Andrés Manuel López Obrador’s campaign promise to modify three of the structural reforms of the prior administration (labor, energy, and education) struck a deep chord with the Mexican voting public. Since his election, autonomous and Indigenous groups as well as left analysts have expressed doubts that the AMLO administration has the political fortitude to create a political horizon for the country that goes beyond neoliberalism in developmentalist clothing. Throughout all the debates over the future of structural reforms, another reform, perhaps not structural, but of no less importance, has gone unmentioned: financial reform.
Mexico’s financial reform, passed by the government of Enrique Peña Nieto in 2013, did not involve constitutional changes, 31 laws were modified. The ends, not the means however, were the most astonishing part of this reform, which aimed to grow internal demand and consumption and backstop the profits of mega-corporations via a massive injection of consumer credit into the Mexican economy. The captains of the ship of state had decided to follow and imitate the model of the BRIC economies, above all of Brazil and China, who in the last ten years threw open the faucets on all manner of personal credit.
The very ideas that were used to explain and sell the changes related to the financial reform have muddied the waters that needed to be cleared up. Three ideas were central in the selling of the financial reform: domestic demand, financial inclusion, and credit democratization. In different ways, each represents a fundamental mis-characterization of what credit is. Namely, embedded in each is a belief that credit is entirely positive.
Credit and debt, however, are far from neutral, much less entirely positive. As critics such as Costas Lapavitsas and others have argued, credit and debt are forms of exploitation. Perhaps in the short term they improve the lives of some (through the purchase of a needed good) but sooner or later the cruel reality hits: the money has to be returned with interest.
To get a sense of the level of exploitation involved in credit and debt in Mexico after the financial reform, we could point simply to the profits of banks, which grew by a quarter in 2017. Or, we could look at average interest rates charged by Mexico’s most commonly used creditors: Banco Azteca, 53.1%; Banco Famsa, 72.6%; BanCoppel, 60.8%; and Compartamos Banco, 78.3%. This, while the interest rate of Mexico’s Central Bank in 2017 was 7.75%. We’re not talking about interest, but robbery, and it was the financial reform that left the door wide open to creditor thieves.
In order to make sense of credit and debt, we need a people’s dictionary of financial reform: what they call internal demand, we call the dependence on workers’ over-exploitation through debt. What they call financial inclusion, we call the expansion of the system of exploitation. What they call credit democratization, we call the deepening of wage and debt servitude, and so on.
It might also be fruitful to ask ourselves who is taking out debt at these interest rates. In Mexico, the vast majority of loans are shorter than 12 months and for less than 5,000 pesos (about US$275). The average loan size reveals people’s lack of savings or cash to fall back on, because who would pay interest if they didn’t have to? The terms of the loans tell us that they are used to get out of punctual problems, either due to an unforeseen expense or to clear up another debt. This points to a structural condition: existing salaries are not enough to cover all expenses, to maintain a decent quality of life, or to save money for unexpected emergencies. As in the United States, credit is used in Mexico as a supplement for poverty wages. But instead of alleviating misery, credit and debt deepen it.
A recent study empirically confirm what many Mexicans know from experience. As Carlos A. Ibarra and Jaime Ros note: “Like many other developed and emerging countries, Mexico has witnessed for more than three decades a long-term decline in labor income participation. The salary share of total income decreased from around 40 percent in the mid-1970s to around 28 percent in 2015.” Simply put, the percentage of revenue going to workers has plummeted in the last forty years. Now, as in the nineties at the height of neoliberal suffering, the provision of credit functions as a means supplement to income snatched away by the owners of capital.
Since financial reform is neither at the center of the national political debate nor of the Morena party program, it seems unlikely that the financial reform will be taken up during AMLO’s term. Perhaps there is a reason for this: addressing it would mean not only repealing unpopular legislation, but placing the idea of exploitation (at the hands of productive or finance capital) at the center of political discussion and debate. To do so could cause Mexican workers and voters to wonder if their exploitation is a natural part of human history or rather an unfortunate condition that could be abolished. And that would most certainly lead to political and economic transformations which few in state power are prepared to broach.
Brian Whitener is the author of Crisis Cultures: The Rise of Finance in Mexico and Brazil (2019) and Face Down (2016).