Mexico’s president refuses bailouts for businesses

Critics fear López Obrador’s focus on social spending could hurt small companies

A day after President Andrés Manuel López Obrador slammed the door on a bailout to help Mexican businesses weather the coronavirus pandemic, some Mexicans are afraid the timid response will deal a fatal blow to the small companies that drive Latin America’s second-biggest economy. 

Por qué los políticos convirtieron a México en un Estado fallido ...

Rather than following the lead of many other major economies in implementing measures such as tax breaks and other stimuli to help private-sector companies survive the deep shocks caused by widespread shutdowns, the populist president on Sunday said he would prioritise social spending.

More than 2m personal, household and small business loans would be offered, including 25bn pesos ($1bn) to fund 1m loans for small businesses, and social programmes and handouts aimed at almost half the population that lives in poverty would be increased, he added. 

He also said that the government would intensify housebuilding, public works programmes and his flagship airport, train and refinery infrastructure projects. The measures will create 2m new jobs, he said, without offering specifics. They will be funded by tighter government austerity and pay cuts for top officials rather than new debt.

Business leaders fear that by halting all but essential activities to slow the spread of coronavirus without major stimulus, as many as 1.2m jobs will be lost. Small and micro businesses account for seven out of 10 formal jobs and just over half of Mexico’s gross domestic product. If those are driven out of business, more people may be pushed into poverty.

“What disappointed me is that these policies he’s applying won’t leave us with a future when this is over,” said Cuauhtémoc Barrios, a 38-year-old entrepreneur in the northern city of Monterrey whose pallet business supplies a company making corn flour for tortillas.

[López Obrador] is becoming more radical. Reality is going to catch up with us

Senior business leader

Nathan Poplawsky, Mexico City head of the National Chamber of Commerce, estimated consumption is slumping by 2bn pesos a day in an economy that was already struggling before the pandemic hit.

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Gabriela Siller, head of research at Banco Base, said in the worst case the economy could shrink as much as 10 per cent this year, its worst performance since a 14 per cent contraction in 1932.

“People need there to be jobs. I don’t want money, I don’t want [a government social] programme,” said Mr Barrios, whose vote helped Mr López Obrador to a landslide victory in 2018.

Mexico’s peso plunged to a new historic low of 25.8 to the dollar overnight as markets gave the thumbs-down to the president’s plan. “The later he reacts, the costlier this will be,” said one of Mexico’s top businessmen. “What today is a liquidity crisis will quickly become a solvency crisis and recovery will take years.”

The leftist leader has insisted that Mexico is facing a “transitory crisis” despite criticism from various quarters, including doctors lacking protective equipment and waiters demanding aid.

“In spite of adversities, the transformation of Mexico will not be halted,” Mr López Obrador said in his quarterly state of the nation speech on Sunday. “We’ll beat coronavirus. We’ll reactivate the economy and Mexico will remain standing, showing the world its glory and grandeur.”

He added on Monday: “We think [our plan] will be a model for other countries to follow.”

Mexico so far has 2,143 confirmed cases and 94 deaths from coronavirus. All but essential businesses have been ordered to shut until the end of April

Ya es “normal” el Estado fallido en México

“There is no plan B. There is no plan A,” said Carlos Ramírez, head of Integralia, a consultancy and a former member of the government’s financial stability council. “Ideology is really interfering with key decisions,” he said.

Mr Ramírez said that Sunday’s address to an empty patio — crowds were banned because of coronavirus — sent “a very powerful message: I don’t need anyone here. I call the shots”.

Business leaders say they do not want taxes waived, just a few months’ relief so they can pay staff as their income dwindles. 

But without their tax income, “how will we give to the poor?” the president asked.

“He’s becoming more radical,” said the senior business leader. “Reality is going to catch up with us.”

Mexican workers, meanwhile, braced for pain ahead. “The government said they’d help everyone,” said Efigenio Arana, a carpenter, in a poor neighbourhood in Mexico City where many people work in the informal sector and cannot afford to abide by the government’s exhortations to stay at home. “Let’s see if they take us into account.”

Joel González, selling exhausts in a tiny shop and struggling to pay suppliers and cover overheads, was downbeat.  “There’s no support from the government. There are going to be a lot of job losses.”

Source: ft.com

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