Administration of Vicente Fox Proposes Controversial Plan to Eliminate Some Electricity Subsidies

SourceMex Economic News & Analysis on Mexico, February 6, 2002 | Go to article overview

Administration of Vicente Fox Proposes Controversial Plan to Eliminate Some Electricity Subsidies


In a controversial decision, President Vicente Fox's administration has drafted a plan to eliminate some residential electricity subsidies. The decision, which becomes effective in mid-February, would phase out subsidies for households with high electricity usage but retain subsidies for homes that consume low amounts of electricity.

The administration initially contemplated eliminating 10 billion pesos (US$1.09 billion) in subsidies, but later scaled down the reduction to only 8 billion pesos (US$877 million) because of strong pressure from the business sector and some members of the Mexican Congress.

Finance Secretary Francisco Gil Diaz and Energy Secretary Ernesto Martens Rebolledo said the money saved from subsidies would be channeled into maintenance operations and expansion of the infrastructure for Mexico's two main electrical utilities, the Comision Federal de Electricidad (CFE) and the Compania Luz y Fuerza del Centro (LFC).

Critics say low-income consumers will suffer

Even with the scaled-down subsidy reduction, the move was strongly criticized by some business organizations, labor unions, and politicians, including some members of Fox's center-right Partido Accion Nacional (PAN).

Critics said eliminating subsidies would raise utility bills for a large share of the population, causing increased hardships for many consumers who are already struggling to make ends meet. The administration had projected higher utility bills for 25% of consumers in Mexico, but the Sindicato Mexicano de Electricistas (SME) said the higher costs would affect three out of every four consumers.

The Banco de Mexico (central bank) also raised concerns about the impact of higher electricity costs on consumer inflation during 2002. "Any adjustments to prices [of goods and services] administered by the public sector must occur in concert with the inflation objectives for the year," the central bank said in a document on forecasts for 2002.

Guillermo Ortiz Martinez, the central bank's chief governor, said the Banco de Mexico had not determined the full impact of the higher electricity prices on annual inflation, but hinted that the government is not likely to meet its inflation target of 4.5% for the year because of increased energy costs.

Ortiz, who criticized the administration for not consulting with the Banco de Mexico, said the central bank might have to resort to tightening the money supply if high inflation becomes a possibility.

Proposal divides business community

There was also grumbling within the business community, with organizations like the Consejo Coordinador Empresarial (CCE) raising concerns that the increase in residential power costs could have an inflationary impact on all electricity bills. "Our concern at this time is that high energy prices not increase our costs of production because this would affect our productivity and could cause us to reduce our labor force," said CCE president Claudio X. Gonzalez.

Still, some business leaders defended the Fox government's decision. "It is good to eliminate unnecessary subsidies to cut back on the fiscal deficit," said Hector Rangel Domene, president the Asociacion de Banqueros de Mexico (ABM), who said the only subsidies the government should maintain are those for the truly needy.

The decision to eliminate subsidies provided an opportunity for the long-governing Partido Revolucionario Institucional (PRI) to criticize Fox. The PRI is reeling from the administration's decision to investigate campaign- financing irregularities during the 2000 presidential campaign. The investigation is focusing on charges that the former governing party illegally used funds from the state-run oil company PEMEX for the campaign of its presidential candidate Francisco Labastida (see SourceMex, 2002-01-30).

Deputy Victor Infante, a leader of the PRI in the lower house, called for citizens to take matters into their own hands by refusing to pay their utility bills. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Administration of Vicente Fox Proposes Controversial Plan to Eliminate Some Electricity Subsidies
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.