Treasury Secretary Guillermo Ortiz announced stiff austerity measures late Thursday to brake Mexico’s financial tailspin, hours after the peso had tumbled to its fifth-straight record low.
“The program that the government is presenting today contains measures which, without a doubt, bear high costs for the population. But these costs are lower than those of any other alternative,” Ortiz said at a news conference.
“In the short term, this program is going to be difficult for all Mexicans. But there is no easy exit,” Ortiz said in unveiling the harshest measures yet by Mexico’s government to stabilize the economy.
Ortiz predicted that the Mexican economy would contract by 2 percent this year, bluntly acknowledging an oncoming recession he said would require extraordinary steps.
Ortiz said the government of President Ernesto Zedillo will allow the minimum wage to rise only 10 percent this year despite a predicted 1995 inflation rate of 42 percent.
That means the paychecks of millions of Mexicans will lose at least a third of their purchasing power.
Meanwhile, Ortiz said the government will raise the sales tax to 15 percent from its current 10 percent, except along the border with the United States. Government-controlled gasoline prices will be increased by 35 percent while electricity rates will jump 20 percent over the year, thus raising needed cash for depleted public coffers from those key state-owned businesses.
It was not immediately clear how Mexicans would swallow the bitter pill which Ortiz said is necessary if Zedillo’s new government is to live within its means.
“Mexicans have experienced weeks of uncertainty and shocks. Up until now, it has not been possible to surmount the adversities that have prevailed since last December’s (peso) devaluation,” said Ortiz.