By the second week of January, five people had died in the violence. More than 1,500 protesters were arrested. President Enrique Peña Nieto is outraged by the government. By February, the government had rejected the second price hike. The third price hike, which was supposed to come weeks later, was delayed. The next year, the government lost the general election.
Fuel prices rise by 20% in one go
Mexico – Weldometer indicates that the world’s 11th petroleum consumer market. Since 1938, the country’s total energy market has been controlled by the government. Pemex, a public sector undertaking, has full control over oil production and imports.
Due to the lack of private sector, PEMEX subsidized fuel prices to the common man. In 2008, Mexico decided to allow private companies into the oil market. It became law in 2013.
The Mexican government has argued that the influx of private companies into Mexico could lead to competition in oil prices and thus lower prices. Following the decision to privatize PEMEX, the government has decided to phase out the subsidy on petrol.
The new policies were announced by the government in December 2016. Within a week, fuel prices had risen by 14 to 20% in many parts of Mexico. Overnight, food prices have skyrocketed. Egg prices rose 16% in one day in 17 states in Mexico, according to a CNN report.
In Mexico, gasoline inflation is referred to as gasolinazo. This is a phenomenon that has been going on for years. Governments make very small increases in the face of the country’s 50 percent poor.
During the presidency of Felipe Calderón (2006-12), before Enrique Penya, there was an overall increase of 60% per year in petrol prices. But this did not lead to protests, as it was a nominal increase each year.
The decision to sell petrol at market price was implemented on a trial basis in Mexico in a few states. Attempts to implement this in full have led to massive protests.
With inflation, Mexicans have to pay twice as much as their neighbors in the United States. – Reported by the International Political NGO, Open Democracy. More expensive than in Russia, Brazil, China and the European Union. Mexico’s per capita income is 95% higher than New York, one of the richest cities in the world, and much lower than the countries above.
Why the price increase?
According to the Mexican government, private capital was not the cause of the immediate rise in prices. Pemax managed only 60% of the total production capacity. Mexico needed 2.04 million barrels of petrol a day during the same period. In September 2016 alone, 18% of car sales took place in Mexico. According to a Reuters estimate, oil consumption in Mexico will increase by about three percent in the coming years.
Mexico was forced to import more oil from the U.S. when it received only 60 percent of its domestic fuel needs. This is naturally what Pemex bought at market price. The company naturally suffered heavy losses as it had to sell subsidized fuel to the people.
Mexico imports 70% of its total petrol consumption. 90% of this comes from the United States – S.C. And. P Global Monitors. In 2016, the Mexican currency, the peso, collapsed. Inflation affected in 2014 increased the value of the dollar. Mexico’s central bank has decided to raise interest rates to its highest level in five years.
The market also plummeted after Donald Trump came to power in the US and later announced that he would build a wall on the Mexican border. The US carmaker Ford also withdrew its investment in Mexico. Enrique Penya’s unresponsiveness to Trump’s criticism also put pressure on the market. In the first week of 2017, the value of the peso plummeted to the level of the Mexican financial crisis of the 1990s, explains New Internationalist Magazine.
The government hastened things to overcome the economic vulnerability. The fuel import policies, which were decided to be sufficient in January 2017, have been implemented since April 2016. A hint in December and a sharp rise in petrol prices in January.
Loss of Public Sector Oil Company
Mexico’s real oil reserves are enormous. 76% of the country’s crude oil reserves are at sea. Exploring Mexico back in ten blocks is expected to be worth $ 10 billion here alone – according to the 2016 Oil Price website.
The government also explains that Pemex cannot handle the entire oil market in Mexico. Dozens of Mexican cities experienced petrol shortages during the December 2016 holiday week. Pemex’s response was that their refineries were not fully operational because of the celebrations.
The assessment is that even if private corporations come to Mexico, these problems will not be solved. This was later seen to be true.
Petrol prices have not fallen since liberalization. Instead, it has increased. There are not enough ports, no cargo to deliver petrol, no storage facilities, and the slowness and carelessness of government systems, along with the commission of up to 6.7 percent of dividends to be paid to Pemex – Rice University in the US, researcher at the Baker Institute of Public Policy – Mexico Center.
At the same time, rampant corruption and attacks by armed drug gangs are causing huge losses to the company. In 2016 alone, 90,000 liters of petrol were extracted daily by robbers in Mexico. – The report says.
Corruption is one of the biggest problems facing Mexico. People have been protesting since 2008, when a small amount of gasoline was in operation. But the big promise made by the Penya government was to reduce fuel prices. The Treasury Secretary ‘s promise in 2014 that gasolinasos would be gone forever proved to be a lie within two years.
The Mexico Center researcher writes that this also includes the error in providing political education to the people. “There was no petrol in the country to fuel Mexico at full subsidized rates. Companies should have been given the opportunity to intervene freely. Instead of interacting with the public about what the market price is, politicians have tried to convince the public that inflation is completely unilateral and not transparent.”
The Penny government, which is mired in corruption, is also accused. The government paid a $ 11,000 Christmas bonus to all state representatives in the same week that oil prices rose 20 percent. Members were also given $ 6,500 each. Mexico is a country with an average annual income of only $ 12,000. – The Conversation website reports.
Mexico has been battling armed drug gangs (cartels) for ten years. More than 2 lakh deaths so far. Guzmn el-Chapo, the most brutal cartel leader in the group, was captured by the government but escaped within months, much to his shame. In 2014, 43 students went missing from the state of Gorero. Another controversy erupted when the president’s wife bought a $ 7 million mansion from a government contractor. During the Gasolinazo uprising in 2016, Enrique Penya Nieto received the worst rating in a public vote.
Corruption and unstable internal affairs are forcing people in Mexico to flee. From 1965 to 2015, about 1.6 million Mexicans came to the United States in search of a better life. According to a 2014 estimate, there are 1.1 million illegal Mexican immigrants in the United States – according to the Pew Research Center.
The newly-elected Andres Manuel Lopez Obrador government has decided in 2020 not to increase fuel prices in the country. Sales are now in line with international prices. The final price will be determined by the tax set by the government and the international price. The government will bear the loss when international prices rise. When the price goes down, the price fixed by the government will continue and the government will get the benefit.