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ECONOMY-MEXICO
Crisis Drives Up Poverty Rate
By Diego Cevallos
MEXICO CITY, May 23 , 2009 (IPS) - Between 1994 and 1996, the poverty rate in Mexico climbed from 52 to 69 percent due to a deep but short-lived global economic recession that broke out in this country. Now this country is experiencing another depression, which originated in its northern neighbour, and that will last at least until 2010.
Poverty is rising again after a sustained period of decline since 1997. In 2006, 43 percent of the population was living below the poverty line, according to the state National Council for Evaluation of Social Development Policy (CONEVAL).
It is still too early to say exactly how much poverty will increase, but it could be by around 10 percentage points, Susan Parker, a researcher at the Centre for Economics Research and Teaching (CIDE) and the author of several studies on Mexican social programmes, told IPS.
Precise figures will be available in August or September, when CONEVAL publishes its biennial statistics in this country of over 107 million people.
In the first quarter of the year, GDP shrank by 8.2 percent compared to the same period in 2008 - the sharpest decline since 1995. This was the third consecutive quarter of economic contraction, the National Institute of Statistics and Geography (INEGI) announced Wednesday.
Furthermore, employment figures have plummeted, industrial and tourism activity have fallen, exports have dropped, and tax revenues have shrunk, which the authorities say will cause a two percent deficit in state finances this year.
The government of conservative President Felipe Calderón forecasts net GDP loss of 5.5 percent for 2009, less than the 6.2 percent contraction seen in 1995. Analysts predict that figures for economic activity will continue to be negative in 2010.
The Mexican economy is one of the hardest hit in the world because of its close trade links with the United States, the origin of the current global crisis.
The outbreak of swine flu that began in April in Mexico further exacerbated the economic problems.
The economic crisis and its predictable social impact raise questions about whether Mexico will be able to meet the Millennium Development Goals (MDGs), targets set in 2000 by the international community to cut poverty, inequality and pollution, by the 2015 deadline.
It is still hard to say how far behind Mexico will fall in meeting the MDGs, said Parker, who holds a doctorate in economics from Yale University, in the United States.
There are indications that Mexico will not reach some of the goals.
In January, when the government was saying that economic growth would be slight in 2009, and no one had foreseen the flu epidemic, the United Nations Development Programme (UNDP) warned that the global crisis put Mexico at serious risk of failing to comply with some of the MDGs.
In a study on public policies for human development, the UNDP indicated that Mexico needed to increase public spending to five percent of GDP in order to fulfil its obligations of reducing maternal and child mortality, increasing educational coverage and improving drinking water and sanitation services.
In the report, the UNDP assumed that Mexico would recover from the crisis and enjoy annual GDP growth of between 3.5 and five percent in the coming years.
Rob Vos, the director of Development Policy and Analysis Division in the U.N. Department of Economic and Social Affairs, said at the presentation of the study that although there were still six years to go till 2015, the UNDP recommendations should be reconsidered, because the economy had suffered a major setback, which could affect poverty levels.
Vos said it was yet to be seen whether the efforts recommended, of increasing spending by five percent a year, are sufficient.
The 1995 meltdown was triggered by economic policies that led to a high level of indebtedness and runs on the banks, and was followed by spurts of growth, boosted by a favourable international environment and U.S. GDP growth of 2.5 percent that year and 3.7 percent in 1996.
In the present crisis Mexico's future looks less promising, because the economy of the United States, its main trading partner, is expected to contract by 2.8 percent this year and 0.05 percent in 2010, according to forecasts by the International Monetary Fund.
"I have no doubt that this crisis will be worse than the one we experienced in 1995," financial columnist Enrique Quintana wrote in the newspaper Reforma.
What is not yet clear is whether the spike in poverty will be sharper than in 1995, said Parker.
Back then there was no social programme of conditional cash transfers in Mexico like Oportunidades - created in 1997 under the name of Progresa - which now covers five million families, or 25 percent of the country's households.
In 1995 the financial system crashed, the local peso plunged, and there was instability in the stock markets and serious problems in state finances arising from a growing deficit, as well as heavy accumulated foreign debt. In the current crisis, none of these factors is present.
According to Parker, "the Oportunidades programme is definitely a cushion in the present crisis, as a secure source of income for poor families."
Households registered under the programme receive between 400 and 500 pesos a month (about 35 dollars) from the state. In return, the children must attend school and regular health checkups, among other obligations designed to break the cycle of poverty in which millions of families are trapped.
The money, given mostly to the mothers, is equivalent on average to 30 percent of the families' total income, and is mainly spent on food.
Since the mid-1990s, poverty in Mexico has been defined under three categories.
Food poverty is the inability to afford a basic minimum diet. Thirty-seven percent of Mexicans were in this category in 1996, and 14 percent 10 years later.
Capacity poverty means that families or persons find it difficult to afford education and health expenses. Nearly 47 percent of the population was in this category in 1996, and around 21 percent in 2006.
Cash poverty includes those who have insufficient resources to pay for clothing, housing, energy and transportation, who made up 69 percent of the population in 1996 and 42 percent a decade later.
By the World Bank's method of measurement, based on a daily income calculated in dollars, overall poverty in Mexico fell from 45 percent in 1994 to 41 percent in 2000, and to 32 percent in 2006.
(END)
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