AMLO’s government indifferent fiscal response is inexcusable (Bloomberg)

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Lopez Obrador Is Making Mexico’s Tragedy Worse

The government’s indifferent fiscal response is inexcusable.

The Covid-19 pandemic confronts governments around the world with two overlapping emergencies: the virus itself and the economic collapse it’s causing. Mexican President Andres Manuel Lopez Obrador is failing on both.

Coronavirus cases continue to rise in Mexico, with thousands newly diagnosed every day. The country’s ratio of deaths to confirmed cases is the second-highest in the world, after the U.K.’s. The economy is projected to contract by at least 7.6 percent this year — and could slow even more due to the resurgence of the virus in the U.S., the country’s biggest trading partner. A United Nations report estimates that the number of Mexicans living in extreme poverty this year could rise from 11 million to 17 million, or 13% of the population, the biggest increase in the region.

Mexico’s population density, underfunded health-care system and large informal economy make it especially vulnerable to the coronavirus. Misguided policy has only made matters worse. After ordering most businesses to shut on March 30, the government allowed for a partial reopening on June 15, despite the accelerating infection rate. Social-distancing and mask-wearing rules have been inconsistently enforced. Lopez Obrador has openly flouted the advice of his own health officials, continuing to hold campaign-style rallies replete with handshakes, hugs and selfies.

The inadequacy of Mexico’s pandemic response should be kept in some perspective, considering the failures of other countries to contain the virus. Less defensible is Lopez Obrador’s handling of the economy. Unlike the leaders of most major economies, he has rebuffed calls for aggressive fiscal stimulus to support workers and businesses. The government’s spending commitments amount to about 3% of GDP — one-third what G-20 countries as a whole are spending — and much of it is money repurposed from other programs. The funds are being doled out as microloans to small businesses, up to a maximum of just $25,000 pesos ($1,150), which most have already exhausted. Larger companies in the formal economy, which employs some 40% of Mexico’s labor force, have received no government assistance.

Lopez Obrador’s refusal to support private industry after Mexico slipped into recession last year was a mistake. Continued penny-pinching in the face of a historic crisis that has already destroyed at least 1 million formal-sector jobs is inexcusable. Relative to its neighbors, Mexico has a manageable debt-to-GDP ratio, giving the government room to borrow.

Even as Lopez Obrador cuts government salaries in the name of austerity, he’s barreling ahead with pet infrastructure projects — including a $6.5 billion passenger train aimed at boosting tourism on the Yucatan peninsula — that will take years to complete.

Rather than place risky bets on future development, the government needs to deal with the crisis at hand. It should boost cash transfers to workers in the informal sector, as other countries in Latin America have done, increase subsidies to help businesses in the formal economy stay afloat, and use infrastructure funds to upgrade existing roads and rail networks.

U.S. officials should use Lopez Obrador’s planned visit to Washington this month to urge such steps. They should also warn him to pull back from attempts to limit private energy production and undermine the independence of government regulators — all of which threaten to further discourage investment and business activity.

A stable and prosperous Mexico is essential to the futures of people on both sides of the border. Lopez Obrador’s refusal to spend more to help Mexicans withstand the current crisis will only make it harder to recover.

Source: Bloomberg

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