Calderon outlines plan for Mexico's struggling economy

Betty McMahon January 08, 2009

Mexico, finding itself in the same economic downspin as the rest of the world, is taking steps to jumpstart its economy.

President Felipe Calderon recently announced a plan in which he hopes to increase spending on schools, roads, airports, seaports, historic sites and other infrastructure projects as a financial stimulus. He will expand a program that provides construction jobs for the unemployed.

Gasoline prices will be frozen (all gasoline in Mexico is state-owned), and if some lawmakers have their way, will be lowered. Electricity rates will be cut for industries, and unemployment benefits will be expanded. Health benefits will be extended for the unemployed, and the jobless will be able to withdraw money from their retirement accounts early. The government will also contribute more to employee retirement accounts.

Calderon wants government agencies to award 20 percent of projects and spending to small- and medium-sized companies in Mexico and help companies avoid firing employees by providing at least 2 billion pesos that companies can access. It is hoped the plan will protect a half million jobs, allowing workers to perform technical shutdowns, with the understanding they can return to their jobs with demand returns.

The money could well benefit the country's ailing automotive industry. The president estimated that the money will protect 500,000 jobs, especially in the export industry.

The government is responding to dire numbers such as its Gross Domestic Product, which may not expand at all this year, or 1.8 percent at the most. According to Mexican economists, as its exports slump, the country's economy will shrink by 0.1 percent in 2009.

In 2008, the peso declined 0.5 percent to 13.4514 per US dollar.

Mexican stock prices are sinking in response to US private sector job losses. Its stock market fears a prolonged recession in the U.S., its main trading partner, that buys 80 percent of Mexican exports.

Gustavo Hernandez, an economist with Mexico's IXE Grupo Financiero doubts the money will be enough to avoid significant job losses in the manufacturing industry, which lost between 50,000 and 80,000 jobs in the second half of 2008.

"We don't feel that 2 billion pesos can make an important difference between dismissing or not dismissing people," Hernandez said. "It's more a signal of future measures to support Mexico's economic activity."