el crispito

Mexico has a lot of poor people. According to the World Bank, in 2002, 50% of Mexico's population was living in poverty and 20% was living in extreme poverty. The bottom 40% share only 11% of the wealth in the country, yet of the 793 billionaires in the world in 2006, 10 were Mexicans: numbers 3 (Carlos Slim Helú), 135 (Jeronimo Arango), 221 (Ricardo Salinas Pliego & family, 245 (Alberto Bailleres), 382 (María Asunción Aramburuzabala & family, tie), 382 (Roberto Hernández Ramírez, tie), 428 (Lorenzo Zambrano & family), 451 (Emilio Azcárraga Jean), 562 (Alfredo Harp Helú), and 562 (Isaac Saba Raffoul & family). The schizm between the very rich and the very poor in this country is huge, although people see the increase of the middle class in Mexico over the past few years as a sign that the country has "turned the corner."

Indeed, things are really looking up in Mexico, a lot for some people and some for a lot of people. General inflation is down to around 3-4%, and interest rates on mortgages have dropped from 18% to 8%. These are serious improvements that make the economy more stable and increase the standard of living for many. The federal government has established a special prosecutor's office to address violations of human rights (although the fledgling program has had limited success). Over the past several years, federal law has been augmented with several new laws aiming to stop discrimination against minorities based on a wide range of things from sexual orientation to spoken language. A sharp increase in the cost of tortillas is not going to destroy the progress that has been made in those areas, at least not overnight.

Yet unfortunately, a rise in the cost of this elemental food does have a disproportionate impact on the most vulnerable segment of society. A large part of the population is facing a severe reduction in their already very low standard of living, and that creates a potential mob with nothing to lose. History has shown us time and time again that people in such a situation can be dangerous and violent when given no alternatives for bettering their situation. For this reason (and because in hopes that he could shore up the popular support he lacked in the election, new president Felipe Calderón promised to make the issues of the poor a top priority) the federal government has pledged to take steps to ameliorate the tortilla inflation situation. Unfortunately, the steps they have taken - namely, signing an agreement with relevant businesses to cap the price of tortillas at MXN $8.5 pesos (USD $0.77) per kilogram - have been ignored because there is no legal penalty behind violating the agreement. He has also promised to release corn stocks at well below market price, but the effect that will have remains to be seen.

This is a very tricky issue, coming at a very crucial time for Calderón, with both domestic and international importance. On the world scene, Mexico is trying desperately to improve its image and attract crucial investments from first-world businesses looking for places with an economically attractive labor market, a stable government and expanding infrastructure to facilitate the production and distribution of their products to worldwide markets. Calderón has recently returned from a six-day tour of Europe, where he tried to pitch Mexico as that kind of place. Investors know that Mexico has a good labor market, but the country's track record on economic and political stability has kept such folks wary of Mexico and preferring countries like India, which despite great diversity and overwhelming poverty, has that crucial element: stability.

In the past, with such issues as the value of the peso or the cost of a crucial commodity, Mexican presidents have achieved stability with measures like devaluating the currency or establishing direct control of prices. This would immediately bring down the price of tortillas, but it would also spook foreign investors who are flighty about an economy where such drastic measures might be called for. Such tactics are reminiscent of actions like the nationalization of foreign-owned property, and no company wants to pour their money into a foreign country only to have it be declared the property of the government. Since Calderón is trying to attract international investment to Mexico, he must do a delicate balancing act between appearing like a safe bet abroad and keeping people happy at home. He must decide how much intervention he can get away with to make things more fair for the large number of poor at home while making sure that such intervention doesn't seem like interference in free trade.

Meanwhile, some federal officials are trying to emphasize that inflation in-general is in check while others downplay the idea that there is a tortilla crisis. While that may be true from an academic or economic perspective, the fact that inflation in one commodity is just a statistical outlier will not excuse the government from taking action when it's the main source of sustenance for the poor. The bottom line remains that no matter how good the economy looks on paper, the millions of people living in poverty in Mexico can't eat great lending rates.