SOUTH AMERICAN RECESSION

APRIL 15 2009 15:21h

Rising Poverty Weakens Mexico Conservatives

Mexico`s President Calderon sits next to Mexico`s Security Minister Luna and Interior Minister Mont in Mexico City

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Mexico is tumbling into its deepest recession since the mid-1990s, hurt by a collapse in U.S. demand for its exports.

The ranks of the poor are swelling in Mexico as fallout from the U.S. recession savages the economy, setting up President Felipe Calderon's party for possible defeat in July's congressional elections.

Mexico is tumbling into its deepest recession since the mid-1990s, hurt by a collapse in U.S. demand for its exports.

That has led families in slums surrounding Mexico City to cut back on items like meat. At a slaughterhouse in Tlalnepantla, a big industrial satellite town on the northern edge of the capital, the number of livestock killed every day has fallen by about a third since December as consumers buy fewer and cheaper cuts.

"Our money just doesn't go far enough," said Sirenia Vidal, 59, who picked up a small bag of ground beef from a butcher shop stacked with ribs, tongues and entrails outside the slaughterhouse.

Vidal's family income took a hit this year when her daughter lost her job at a television factory, forcing her to slash her monthly food budget to 600 pesos per person ($45) from 800 pesos. Now she is buying more potatoes and beans.

A slowing economy has probably pushed 4 million or 5 million Mexicans into poverty in the two years through August 2008, said World Bank economist Joost Draaisma, adding that higher food prices have also hurt the poor.

Opinion polls show Mexican voters are more worried about the stalled economy than any other issue, eclipsing concern over a surge in drug gang violence that killed 6,300 people last year.

The economy, which shrank over 9 percent in January from a year earlier, is leading voters to drop their support of Calderon's pro-business National Action Party, or PAN.

If current poll trends hold, the centrist Institutional Revolutionary Party, or PRI, which has trumpeted policies like a ban on private investment in state-run oil refining, could become the largest block in the lower house of Congress in the July 5 mid-term election.

Under that scenario, the conservative PAN would drop to No. 2, dealing a setback to Calderon who is trying to boost growth while holding Mexico's commitment to free trade and open markets.

PUBLIC ANGER

Leftist parties, formerly unified under ex-presidential candidate Andres Manuel Lopez Obrador, could also lose many of their congressional seats, polls show.

"People say: 'Now that I've lost my job, I'm not going to vote for the PAN anymore,'" said political scientist Jose Antonio Crespo at Mexico City's CIDE think tank.

A poll by Mitofsky showed the PRI ahead of the PAN by 34 percent to 26 percent in February, though a recent poll by Universal newspaper had the PRI up by just 3 percentage points.

Mexico's economy began to slow sharply early in 2008 after the U.S. housing market collapsed and pushed the United States, which buys 80 percent of Mexican exports, into recession.

Unemployment in Mexico has since spiked to its highest since 1996. Factories alone shed nearly 400,000 workers in the year through February.

Public anger with the government was palpable at a recent baseball game in Mexico City, where Finance Minister Agustin Carstens, a Calderon appointee, threw the ceremonial first pitch. As he approached the mound, the stadium thundered with boos and obscenities.

Some economists see Mexico's economy contracting by 4 or 5 percent in 2009, after expanding by 1.3 percent in 2008 and 3.2 percent in 2007. That means even more people could fall into poverty this year, Draaisma said.

"One would expect the situation to worsen, particularly because there will be fewer jobs," he said.

Mexico asked the International Monetary Fund for a $47 billion credit line this month, the first time in a decade it has sought IMF help.

Only people earning less than $140 per month are considered to be poor in Mexico's cities, while rural folk must earn less than $94 a month to count as impoverished, according to the government agency that measures poverty levels.

"These people don't have enough resources to buy not only food but also to have basic health services or clothing and shelter," Draaisma said.

About four in 10 Mexicans were classified as poor in 2006.

Mexico's entire lower house will be contested in the July ballot, along with the posts of some state governors, mayors and local legislators.

Currently, no party holds a majority. The centrist PRI has largely cooperated in passing tax, pension and energy reforms since Calderon took office in December 2006.

In exchange, the PRI demanded small changes it said would protect the country's poor and keep state control over the oil industry, a perennial issue for nationalists. Some PRI lawmakers also want to cap interest rates charged by banks on loans.

The PRI, which ruled Mexico for seven decades until 2000, is playing up its experience in governing, said Crespo.

In Tlalnepantla, Gloria Gonzalez is also buying more vegetables since her son lost his job as a welder at a factory that makes scaffolding for building sites.

Construction activity is falling sharply despite a push by Calderon to create jobs in the industry by boosting public spending. Gonzalez, 49, plans to vote for the PRI in July.

"At least with the PRI there were more jobs," she said.