little to deepen or widen the tax base. Moreover, the manufacturing sector had become too dependent on US-driven export demand, and the population had become too dependent on remittances from emigrants working in the US.