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Mexico Privatization
http://www.photius.com/countries/mexico/economy/mexico_economy_privatization.html
Sources: The Library of Congress Country Studies; CIA World Factbook
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    Prior to 1970, the Mexican government operated relatively few productive enterprises. The influx of oil revenue during the 1970s, however, allowed the government to vastly expand its patronage resources by assuming ownership of hundreds of unprofitable firms. By 1982 the Mexican government ran 1,155 businesses, among them public enterprises (65 percent with state majority ownership and 6 percent with state minority ownership), trust funds, and decentralized agencies. President de la Madrid announced in February 1985 that 237 parastatal (see Glossary) enterprises would be sold to private buyers as part of the government's campaign to raise state revenues and promote economic efficiency. Privatization of state enterprises accelerated under President Salinas and became a central component of his structural adjustment program. The Salinas team began by selling smaller enterprises, then moved to larger and more complicated firms. In November 1993, Salinas announced that his government had sold a total of 390 state enterprises (63 percent of the firms in state hands in 1988), and that fifty of the remaining 209 enterprises were in the process of being sold, merged, or closed.

    Despite its overall success, the privatization program eliminated more than 400,000 jobs between 1983 and 1993. Far more enterprises were closed than sold, and the overwhelming majority of the latter were sold through acceptance of private bids, mainly from wealthy Mexican investors, rather than through stock offerings to employees or the public. Some newly privatized enterprises--such as Astilleros Unidos de Veracruz, Mexico's largest shipyard--subsequently came close to bankruptcy, and several sugar mills closed soon after they were privatized.

    The Zedillo government continued its predecessor's search for new privatization opportunities. During 1995 it awarded five concessions to joint ventures between Mexican and foreign companies to operate in the long-distance telecommunications market following the expiration of the Mexican Telephone (Teléfonos de México--Telmex) monopoly in January 1997. New privatization opportunities were expected to boost private capital formation, which had slumped in late 1995. The planned privatization of the secondary petrochemicals operation, Mexican Petroleum (Petróleos Mexicanos--Pemex), however, had not occurred by mid-1996, in part because of opposition from the oil workers' union and elements within the ruling party. The government also delayed its offering of railroad concessions for privatization, partly out of concern about job losses. Moreover, it had to rescue the operators of Mexico's new private toll roads, who had sharply raised tolls to recoup construction costs and then faced insolvency because they had misjudged the volume of traffic.

    Labor Force

    Mexico's workforce was estimated in the 1990 census at some 24.3 million. Workers constituted a relatively small share of the total population, in part because of the population's relative youth (38 percent were below the minimum working age of fourteen). Slightly more than half of the working-age population (those aged fifteen to sixty-four) had actually entered the formal labor market. In the early 1990s, an estimated 500,000 people entered the labor force each year, expanding the total workforce by some 3 percent annually.

    In 1988 employers and the self-employed constituted 29 percent of the labor force, employees 56 percent, and unpaid family workers 15 percent. Agriculture, forestry, and fishing employed some 24 percent of the economically active population; manufacturing, mining, quarrying, and public utilities employed 22 percent; trade, hotels, and restaurants employed 19 percent; construction employed 5 percent; finance and real estate employed 5 percent; transportation and communications employed 4 percent; and 21 percent were engaged in other service work. About half of all manufacturing workers were employed in small and medium-size enterprises.

    Partly because of high unemployment in the formal labor sector, the number of informal-sector workers swelled during the 1980s and early 1990s (see Income Distribution, ch. 2). These informal workers included some 900,000 street vendors in forty-five cities, with annual sales of about US$13 billion. The growth of the informal sector both reduced the state's tax revenue receipts and encouraged corruption among local officials.

    Historically, real wages in Mexico have been subject to tacit understandings among government officials, the private sector, and labor union chiefs. During the 1940s and 1950s, these sectors forged an understanding whereby Central Bank and Treasury Ministry technocrats would control macroeconomic policy, business groups would refrain from open political opposition while gaining political access through officially recognized private-sector associations, and labor leaders would restrict real wage demands in exchange for additional patronage for distribution to workers. After falling sharply during the 1940s, real wages began to recover in the mid-1950s and continued to rise until the late 1970s, when the government responded to growing fiscal pressures by shifting resources away from the peasantry and the public sector. The government used its control of employment opportunities and the labor union movement to hold down wages throughout the 1980s in an effort to reduce inflation.

    The average real wage in Mexico remained low in 1995, both in historical and international terms (see Income Distribution, ch. 2). The Confederation of Mexican Workers (Confederación de Trabajadores Mexicanos--CTM) noted that the average worker's purchasing power in 1993 was only 65 percent of its 1982 level.

    Unemployment rose sharply during the six months following the December 1994 new peso devaluation, then receded somewhat between August and December 1995. Open unemployment (according to the government's narrow definition) dropped from 8 percent to 5 percent during this period, although it subsequently increased to an average of 6 percent during the first quarter of 1996.

    Although the government increased the minimum wage by 21 percent during 1995, the cost of living rose by more than 50 percent as a result of the currency collapse. In September 1995, the minimum wage was sufficient to cover only 35 percent of workers' basic necessities, compared to 94 percent in December 1987. The government's anti-inflation APRE program called for the minimum wage to increase in line with projected inflation of 21 percent. The government also pledged to boost employment through fiscal incentives to encourage private investment and tax credits for companies that increased their workforce above the average level for the first three quarters of 1995. It also planned to expand public training programs for workers and to maintain its temporary public works programs (such as rural road conservation, which was expected to employ 140,000 people, as well as other temporary work programs that would employ 700,000).

    Partially to increase Mexico's domestic savings, the government proposed legislation in November 1995 to reform the country's pension system by allowing the creation of individual accounts managed by private financial institutions rather than by the government's Mexican Institute of Social Security (Instituto Mexicano de Seguro Social--IMSS). Until 1992 the IMSS had been solely responsible for managing the pension system.

    Data as of June 1996


    NOTE: The information regarding Mexico on this page is re-published from The Library of Congress Country Studies and the CIA World Factbook. No claims are made regarding the accuracy of Mexico Privatization information contained here. All suggestions for corrections of any errors about Mexico Privatization should be addressed to the Library of Congress and the CIA.

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Revised 10-Nov-04
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