Mexico’s Rising Poverty Rate: ‘The Idea of a Free Market System Doesn’t Exist in Mexico’

Mark Browne | March 30, 2016 | 5:29pm EDT
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Smog blankets central Mexico City, including the landmark Torre Latinoamerica, left, on Thursday, March 17, 2016. (AP Photo/Rebecca Blackwell, File)

Mexico City ( – Lawlessness, tax evasion, declining incomes, and a lack of open and free markets are pushing more Mexicans into poverty, according to a recent study and the Mexican affiliate of the international anti-poverty confederation OXFAM.

Mexico’s poverty rate increased by 2.9 percent between 2008 and 2014, according to the study “Social Panorama of Latin America,” issued annually and released earlier this month by the U.N. Economic Commission for Latin America and the Caribbean (ECLAC).

Mexico’s rising poverty stands in stark contrast to much of Latin America, the study found. In Peru, poverty decreased by 9.8 percent (2010-1014), in Chile, it dropped by 9.1 percent (2009-2013) and in Brazil it decreased by 7.9 percent (2009-2014).

The study blamed “falling incomes,” in Mexico.

But Ricardo Fuentes, executive director of OXFAM Mexico, said that crony capitalism, efforts at reform hobbled by a lack of the rule of law, and anemic economic growth are at the root of the problem.

Reached at his Mexico City office, Fuentes said Mexico suffered “dramatically” from the financial crisis of 2008-2009, given the country’s close economic ties to the U.S.

But impunity and weakened institutions are behind Mexico’s low growth that has averaged 1.1 percent per capita over the past 20 years, he added.

“What you see is an economic system that benefits very few people while it marginalizes about 50 percent of the population. It’s a double problem – a economy that doesn’t generate enough growth, and growth that goes to the rich.

Mexico’s economy, he said, is distorted by monopolies and oligarchy. “A few firms have a lot of market power. That power is not innovation, it is political connections, the ability to influence rules in their favor.”

“The idea of a free market system doesn’t exist in Mexico,” he said.

Fuentes said declining migration to the U.S. as a result of lower labor demand in the U.S. and increased border security is forcing more citizens to remain in Mexico and subsequently end up working in the informal economy, which is difficult to tax.

“The real hope is that the young, educated emerging middle class sees that the problems of corruption, the lack of rule of law and violence are unacceptable in a country that is so rich,” Fuentes said.

Despite recent reforms to the telecommunications, education and energy sectors, Mexico suffers from “political capture,” Fuentes said, with politicians bowing to the whim of a wealthy minority. “What you have is a very wealthy elite that can either define the legislation or avoid the application of the law.”

“More than anything we need the rule of law. And we don’t have a strong rule of law. If you can’t implement [reforms] because there is corruption and impunity, than the reforms are meaningless,” Fuentes said.

A study released this month by OXFAM and ECLAC and entitled “Time to Tax for Inclusive Growth,” highlights the wealth gap in Latin America, noting that in 2014 the richest 10 percent in Latin America held 71 percent of the region’s wealth.

Mexico’s effective tax rate on the top 10 percent of earners reaches 10 percent, while the rate paid by the top 20 percent in the US is 14.2 percent, the study said.

Some 38 percent of expected personal income tax revenues are lost to tax evasion in Mexico, the study noted.

“Mexico’s tax system is very regressive, and even after recent reforms, most government revenue is generated through the value-added tax,” Fuentes said. There is no inheritance tax and property taxes are very low, he noted.

Mexicans also succeed at skipping out on the 16 percent VAT tacked onto certain goods and services at a rate of approximately 20 percent, the study noted.

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