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23 May1999

Informal Sector - A Billion Dollar Lifebelt

By Pilar Franco

MEXICO CITY, May 7 (IPS) - The informal economy accounts for 44 percent of urban jobs in Mexico and moves as much as 146 billion dollars a year, 12.3 percent more than exports, according to the Organisation for Economic Cooperation and Development (OECD). The OECD, which groups the world's 29 largest economies, released a report this week in Mexico City describing the boom in the informal economy as basically a consequence of widespread poverty.

The organisation, of which Mexico is a member, blamed the explosive growth of the underground economy on the low level of education among a significant part of the population and the absence of a social safety net. The Mexican government, meanwhile, continues to tout its indicators of economic recovery in the wake of the severe 1994-95 crisis, such as a drop in unemployment to 3.4 percent in 1998, the lowest level registered since 1992.

Mexican authorities expect to draw more than 10 billion dollars in foreign investment this year, which would generate 41,400 direct jobs.

''Direct foreign investment has become, since 1994, an essential engine for employment'' in the country, President Ernesto Zedillo told an auditorium full of foreign investors last month.

But the improvement in production and the rosy statistics have failed to keep large masses of people from resorting to street vending and manufacturing of all kinds of pirate products - evading taxes and violating labour laws - to get by. In the informal sector, which provides 44 percent of urban jobs, the average income per person is equivalent to 10 dollars a day, said the OECD report.

In Mexico, 57 percent of non-farming jobs are concentrated in the informal sector, similar to the level seen in Latin America's other large economies, Brazil and Argentina - 56 and 53 percent - according to the OECD, which cited International Labour Organisation (ILO) statistics. The OECD acknowledged, however, the difficulty of reliably gauging the size of the informal economy. Based on Mexican government figures, the informal sector would be estimated at around 10 percent of Gross Domestic Product (GDP), said the report - which added, however, that according to other studies based on electricity use or demand for currency, street hawking represents up to one-third of GDP, or some 146 billion dollars a year.

Mexico's foreign debt stands at 161 billion dollars, its foreign reserves at 30 billion dollars, and exports bring in around 130 billion dollars a year. Unemployment in Latin America as a whole stood at 7.4 percent in 1997. Last year, it stood at 7.9 percent in Brazil, 11.3 percent in Venezuela, 15.2 percent in Colombia and 3.4 percent in Mexico, according to the ILO. But unemployment in Mexico, which shot up to six percent during the 1995 crisis, has dropped ''not due to real economic growth, but because a large part of the unemployed have had to take refuge in the informal sector of the economy,'' said Agustin Porras at the Metropolitan Autonomous University. While ''the productive sector's capacity to absorb labour shrinks, street hawking is sharply rising,'' he added.

By the year 2010, Mexico will be home to 111 million people - compared to today's 96 million - and the economically active population will be 50-million strong. That means that beginning next year, 900,000 jobs will have to be generated annually to meet demand, said Porras.

The OECD pointed out that Mexico's informal economy grew during periods of economic recession. Porras said that was because it was the only place to which those left unemployed by the formal sector could turn. ''The integration of the informal economy is a complex problem that goes beyond strict administrative control and the country's fiscal structure itself,'' said the OECD.

A large part of the informal economy in Mexico consists of subsistence-level activities, which makes it unfeasible for authorities to charge and collect any sort of taxes, said the study. Informal commerce also contributes to tax evasion by the country's large companies and wealthy individuals, thus further eroding the formal sector's tax base, said the OECD. Legally established companies sell a portion of their production on the black market, thus evading taxes. Furthermore, the supplies of street hawkers come, at least to a certain extent, from undeclared imports that have not paid duties, and on some occasions are comprised of stolen goods, the report added.

The OECD recommended that the Mexican Congress create mechanisms designed to integrate the informal economy into the tax base. (END/IPS/tra-so/pf/mj/sw/99)

Origin: Montevideo/ECONOMY-MEXICO/
[c] 1999, InterPress Third World News Agency (IPS)