Gasolinazo 2017: Mexican Gas Crisis

In his 2014 new year’s address to the nation, Mexican President Enrique Peña Nieto announced that his administration would enact various measures to revitalize the sluggish Mexican economy, including plans to reduce the price of electric energy and put an end to the dreaded gasolinazo, the monthly increases of gasoline prices. They would accomplish this tremendous feat by privatizing parts of the state-owned oil company, Pemex, and allowing the free market to determine the price of petroleum rather than having the government set it as they have for the past seven decades.

Despite the President’s promises, the gasolinazo continued this year. Gasoline prices increased as much as 20 percent overnight on January 1st. The price of the highly used magna-brand gasoline rose to 88 cents per liter while the price of diesel rose to 83 cents per liter. Data compiled by Bloomberg indicates that Mexicans pay more for their gasoline than the citizens of 59 other countries as a result of the hike. Filling a tank of gasoline in Mexico now requires the equivalent of twelve days of minimum-wage labor, as opposed to seven hours in the United States. Prices will no longer be set yearly nor monthly, but biweekly until February 18–after which they will be set daily until the international markets take over and determine the price in March.

Protesters blocking a gas station Calzada de Tlalpan in Mexico City. (AP/Rebecca Blackwell)
Protesters blocking a gas station Calzada de Tlalpan in Mexico City. (AP/Rebecca Blackwell)

The hike in gasoline prices has been received extremely negatively by the people of Mexico, who have taken to the streets to protest in 28 of the country’s 32 states for the seventh straight day. Demonstrations have spread to major metropolitan areas such as Guadalajara, Mexico City, Monterrey, and Veracruz, where they turned violent and have led to two deaths so far.

Gas stations and supermarkets have been looted and vandalized, major roads have been blocked, people are hoarding gasoline, and protesters have stormed government buildings demanding the resignation of President Peña Nieto and any state governors that support the price hike. Authorities have arrested over a thousand people throughout the country for vandalizing and looting, but they have largely failed at reigning in the chaos.

A video depicting the chaos unfolding in one of Mexico’s appliance stores.

Images from protests in Mexico City.

The price hike has placed an increased burden on Mexican gas stations, which were already struggling to provide sufficient gasoline to meet customer’s insatiable demand following a recent surge of oil thefts carried out by drug cartels like Los Zetas, who resell the product on the black market. The gasolinazo has also increased the price of many consumer goods and staple foods, a problem compounded by low worker wages, a tumbling currency, and rising inflation. Some anticipate that these issues will worsen under President-elect Donald Trump’s administration and fear that his policies could potentially cripple Mexico’s symbiotic trade relationship with the United States.

Although Mexico is an oil-producing country, Mexican refineries often lack the capacity or ability to supply the domestic market. The 2016 utilization rate of Pemex’s six oil refineries was only 56 percent, compared to Brazil’s 81 percent, Colombia’s 79 percent, and the United States’ 87 percent. The company has high hopes for the future, however, as a press release published in November of 2016 forecasts they will reach 98 percent utilization rate “over the next three years”.

As a result, the country must export crude oil and import refined petroleum products for consumer use from US refineries. Record-low production recently made Mexico a net importer of US oil for the first time in its history.

Graffiti saying "oil-producing country and the people without money". (Source)
Graffiti saying “oil-producing country and the people without money”. (Source)

While Peña Nieto has acknowledged the gasolinazo as a “difficult change” for the country, he told his constituents that “I share that irritation that accompanies precisely the application of this measure. Let me say that, without doubt, this measure [is] an action that nobody would have wanted to take”. He went on to explain that “Keeping gas prices artificially low would mean taking money away from the poorest Mexicans, and giving it to those who have the most.”

Peña Nieto’s four years in office have been marred with controversies and scandals over his administration’s ineptness at handling social and economic issues within the country, particularly his response to the kidnapping and murder of 43 student teachers in 2014. His approval rating is currently a pitiful 23 percent–the lowest of any modern Mexican president.

Peña Nieto’s socioeconomic policies of fall in line with those of his political party, the PRI (Partido Revolucionario Institucional). Their history of policies favoring privatization and adoption of neoliberal free market principles during the past quarter century have “destroyed the country’s industrial and agricultural productive structure as well as its public social institutions,” according to a paper published by the widely respected leader of Latin American social medicine, Asa Cristina Laurell.

Demonstrators surround an overturned car outside of the Governor's Palace in Monterrey, Nuevo Leon Thursday night. (Julio Cesar Aguilar/AFP/Getty Images)
Demonstrators surround an overturned car outside of the Governor’s Palace in Monterrey, Nuevo Leon Thursday night. (Julio Cesar Aguilar/AFP/Getty Images)

This wasn’t always the case, however. Following the conclusion of World War II up until the mid 1970’s, the Mexican economy saw a period of impressive sustained economic growth dubbed “the Mexican Miracle”. During this time, the Mexican government implemented import substitution industrialization trade and economic policies which reduced the country’s foreign dependency while bolstering its own industrialization and economy through a combination of subsidies, nationalization of industry, taxes, and high tariffs.

Land was distributed from the hands of few wealthy elite to peasants through the system of ejidos, in which plots of land were publicly owned but individually farmed. The government embarked on huge public infrastructure campaigns and invested heavily in Mexican industry. Oil and steel production, electrical energy, the railroad industries were nationalized and Mexico took advantage of low-interest rates to greatly develop the state oil company Pemex. The Mexican government also implemented protectionist economic policies which allowed the country to achieve “price stability and fast economic growth” by encouraging local industries with subsidies and placing high tariffs on foreign goods.

This changed once the price of oil tanked in the early 1980’s as a result of the Iranian Revolution. Exchange and interest rates climbed worldwide and Mexico’s reserves were quickly depleted. The country could no longer afford to continue subsidizing its key industries. Though the peso was devalued to counter this, Mexico still ran out of money and defaulted on its foreign debts in 1982.

Mexican international reserves during the crisis.
Mexican international reserves during the crisis.

Policies enacted by the IMF (International Monetary Fund) following the crisis forced Mexico to adhere to structural economic reform policies in exchange for multi-billion dollar loans to stabilize its economy. Within two years of implementing these policies, inflation rose to 100%, the economy shrunk by nearly 5 percent, and real GDP per capita growth dropped by half from 6 percent to 3. Within five years, real GDP per capita growth dropped 11 percent, real wages fell 30 percent, trade declined 42 percent, public spending tanked 60 percent, and foreign debt rose to account for a staggering 78% of the country’s GDP.

The implementation of neoliberal policies continued under the rule of the PRI’s Carlos Salinas de Gortari, Mexico’s president from 1988 to 1994. During his sexenio (6-year term), 85 percent of state-owned businesses became privatized, including the national bank system and also the national phone company, TELMEX. Gortari also helped negotiate the North American Free Trade Agreement (NAFTA), which many argue has been a disaster for both American and Mexican workers.

As a result of NAFTA, subsidized American corn flooded Mexican markets and dropped the price of Mexican corn a whopping 70 percent, thus decimating the livelihoods of over 15 million Mexican farmers who simply couldn’t compete. Many were forced to grow and harvest illicit crops such as marijuana and opium poppies in order to remain financially afloat, contributing to an increase in the drug trafficking trade.

Mexican authorities destroying an illegal poppy field. (Getty/AFP)
Mexican authorities destroying an illegal poppy field. (Getty/AFP)

Within one year of being enacted, one million workers lost their jobs. Workers of assembly plants (maquiladoras) that managed to keep their jobs saw their wages drop from an average of $13 a day to a paltry $6 a day. The passage of NAFTA stunted Mexico’s GDP per capita growth from 98.7 percent during the era of import substitution to 18.6 percent in the two decades since its passage; Mexico currently ranks 18th out of 20 Latin American countries in terms of real GDP per capita growth. The country’s poverty rate remains at an abysmally high 52.3 percent–not much different from pre-NAFTA levels. Though wages among skilled laborers and in states bordering the US increased as a result of NAFTA, the rest of country’s wages stagnated or declined.

table2-6

While Mexico’s working class suffered under NAFTA, Mexico’s bourgeoisie flourished. The country’s sixteen wealthiest people have seen their fortunes quintuple in the twenty years since its passage. According to the 2014 Global Wealth Report, ten percent of Mexico’s richest account for nearly sixty-five percent of the country’s wealth–a figure that is rising. In fact, data compiled by Oxfam has shown that the degree of income inequality in Mexico is higher than any other country that was sampled. Between 2008 and 2012, Mexico’s Gini coefficient was 0.441, compared to the global average of 0.373. (The Gini coefficient measures wealth inequality, with 1.0 being perfect inequality and 0.0 being perfect equality).

mexico-income-inequality

Though often touted as the remedy for corruption and the key to economic prosperity for all, the neoliberal policies implemented by the Mexican government and supported by the US have taken a negative toll on the majority of Mexican workers, as is evident by the influx of (illegal) immigration to the United States following the passage of NAFTA and also the surge in public dissent in more recent years. The gasolinazos  and privatization of Pemex is in the same vein as these failed policies.

Economist Tim Worstall argues that Mexico should continue to privatize its oil company, let the international markets dictate the price, and export their oil at this price rather than subsidizing its internal usage. By curbing its internal usage and getting rid of the subsidies that favor owners of SUV and other large vehicles, Mexico can reduce the impact that cheap fuel prices have had on its environment. Privatizing the supply and distribution of oil could also potentially help Pemex meet their production capabilities and help them turn a profit rather than losing an estimated $3 billion a year from importing oil.

However, the privatization of Mexican industry has largely been done without the consent of the Mexican citizens who are affected by these policies the most. The wealthy and political elites of Mexico have bypassed the citizens of their country in favor of profit, continuing “a long-term global neoliberal trend in which the ‘market’ overrides any intervention by the demos“, the people. The profits of this liberalization will likely be siphoned away from the masses to a small group of wealthy elites who maintain their power through a rigid system of patronage or foreign national companies that exploit the labor and resources of the country while investing little to no money in the local communities, as has been the norm throughout Mexico’s modern history.

An aerial picture of the stark divide between the rich and the poor in Mexico City. (Oscar Ruíz/Publicis)
An aerial picture showing the stark divide between the rich and the poor in Mexico City. (Oscar Ruíz/Publicis)

The Mexican people are tired of the corruption and ineptness of the state, but are also weary of the exploitation of foreign companies. President Enrique Peña Nieto’s and the PRI’s continuation of neoliberal economic policies has placed the people of Mexico in an economic hole that it will struggle to climb out of, though one can only speculate how national and global events will shape the Mexican economy and society in the years to come.

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