Before and After

Luis Rubio

The corona crisis will become a great excuse for the economic disaster Mexicans are experiencing, but it will not change the nature –or the very existence- of the actual problem. The cesspool already lies open.

To illustrate the phenomenon, let us think for a moment about the now famous presidential jet that President Andrés Manuel López Obrador (AMLO) refused to use: his avowed goal was to get rid of the plane, for which a lottery-style raffle was devised which however was not linked with the artifact. This process has afforded the President  number of opportunities to address the issue and to squeeze it dry to the utmost. Doubtlessly, this was a smack of political genius, except for one small detail: the time for the lottery-style raffle will arrive in September and the game will be over. The aircraft will still be there, with the same obligation for the Mexican government to make rent and maintenance payments. That is, the raffle, and the circus surrounding it, will not have solved the problem generated by the President himself. The problem will still be there.

The same occurs with the economy: independently of the fact that the crisis caused by the virus is already contracting Mexico’s economic activity causing a deep recession in 2020, there’s nothing in the horizon that makes it feasible for the economy to recover once the trauma has passed. The reasons why the Mexican economy has remained paralyzed could not be altered by the virus -before or after- although there is no doubt that these reasons will become more acute along the way.

The best way to describe what is coming is to call  it the “perfect storm”: a Mexican government that alienated private investment right off the bat; the total absence of a development strategy; the uncertainty in energy supplies;  falling oil prices; and large unproductive governmental expenditure, at the expense of the other critical budget items, that have immobilized sectors such as construction. All these factors had been present in Mexico prior to the appearance of the virus on the screen and (almost) all are the government’s responsibility. External factors that modify the panorama for the worse must now be added: the recession caused by confinement; the fall in remittances due to the contraction of the U.S. economy, especially in the service industry where a great part of the Mexican migratory workers are employed; the reduction of exports due to the lower demand for automobiles, household appliances, etc.; and a growing pressure on public finances due to the wide arrange of spending demands that the crisis itself is generating and, therefore, on the exchange rate.

Of course, no one can blame the López Obrador government for the health crisis, but, as the saying goes: when it rains it pours. The Mexican economy was going poorly even before confronting this challenge, but the crisis is now unnecessarily deeper due to the fact of not confronting the causes of the previously existing recession. In one phrase, the economy was already in free fall when external circumstances accelerated its contraction. In this respect, it is obvious that the President will blame the coronavirus for the recession, but that will not solve the fundamental problem nor will it contribute to a swift recovery once the immediate crisis is over.

What this crisis will do is to put on display the cesspool: the one existing previously to the coronavirus emergency as well as the one Mexican President uncovered without intending to. The cesspool that existed before is the one that allowed him to win the presidency. On that, unfortunately, he has done nothing to eliminate it: I refer to the issue of corruption. This is the product of one of the characteristics of Mexico’s legal and political system because it grants enormous powers to the authorities (at all levels) to decide who wins and who loses, unfettering huge chances to those who are corrupt. Because corruption in Mexico is never prosecuted, the prevalent impunity maximizes it in an inexorable fashion. The fact that President AMLO opts to “purify” instead of punishing public officials does nothing other than further establish that ancestral practice of corruption. In other words, the government has made no difference whatsoever in dealing with matters of corruption: the names of the people in government have changed (as usual), but the practice endures. The causes are still there.

The cesspool that President López Obrador uncovered is not new, but it is much more transcendent because it is a feature that cancels future growth. Private investment always flows when there are propitious conditions for it to prosper, and those conditions may be summed up in the existence of clear rules to which the government adheres and the certainty that these will be complied with. That is, everything refers to the trust that the Mexican government generates among those risking their savings and their capital. Moreover, governments worldwide bend over backward to attract investors through  building infrastructure, improving the regulatory and fiscal milieu, as well as leveling the playing field in order to facilitate the process. Regrettably, the present day Mexican government rejects these premises right away and has done everything possible to deny them. This is the reason why they will not be able to attract investment during the  remainder of the President’s six-year term.

As if anything more was missing from this scenario, the institutional destruction that has taken place in Mexico -that could seem as if it as not a big deal- has eliminated mechanisms that, for two or three decades, served to entertain the illusion that Mexico had changed and that the country should focus on growth, albeit since 2018, with greater equity. The current Mexican government entertains other agendas not compatible with development.

* Luis Rubio is chairman of the Mexican Council on Foreign Relations and of México Evalúa-CIDAC. A Spanish version of this Op-Ed appeared first in Reforma’s newspaper print edition. 

Twitter: @lrubiof

https://mexicotoday.com/2020/04/28/opinion-before-and-after/