Rebuilding with no insurance and little government aid.
Wolf here: Don Quijones and his wife, who is from Mexico, spent part of the summer in Mexico but returned to Spain a few days before the earthquake. DQ’s in-laws live in Puebla, Mexico City, and Morelos — among the hardest hit places. They got through it unharmed and are more or less OK for now. But a lot of uncertainties remain. My thoughts are with them.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Rescue efforts in Mexico are beginning to wind down after a trepidatory (vertical) earthquake unleashed destruction and bedlam in Mexico City and the two central states of Puebla and Morelos on Tuesday. The temblor took place 32 years to the day after a horrendous quake killed at least 10,000 people in Mexico City in 1985.
Thankfully, the number of victims this time is many magnitudes lower, due largely to improved building standards and enhanced public awareness in the wake of the ’85 quake. Nonetheless, the death toll is close to 300 with thousands more injured. And for survivors the financial toll is just beginning.
Just as happened in 1985, the response of civil society to the latest disaster has been astounding. As CNN’s Mexico correspondent Susannah Rigg reports, rather than rushing away from danger in the immediate aftermath of the quake, many people ran towards it, in order to help others who may be trapped in collapsed buildings.
All over the city, people began forming human chains to help remove debris while other volunteers, including the so-called “topos” (moles), a famous volunteer group that formed after the 85 quake, burrowed into the loose wreckage in search of survivors. So far these groups have helped rescue scores of people, including eleven school children, from the debris. Social media has also played its part by helping send people to where they are most needed.
It’s this kind of solidarity that is keeping Mexico going. In fact, in some areas there are so many people helping out that willing volunteers are being told that no more help is needed. Hospitals are providing free care to the quake’s victims, architects and structural engineers are assessing the structural health of buildings free of charge, and therapists are offering free counselling.
Everybody wants to do their bit.
Even the government has tried to play a bigger role this time, after coming under scathing criticism for its inaction and corruption during the ’85 quake. But the government, both local and federal, is already deeply in debt and local administrations are being forced to make drastic cuts in their spending. Of the limited funds the government does have at its disposal, serious doubts have been raised as to how much of it will end up reaching its intended recipients.
The total amount of money in Mexico’s disaster relief fund is just 9 billion pesos (just over $500 million). That’s a tiny fraction of the amount of money Mexico’s elected officials are alleged to have plundered from state coffers in recent years. According to the Mexican newspaper El Universal, Mexican state governors are estimated to have defrauded the country of 259 billion pesos ($14.6 billion), more than enough to fund the rebuilding effort not only in Mexico City, Puebla, and Morelos but also the south eastern states of Chiapas and Oaxaca, which were rocked by a 8.2 quake over two weeks ago.
To further hamper the rebuilding effort, most of the apartment and office buildings affected in both quakes are not insured against natural disaster. This is one of the sharpest differences between disaster recovery efforts in advanced economies and emerging or developing ones. When people lose their homes or businesses in less advanced economies such as Mexico, they usually have to rebuild from scratch, with little or no financial support from the government or insurance firms.
Even among its peers in Latin America (with the notable exception of Brazil), Mexico is desperately under-insured, despite its heightened exposure to seismic activity and other forms of natural disaster. According to the Financial Inclusion Report of the National Banking and Securities Commission, the total penetration of the insurance sector in Mexico in 2015 was 2.1% of GDP, compared to an average of 3.1% for Latin America as a whole.
The Mexican Association of Insurance Institutions (AMIS) reports that only 8.6% of homes have a policy that covers damages from natural disasters. Roughly 5% of micro-enterprises insure their properties, a percentage that increases to 15% among small businesses. In other words, more than nine out of every ten homes and more than eight out of every 10 businesses affected by the earthquake have zero insurance coverage.
In Mexico City a total of 38 buildings have collapsed completely since Tuesday’s earthquake but another 3,800 are estimated to be damaged. That number is likely to rise sharply in the days and weeks to come as teams of surveyors assess the level of damage in each affected building. If the structure is deemed to be unsound, the building will have to be demolished.
Right now, thousands of people in Mexico City, Puebla, and Morelos, including close friends and family, are on tenterhooks. They know that if they lose the apartment or business they spent years (or even decades) paying off or building, they’re right back to square one. And for many, it’s probably already too late to go that far back. By Don Quijones.
So where does the money go that Mexico borrows? Answers emerge. Including offshore private accounts. Read… Where Does the Money Go that Mexico Borrows?