Luis Rubio
The government is confronting unmistakable challenges in the most diverse ambits, for which it does not have reasonable or viable solutions. Insecurity, inequality, poverty and the lack of growth, to mention only a few, are nodal problems that the country has been up against for decades –if not centuries‑ and that are unlikely to desist with the strategies being adopted. However, there is a scenario concerning which the legacy of the previous government is particularly injurious because it restricts the capacity of action of President López Obrador, but, above all, because it constitutes a bona fide disgrace for a government that, in all of its arrogance, branded itself as orthodox: public finances.
The prior administration increased the public debt by nearly ten percentage points with respect to the Mexican GDP, despite having driven one of the most vigorous tax-collecting (and pernicious for growth) fiscal reforms in decades. Additionally, it saddled Pemex with a debt of more than 45 billion dollars, depositing the company in virtual bankruptcy. Not only that: the growth of the debt was essentially in foreign currency instruments, which increased the country’s vulnerability, and which in itself explains the extreme depreciation undergone by the peso during those years.
Although during the last third of that six-year government there was a dedicated effort to correct the excesses of debt and develop an acceptable financial program for the bondholders of “our” oil company PEMEX, the legacy for the current government was toxic. Some examples of that are the financial crisis of the ISSSTE (the State workers social security system), which compromised its functioning, the high interest ratesand the costs of servicing the public debt and, most of all, the enormous risk that the Pemex’s finances represent for the government and for the nation in general.
This is not the first time that a government has inherited a precarious and even dangerous financial situation. It is enough to remember the situation in which President Echeverría left the country, the circumstance López Portillo left to Miguel de la Madrid or that Salinas left to Zedillo. The first two were the product of kindergarteners-at-play errors in economic leadership, motivated by ideological biases and political pretentions that implied abandoning the development criteria of the preceding decades, while the latter was due to the management of the debt at a moment of intense political volatility. The paradox of this is that the present government inherited a fragile financial panorama, but one that it appears decided to worsen.
The existing situation is hazardous because of the elevated status of the public debt, the virtual bankruptcy of Pemex, and the massive budgetary pressures that the government itself is generating. In contrast with the seventies and eighties, today the government basks in ample international reserves and the credibility that for decades was forged among financial market agents, permitting it to obtain foreign financing with relative ease, although that credibility has been eroding owing to the disorder that reigns in the government, as well as doubts about the projects driven by the president. The risk of loss of confidence in the international markets –due to internal matters or the relative uncertainty of the new NAFTA- are risks that cannot be avoided, in that its domestic impact would be devastating.
The more fundamental contrast with those administrations is much more transcendent: in 1976 as well as in 1982 and 1994, the heirs of those crises devoted themselves to modernizing the economy, focusing on promoting investment, attracting capital and resolving the financial as well as structural problems that the country was enduring. The present government clings to doing the contrary: return to megaprojects financed by public investment with uncertain rates of return (such as the Dos Bocas Refinery and the Tren Maya) and the growth of subsidies oriented toward financing political clienteles, instead of positioning bases for the growth of the economy in the long term. Nothing better symbolizes the contradictions of the current government than the cancellation of the project most likely to generate economic growth and improving competitiveness, the new Mexico City airport, in favor of two white elephants.
If to all of this one adds the exponential growth of the costs of pensions that the government will experience in the upcoming years (something known for decades, the product of the greater longevity of the population), and the similar growth of the clientele programs that the present government has designed, the fiscal problem could come to nothing more than exacerbation. In this regard we must add the project of fusing the diverse components of the health system, with the risk of reproducing, among physicians and the rest of the sector’s personnel, the union phenomenon that holds sway over the education sector.
In a word, the existing fiscal problem will become aggravated, anticipatingrisks that this administration will end up facing and that, while not being caused by the current government, are titanic in tenor and inordinately sensitive. The lousy budgetary management of the past administration has already rendered possible the electoral triumph of today’s President López Obrador and could wind up being an envenomed legacy.
@lrubiof