Friday, October 16, 2009
Finally a President w/cashews...Mexican President Felipe Calderon
Mexico Knocks A Union's Lights Out
Latin America: The Mexican president shut down a money-losing state-owned electrical utility, taking a labor union down with it. The union is howling, but the shutdown is one of the best things to happen to Mexico.
For months, the SME union had been trying to intimidate Felipe Calderon into continuing to subsidize the Luz y Fuerza del Centro electrical distributor, even as its $16 billion in revenue didn't come close to its $32 billion in salaries and pension costs.
And why not? The union had done the same thing to all the other reform-minded Mexican presidents and saw all of them back off.
But it didn't have a clue about Calderon, a former energy minister who on Sept. 24 warned the union to cut costs or else. The union ignored the warning and tried to intimidate Calderon with political tactics, whipping up fear that he intended to privatize the utility. Calderon had a better idea: shut down the utility.
The stunning decision to disband the company and lay off 44,000 workers effectively ends the SME union. It was the strongest act to support the future of a country since British Prime Minister Margaret Thatcher took on the National Union of Mineworkers.
In 1984, she vowed to shut unprofitable mines and directly confronted the wrath of feared union boss Arthur Scargill. She held firm, opening the gate to Britain's resurgence as a globally competitive nation. The same will happen for Mexico.
It took just hours for Mexico's peso to rise on news that a huge financial burden had been lifted from the government. Luz y Fuerza del Centro was a money pit that cost the government $42 billion a year in subsidies. Analysts said the shutdown would save $25 billion — enough to enable the government to scrap a planned 2% tax hike.
The improved fiscal picture will keep interest rates in place and avert a ratings downgrade. All of this increases Mexican purchasing power, helps the government finance itself and releases money for lending and investment in a new economy.
The shutdown began in the dead of Sunday night when Calderon sent in troops to head off union sabotage and put the utility under the control of Comision Federal de Electricidad, a company that uses many private contractors to distribute electricity.The commission will be a sight better than Luz y Fuerza del Centro, which lost a third of the electricity it produced and had costs 176% higher than CFE's. LyFC's losses forced ordinary Mexicans to pay for the waste through above-market rates. Bloated payrolls, inherited jobs and massive pension benefits (a retiree gets three times the salary of a worker) explain why this company required subsidies equal to the entire budget of the Mexican army