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January 2020, Volume 26, Number 1

Canada, Mexico

The United States-Mexico-Canada Agreement (USMCA) was poised to be ratified by all three countries after Democrats in December 2019 won additions to ensure that Mexico enforces its labor laws in ways that should raise Mexican labor costs.

Trump promised that the USMCA would return auto jobs to the US, since the North American content requirement was raised from 62.5 to 75 percent, and 40 to 45 percent of auto components must be made by workers earning at least $16 an hour to trade freely. A fourth of the new vehicles sold in the US are assembled in Canada or Mexico.

The USMCA replaces the 25-year old NAFTA, which went into effect in 1994, and includes protections for digital services, such as a prohibition of tariffs on digital products and protections for electronic intellectual property.

Canada. Canadians re-elected the Liberal government of PM Justin Trudeau in October 2019, albeit with 157 seats, less than a majority, in the 338-member Parliament and only 33 percent of the vote. Ex-President Obama endorsed Justin Trudeau just before the election, praising his progressive politics, including welcoming immigrants and refugees, defending the rights of women and Indigenous people, and fighting climate change and racism.

UK Prince Harry and his wife Meghan in January 2020 announced plans to live part time in Canada. Members of Britain's royal family do not need authorization to visit Canada, and can stay in Canada up to six months a year as visitors but not work for wages. However, they could manage businesses based outside Canada while visiting Canada.

Canada legalized recreational marijuana for those 19 and older in 2018. After a year, high hopes for business profits have been dashed; the shares of Canada's six largest marijuana companies fell by over 50 percent in 2019. There are many reasons for lagging sales of legal marijuana, including the fact that there are only 24 legal stores for Ontario's 18 million residents, high taxes, and limits on marketing. Some surveys suggest that only 30 percent of cannabis buyers buy only through legal sources.

Canopy Growth, headquartered in an ex-Hershey factory in Smiths Falls, Ontario, added cannabis-infused drinks to its lineup in December 2019. Canopy is losing money; major shareholder Constellation Brands fired Canopy's CEO. Most observers expect a wave of consolidations that leave fewer and larger cannabis growers and marketers.

Mexico. Mexico is expecting 80,000 asylum applications in 2019, up from 40,000 in 2018. Over half of the 60,000 applications filed in the first nine months of 2019 were from Hondurans, followed by Salvadorans.

Remittances to Mexico were a record $33.5 billion in 2018; there were over 100 million transactions worth an average $320. The leading states receiving remittances were: Michoacan, $3.4 billion; Jalisco, $3.3 billion; State of Mexico, $1.9 billion; and Oaxaca and Puebla, $1.7 billion each.

Mexico raised its minimum wage to 123 pesos ($6.85) a day January 1, 2020, up 20 percent from 103 pesos after a 20 percent hike in 2019; the minimum wage is higher in the US border states. Mexico's poverty line for a family of four is 12,000 pesos a month or $667. Many employers report that they pay their employees the minimum wage even when actual wages are higher to save on payroll taxes of 30 percent.

In November 2019, over 100 major Mexican companies endorsed the Empresas Por El Bienestar (Companies for Wellbeing) and promised to pay their employees at least 6,500 pesos ($340) a month in 2020. Mexico's minimum wage is 103 pesos a day or 2,500 pesos for a 24-day work month; half of the formal jobs in Mexico pay less than 6,500 pesos a month.

The head of the oil workers union since 1993, Carlos Romero Deschamps, resigned in October 2019 as he was being investigated for corruption. President Andres Manuel Lopez Obrador said that the resignation was another sign that his fight against corruption is succeeding, and noted that a new labor law allows Pemex workers to choose their next union president by secret ballot.

AMLO marked his first year by acknowledging that he failed to deliver the promised four percent growth, but highlighted a sharp increase in the minimum wage and a new labor law as changes that helped ordinary Mexicans. During his first year in office, AMLO visited every one of Mexico's 2,457 counties; his approval ratings were 60 to 70 percent at the end of 2019.

AMLO created a new National Guard that keeps the military in the forefront of the fight against drug gangs. In October 2019 in Sinaloa, soldiers arrested Ovidio Guzman Lopez, the son of the infamous drug lord El Chapo. Over 400 cartel gunmen responded, taking some soldiers hostage and burning vehicles and terrorizing residents. The violence ended when Ovidio was released, a decision that drew strong condemnation from the media.

In November 2019, six children and three women who were dual Mexico-US citizens were killed in Sonora while traveling in a convoy of SUVs. A Mormon enclave of 25 houses called Colonia LeBar?n where those who were killed lived emptied out after the attacks. Farm workers employed by the Mormons earned 2,000 pesos or $100 a week.

In response to the attacks on the Mormons, President Trump threatened to designate Mexican drug trafficking groups as terrorist organizations, which could open the door to drone strikes on drug gangs. There are currently about 60 groups, mostly Islamic, on the State Department's list of Foreign Terrorist Organizations.

The year 2019 could be Mexico's deadliest year since the war on drugs began in 2006, when the government started to use the military to confront drug gangs. Since 2006, over 250,000 people have been killed and 60,000 more are missing and believed dead, mostly young men in their 20s. There were 33,300 homicides in 2018, and 98 percent were unsolved.

Genaro Garcia Luna, Mexico's public security secretary under President Felipe Calderon between 2006 and 2012, was charged in the US in December 2019 with taking bribes from the Sinaloa cartel headed by El Chapo. Garcia Luna led the effort to use the military to kill or capture cartel leaders, which fragmented larger cartels into splinter groups that continue to fight one another.

Mexico produces 2.2 million metric tons of avocados a year, with most harvested between October and February. Michoacan accounts for 70 percent of Mexico's 235,000 hectares of avocados; yields average 11 metric tons per hectare. About 1.2 million tons of avocados are exported and 800,000 tons consumed domestically.

Uruapan, Michoacan is Mexico's avocado capital, and a place where criminal gangs compete to levy taxes of $250 per hectare of avocados for "protection." Drug cartels that splinter into smaller groups are more likely to extort money from local residents than smuggle drugs to the US. US consumption of avocados tripled over the past two decades to 7.5 pounds per person in 2018, half of Mexico's per capita consumption.

Harvesting avocados in Michoacan pays well, up to $60 a day. However, gangs sometimes interfere, forcing some harvesting crews to work without pay in orchards they control and sometimes preventing crews from working in other orchards to reduce supply and increase prices. Avocado producers and packers in Tancitaro, Michoacan formed their own police after two major packing plants were burned.

Central America. Microloans are supporting illegal migration to the US. Some 250,000 Guatemalans arrived at the US border in 2019, some after paying $10,000 to smugglers. Many of the migrants borrowed from Fundacion Genesis Empresarial and other micro lenders, saying they were going to improve their houses or farms but using the loans to pay smugglers. Almost two percent of Guatemalans were apprehended at the US border in 2018-19.

Families often use their land or house as security for loans, which means they have debts that cannot be repaid if the migrant does not get into the US and find a job. Some take out second loans to repay the first loan, which increases the pressure to get into the US and earn the wages needed to repay mounting debts. A major lender is Banrural, a private institution with ties to the Guatemalan government that has green-and-white offices in many rural areas where incomes are $100 a month.

Caribbean. Puerto Rico suffered a 6.4 earthquake in January 7, 2020 that led to blackouts. Aftershocks continued to do damage to homes and infrastructure throughout January, prompting warnings not to enter damaged buildings until they were inspected.

One reason for the blackouts is past decisions. In a failed bid to industrialize, most Puerto Rico generating plants are on the southern side of the island, while most residents live in the north, requiring transmission lines over the mountains in the center of the island; 70 percent of Puerto Rico's electricity is used in the San Juan metro area.

The transmission lines rebuilt after Hurricane Maria in September 2017 survived the earthquake, but some of the aging generating plants were damaged, including the largest, the Costa Sur power plant in Guayanilla that generates about 20 percent of Puerto Rico's electricity. The Puerto Rico Electric Power Authority, which has $9 billion in debt, filed for bankruptcy in July 2017.

Puerto Rico filed for bankruptcy in May 2017 with $72 billion in government debts. Hedge funds that bought Puerto Rican bonds cheaply examined the government's budget and said much of the government's spending was non-essential, and should be used to repay the bondholders as promised by the island's constitution.

Aurelius Capital Management, a so-called vulture firm that buys distressed government bonds and sues for full payment, argued that the bankruptcy process was unconstitutional because the Puerto Rico Oversight, Management and Economic Stability Act or PROMESA in 2016 created a seven-person board whose members were not confirmed by the Senate to manage Puerto Rico's finances.

The PROMESA board proposed that holders of Puerto Rico bonds receive 35 cents on the dollar. The Aurelius challenge to the constitutionality of PROMESA was heard by the US Supreme Court in October 2019. Unions and retirees sided with Aurelius because PROMESA reduced pension payments that were over $1,200 a month and cut wages in union contracts.

Haiti was in turmoil in Fall 2019 as the president and the opposition jostled for power and supporters of each clashed in the streets. Schools closed and public services were suspended for several months, prompting layoffs and frustration. Jovenel Moise was elected president in February 2017, and was soon accused of misappropriating billions of foreign aid dollars, leading to roadblocks that led to thefts and more layoffs as firms ran out of supplies.

Argentina. Voters in October 2019 replaced Mauricio Macri, elected as President in 2015 to clean up the economic mismanagement left by 17 years of the husband-and-wife Kirchner governments, with Kirchner protege Alberto Fernandez. Macri borrowed in foreign currency early in his administration, pushing the country's foreign debt to more than $100 billion, and then accepted a $57 billion line of credit from the IMF that was accompanied by reduced subsidies, a sharp devaluation in the peso and rising poverty.

Argentina has received 30 aid packages from the IMF and has defaulted on its debt eight times, including a $100 billion default in 2001.

There were street protests in Bolivia, Chile, Ecuador and Peru in Fall 2019 that prompted leaders to declare states of emergency while flanked by military officers, a reminder of decades of military rule in South America. There has been less military involvement in politics since the end of the Cold War in the early 1990s, although most governments allowed the military to retain the businesses they established while the military governed.

Many Latin American governments are asking the military to act as police, build infrastructure, and provide social services. Military leaders are touted by both rightist and leftist leaders as partners to achieve order and prosperity, which may presage a return to military rule to deal with persisting inequality and corruptions, and risks re-politicizing militaries that have been out of power for several decades.

Chile returned to democracy in 1990 under a constitution developed under military rule that promised prosperity under free markets but not equality. Chile's GDP rose eight-fold to $300 billion between 1990 and 2018, and the share of people in poverty fell from 40 percent to 10 percent. Median monthly salaries are $540 a month, and median public pensions are $200 a month. Some Chileans benefitted from free markets and globalization, while others did not.

Chile and Mexico have the highest levels of inequality among OECD member countries; the richest 0.1 percent of Chileans have 20 percent of the country's wealth. Much of this wealth can be traced to the late 1970s, when the military government privatized state-owned firms and made labor markets more flexible. The 4,000 firms that comprise the Manufacturing Development Society generate a third of Chile's GDP and pay some of the lowest corporate taxes in Latin America. There are many oligopolies owned by extended families, such as the two supermarket chains that account for two-thirds of Chile's grocery sales.