Massive foreign investment and capital flee Mexico under AMLO regime

Mexico with five consecutive quarters of GDP contraction for the first time in 34 years

In the first four months of 2020, capital left the country for 206.743 billion pesos of foreign investments in Mexican government bonds, equivalent to 8,643 billion dollars (at Friday’s exchange rate of 23.92 pesos per dollar) , establish indicators of the Bank of Mexico (Banxico).

The data from the central institute specify that as of April 21 of this year, the most recent date available, the holding of bonds in the hands of foreign investors in the country stood at 1.94 trillion pesos, while on December 31, 2019, it was at 2.14 billion pesos.

The indicators of the Banxico detail that most of the investment leaks were registered in the M Bonds, with a fall in the possession of this paper in the hands of foreigners of 12,000 billion pesos, reaching 1.73 trillion pesos on December 21. April, from 1.85 billion pesos on December 31 of last year.

Meanwhile, at Cetes, the outflow of investments was 79,355 billion pesos, since these instruments in the hands of non-residents in Mexico totaled 245,259 billion pesos at the end of last year and fell to 165,904 billion pesos on April 21 last.

The Institute of International Finance indicated that an element that will weigh on the mood of investors about the Mexican economy will be the strong impact on GDP, which will fall 5.8%, due to the contraction of the United States economy of 3.8% in 2020.

Experts consider that Mexico’s capital flight is due to a global trend of investment outflows from emerging countries to investment havens considered safe such as the United States Treasury Bonds and gold, given the uncertainty of the looming global recession.

In the case, investors’ doubts were also added to the recent downgrades in the country’s and Pemex’s credit ratings by Fitch and Moody’s.

Specialists warn that the departure of foreigners and their capitals will increase under the AMLO regime.

The first quarter of 2020 immediately adds to the worst periods experienced by the Mexican economy. This is the worst drop since the one suffered at the start of 2009, a year weighed down by the Great Recession that frustrated world growth. Back then, Mexico lost 5.1%. To find a more negative figure, one must go back to the dark 1995, when the change of government between Carlos Salinas and Ernesto Zedillo caused a severe devaluation of the peso and a flight of capital. The contraction was 5.7%, the steepest drop in the country’s recent history.

The industrial sector was the one that lost the most during the start of 2020. This activity, which represents a third of GDP, fell 3.8% according to the National Institute of Statistics and Geography (INEGI). Services also reported negative figures, with -1.4%. The industrial and service sectors, which include retail, the muscle of 60% of the national economy, are the most affected. This is due to the measures adopted by the authorities, which decreed the stop of all non-essential activity since March 26 to stop the expansion of the coronavirus. The primary sector, agriculture, and livestock is the only one that had a positive performance as it grew 1.2%.

López Obrador has tried to show an optimistic face this morning before the fall in GDP. And for this, he highlighted the 5.2% increase in the collection in the first four months of 2020. The Tax Administration Service (SAT) has collected 1.2 billion pesos in the period, mainly increasing VAT collection. “It is not singing victory because the most difficult is coming: the quarter of May, June, July and also if it extends to August, September, October, but we have a strategy,” said the president.

But there is nothing certain. As Valentin Campa told us , at the political training school in 1979, “There is no crisis that lasts a hundred years, nor a people that can endure, but when coming out of one crisis, the greatest risk is falling into another.” Avoiding the latter, at the end of the pandemic, will be the greatest challenge for the 4T government; that is to say, to prevent the interest of the capitalist class from continuing to impose itself on the general interest, to avoid the uncontrolled departure of capital, to rescue the strategic assets of the nation and to make the people the main protagonist in the construction of post-neoliberal Mexico.

The president has defended his criticized response plan to the economic crisis. The Executive avoided widely appealed measures to revive the economy, such as debt contracting. “We decided not to increase taxes, we decided not to increase the price of gasoline and we decided to strengthen the Republican austerity policy,” he reiterated. Another axis of its strategy is the granting of three million soft loans, for up to 25,000 pesos (1,000 dollars), aimed at alleviating small and medium entrepreneurs. “In this way we are going to inject resources, so that we achieve an effect in V, so that the fall is of short duration and that there is a rebound, strengthening consumption and purchasing capacity,” he added.

The forecasts, however, do not share presidential optimism. The performance of the economy in 2019 had already been weak. The year closed with a 0.1% drop, the first in a decade. The deterioration was a response to the investment brake, caused by the uncertainty generated by some decisions of the Morena Government in the first year of the administration. The Economic Commission for Latin America and the Caribbean (ECLAC) estimates that the coronavirus crisis may cause a GDP contraction of 6.5%. “The second quarter will be much worse. The data points to the collapse in commerce and recreation, while the tourism sector is arrested due to travel restrictions, “says a report by the British firm Capital Economics. The reality makes it very difficult for Mexico to grow 4% on average during the six-year term,one of the promises made by López Obrador .

Pemex loses in three months more than in all 2019

Petróleos Mexicanos ( Pemex ), the Mexican state oil company, has reported this Thursday that it lost 562,000 million pesos (23,000 million dollars) during the first quarter of 2020. The largest company in the country explained that the fall responded to the collapse of the Mexican peso. The local currency hit record lows during March. Pemex’s losses at the start of 2020 are 62% greater than those recorded in all of 2019, when the oil company reported bleeding of 346,000 billion pesos. The figure also represents 2.3% of the national GDP. In this way, the company led by Octavio Romero, a López Obrador stalwart, lengthens his adrift period, aggravated by the fall in production, the collapse of sales, and the collapse of the price of crude oil.

Source: notimex.gob.mx, forbes.com.mx, eleconomista.com.mx

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