FORUM: “Mexico in front of the crisis”
Third session.  What to do in order to grow?
Conference by Mr. Carlos Slim

Monday, February 9th, 2009

Thank you, good afternoon, I am very pleased and honored to be with you in this important forum.

There was no record, I believe, since 1931, at the time of the Great Depression, when there was a great cooperation between the revolutionary block of the Congress, and the Commerce and Industry Chambers.  That was a very important coalition or alliance which allowed, along with the public policies adopted back then, a growth of 6.2 percent from 1932 to 1982.

Such sustained growth during so many years has been spectacular, that was the famous “Mexican miracle”, and the country achieved a huge transformation, thanks to those efforts and those public policies, in which State policies were done and remained for many years.

It is a shame that since 1982, after the big crisis of the external debt, we have grown zero in terms of per capita, it is not mediocre, it is zero, that is worse than mediocre, mostly if we consider the population that has been expelled.

That is a zero percent, including Mexicans that had to leave the country for not finding job opportunities here.

That ’82, that big crisis of external debt, had various reasons; one was, maybe, the significant public expenses.

Another was, no doubt, the availability of petrodollars, financing and credit, which allowed an excessively large debt, but the main cause was external, it was the 21 percent interest rate.

You know that an economy, a company or a normal person whose financial cost is raised four times, must be in trouble.

And from that external debt, came the plan and model of the Washington Consensus which had various purposes, one of them to collect.  This model has many virtues but we have suffered its weaknesses for many years and, of course, the developing countries do not notice or pay attention to them.

We have seen that on this abuses that have been imposed on the International Monetary Fund, technocrats, academics, dogmatic and ideologues, never showed up or brought this to our attention.

The nearest thing was Greenspan’s irrational exuberance of the markets on December 1996, when the rate was 6,500 and went up to 13,000.

Well, that is a really clear situation; we need to have a long term vision towards the future, but we have to know what has happened in the past.

There are no simple solutions for sustained development, the country passed from being an agricultural society to an urban and industrial society, now we have to move on to be a tertiary society: of services, technology, knowledge, and to keep in mind what this society and its new paradigms require, in order to go in that direction.

I was very glad, at the opening of this Forum, not the Forum itself, but the words by the President of the Congress, Deputy Cesar Duarte, who says: “We need to go over an structural revision of the model and redesign of the financial system”, that is what we need.

Also, the President of the Senate talked about proposals and commitments and talked about structural changes to improve productivity and competition, which is a fact that they are two essential arguments in this whole situation we are living.

This crisis which started in the 90’s, and Greenspan tried to stop with his irrational exuberance; in 2000, 2001, there was a shock for the destruction of that time’s richness and came a series of excessive, aggressive policies, monetary and fiscal permissive, which made that crisis, -that was getting better in 2000, 2001, 2002- blow out of proportion and lead us to what we are living today.

Where the centerpiece is the big crisis of the financial institutions, because of the excessiveness they had in their liberal policies, neo-liberal policies, with a total lack of sense of caution, I would say that mostly the government of the United States, and obviously the consequences come with the decisions of the lack of regulation and supervision of the international financial institutions, creating new instruments and products in which their main feature is what we call ‘leverage’, or the possibility to turn one peso into 20, 30 or 50.

For example, in order to buy commodities we used to grant five percent guarantees; to buy products, we did not grant guarantees, and then the risks would multiply by hundreds, and this is what we are suffering now.

It was the speculation with oil, speculation with food, which fortunately collapsed, commodities in general, because we did not have to give anything and created a series of players, gamblers, newcomers, boys who came believing that everything was going upwards for ever, and they would bet and bet, and, well, this is what we are paying.

But, the serious matter is that even though the centerpiece is in the United States, the big consequences or more consequences are appearing outside, for example, in Japan.

While in the United States the GDP dropped 3.8, in Japan it dropped 8; in Germany 8 or 9 in the last quarter.

We are now in the moment, I would say, we have already been through the 29, we are living the 30, we need to avoid the 31, 32 and 33, we need to avoid that the financial market –which has not been stabilized or is not stabilizing, and of course, it contaminates real economy through credit- collapses the economic world as it did back then and as it looks it is doing it, in many ways, at this moment.

Unemployment increase is excessive, we are talking about two digits, Spain is already in two digits as well, high digits; Japan, Germany, the whole world is decreasing very much.

Our countries have the strength; our countries, I am talking about Latin America, have the best strength in terms of exchange in these last years, we have oil; other countries have sorghum, or wheat, etc., and we also have minerals.

We have an economic strength, our countries, and we have to take care of it and apply it very carefully in order to avoid these physical collapses.

There is no doubt that the Mexican Gross Domestic Product is going to drop; it is going to fall down, it will be negative, already since the last quarter of 2008; we do not know how long it is going to last, but the effect is going to be very strong.

This is where I say: the GDP is going to be negative, substantially negative, because of the oil’s and exports fall, among other things, and the consequences, also internal, but we have to watch over employment.

We do not have to worry if it is minus two or minus one or zero, we have to pay attention to which is the salary mass, which is the employment rate, and we need to establish like the national agreement led by the President of the Republic (Felipe Calderón Hinojosa), to seek for actions to protect the employment and the family income, that is the critically important thing to do at this moment.

I am glad that in this agreement it was taken up what all these models and ideologies, dogmatisms and doctrines we have been living in for so many years, since ‘83, but, mostly, when the Washington Consensus started applying more firmly in our countries, has maintained us in a zero growth.

I think that the main goodness we are ending up with, just as it happened in that meeting with the revolutionary block of the Congress, is that we are turning over to the internal economy, as we are realizing that not everything is to think outwards.

We used to think that foreign investment is wonderful, seems like it were a donation, foreign investment is not a donation, foreign investment comes because we are offering good profits.

Modern companies are like old armies, armies used to conquer territories and collected taxes; companies conquer markets and collect dividends, royalties, and transfers from one or another source.

I mean, we need to turn over to the internal economy, we obviously need foreign investment and to adopt technology and so, but we have to turn over to the internal economy, take good care of our internal economy.

Encourage small and medium sized enterprises, decrease business mortality, to encourage, in Mexico, and I am not talking for us, there are strong enterprises that compete internationally, there are no strong countries without strong enterprises.

If the countries do not have strong enterprises, they are turning into neo-colonies, in a certain way they need to have the strength, not internally, but outwards, to be able to project themselves.

Therefore, we see countries that have encouraged strong enterprises in their transnationalization, even with fiscal incentives, like Spain, which gives a 75 to 90 percent deduction to the investment; Brazil, which gives support with the development bank, etc.

We need, and as the United States has done since 1823 with the Monroe Doctrine, in the Colonial times, helping the Independence to control our economies and markets until now.

I think it is very important to pay attention to the internal economy, it is great that we turn over again to development banking, we used to neglect it, development banking is essential for our country’s growth.

We have to get back also to build infrastructure to improve our human capital, since we have a huge budget.

And there is quality, it is low quality, and we need to modernize it, improve quality and pass already to a digital culture, not only alphabetize, but digitally alphabetize the population.

We need to be competitive in this civilization of knowledge, of information, etc., we need competition, and I agree with competition, it is very important; it is like we were athletes, if we do no compete with anyone, we will never progress.

We need to use international references in competition: Which was the record time for this?  How high does he jump?  How does the baseball player play?  How does the football player play?  Who is the best coach?

Clearly, we have to be open to competition and globalization is not an alternative, it is a necessity, this new civilization is a paradigm, even though at this moment it is retracting, because of the economic collapse, the lack of employment, the lack of consumption, the fall of the American economy and of the developed economies as well, obviously the exporting countries will see their imports reduced, the prices of primary products will be lowered, actually they already were, etc., etc.; then, there is going to be an important fall of the international trade.

But, besides that, international trade is going to fall, employment is going to fall as well, there is going to be a great unemployment, unemployment indexes are going as high as we never knew in our personal life, only history of the 30’s.

The companies are going into bankruptcy, many of them small, medium and large, businesses are going to close, and there are going to be closed storefronts everywhere; the buildings, empty; so this is going to be a very delicate situation.

I do not want to be catastrophic, but we need to be prepared to foresee and not just look at the consequences afterwards and cry.

I think that, as we did back in ‘31, we have to take up again our decisions, see which the model we need to generate is, how it is supposed to work, how we are going to get out of this crisis, because we have to get out of it much stronger How do we do that?  Well, by creating human and physical capital, if we have a good physical capital, human capital is going to be very important.

Employment is encouraged through the small and medium sized enterprises, we all know that, but we also have to pay attention to our agricultural sector, which may be a little abandoned, and of course, infrastructure, and even faster, more effective and more job-generating than infrastructure and the construction itself of the infrastructure, which is essential, is infrastructure maintenance.

For that we do not have to wait for the plan, the project, the engineering or the right of way, or such, this is done overnight.

Schools, there are 30 thousand schools in bad conditions, we need to repair them, modernize them, we need to bring windows, bathrooms, ceilings, which are really deplorable, and painting.

To do the same thing with hospitals, health centers, Government offices, archeological zones, taking care of the environment biodiversity, etc.

I believe there is such ability in Mexico to give intensive employment with very little money, and of course, we have to look for the combination of public and private capital to impulse those projects that justify it.

I think we have to try to get out of this, as I was saying, very much stronger; it particularly catches my attention that the dogmas are still on, after 26 years of failures.

They still find new formulas, new blames to justify it is not so, even though who have been more important have recognized it, like Williamson.

I think we should; besides, in the situation of these last years, we have reduced the middle-class, and we have affected it very much.

A good part of what the President of the Competition Commission indicated is that its 30 or 40 percent of the income, because they have no income, people do not have an income.

One third of the students at the UNAM live with a family income of four minimum salaries, which are today 400 dollars, is that an income?  We need to improve the people’s employment and income.

It is often discussed between richness and income; I think that the fact that richness is private, collective or public, has to be handled efficiently to generate more richness, and its produce, which is income, has to have a better distribution.

And we see how it was, without question, one of the ways to improve income distribution is with education, employment and sources of employment; education not only has the advantage to create human capital, but it is a better offer, and one who has a good education has better job alternatives.

There are still some issues to go through, but basically to insist in the employment in Mexico, I think they are already telling me about the time, I think we have to search, no doubt, for strong and competitive national capitals, stand face to face with transnationals.

Create more public richness and do not use, when a fiscal initiative fails in the Congress, do not to use the monopolies of the State to collect or to substitute tax collection.

That energy is not summed up, as it has been done, for tax collection, that gasoline is not used for tax collection, those things should be apart, those companies should be handled with autonomy and out of the budget, to avoid the fact that when an income is not authorized, a point is not added, the net, or such, the prices are risen and the tax collection is gotten.

Last, I want to tell you here, like many things that have to do with what they say in the United States like: “Buy America”, the president, the secretary, Minister Sebastián, from the Spanish industry, says: “And there is something our citizens can do for their country, which is to bet on Spain, on our products, our industry and our services, bet on ourselves”.

There is starting to be economic nationalism in consumption, the United States, no doubt, and hopefully we are not like “Sale Mexico”.

I am leaving, please, information for the Legislative about competition as referred by the president of the Commission.

It is indicated here that the main reasons and more problematic factors in Mexico are: government bureaucracy inefficiency, first, 18 percent corruption, inadequate infrastructure, restrictive regulations, tax regulations, financing access, tax rates, crime, crime and robbery, inadequate education of the workforce.

I am leaving you this, which is the third one, it puts us in 60th place; it is not God’s law either, because in the first place there is the United States, we already know they are not the most competitive in the world, since they are spreading their products everywhere.

So then I am leaving you, please, the information and I thank you very much for


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