The Lull before the Financial Storm

Photo: Factufácil


This is the summer storm season for Mexico, so talking about yet another up-and-coming tempest – and not in a teapot – is not only normal, but also routine.

The one storm I want to deal with today is the current drafting process of the 2021 Economic Package that Mexican Treasury Secretary Arturo Herrera is in the process of putting together. In the economic timing of the government, the package will land in the hands of both houses of Congress on Sept. 6.

The package usually contains an outline known as the General Criteria for Economic Policy, the Law of Income and Expenditures Budget of the Federation.

This year, however, Mexican President Andrés Manuel López Obrador (AMLO) must also present in tandem with the “budget” – as the package is also known – an emergency economic recovery program that will branch out in many directions and which was necessitated by the economic lockdown due by the covid-19 pandemic. While the budget may be government routine, the economic recovery program is untrodden territory.

Just last week, I said that as a result of the gubernatorial summit at San Luis Potosí, the one agreement the president did make with the 32 state governors was that there would be a National Budgeting Convention among the federal Treasury and the state treasurers. That is now being organized, but with the deadline rush, it should happen very soon. Part of the current budgeting difficulty is that this is a year in which the federal and state governments – which usually go their separate ways on this issue – will have to work together in order to keep the nation’s economic boat from hitting the rocks.

In these discussions, surely there is the previously unaccounted-for issue of coming up with the 20 billion peso fund to pay for the national anti-virus vaccination program.

In the programmed expenditures is the 27 billion (more than less) that the 2021 midterm general election will cost in which 21,368 different electoral posts will be voted on. Posts at stake include 15 state governor offices, over 2,300 municipal mayor races and definitely the cherry on the cake, which will be the renewal of 500 seats at the Chamber of Deputies, notwithstanding reelections allowed for the first time.

In the outlining document the Treasury will deliver, economists are forecasting that expectations are for a 3.0 Gross Domestic Product growth, with inflation staying put also at 3 percent and Treasury Certificate yields dropping down to 4 percent.

At the macroeconomic level, the AMLO Administration has been doing well with the international reserves, which in the last report on May 19, 2020, they were put at $186,922 billion. Expectations by year-end are to have them over $190 billion.

Much to the chagrin of many traditionalist economists, the AMLO administration is bound to continue on its “republican austerity” course. Cuts on current expenses are to continue by further clipping the size of the government and funneling those savings into its programmed priorities, such as its ongoing railroad developments, the Dos Bocas refinery and trickling down resources “to those who have the least.”

Of course, putting together the budget will be hampered by the already-existing economic slump, which at this time is unforeseeable given the large amount of “opinionates,” each with their own amount of the total downfall of the economy at the end of 2020. Will it be a 9 percent contraction, or 10 percent, or 11 percent, or, as some claim, a 12 percent plummet? Make you guess with the only certainty that 2020 may be the worst year in Mexican economic history since the 1931 Great Depression.

In this case, if there is any consolation, Mexico is not alone is its doldrums, but accompanied by a plethora of other nations.

Perhaps Mexico will do a standalone when it comes to not borrowing money for its survival, as not borrowing is a key issue. AMLO has said that former presidents sent the nation not just into deep debt, but hocked its future and that on his six-year shift. “It takes one-fourth of the national budget just to pay for interest and servicing on the standing debt,” he said. Hence, no more panhandling for loans.

The one hope is that while the pandemic has hit the U.S. economy as hard as it has, Washington is still singing, “and our flag was still standing there” as things do not go easy. Nevertheless, in Mexico, expectations are that the United States will do well and haul us through the new United States-Mexico-Canada Agreement (USMCA) into, if not a better, at least a more stable economic situation.

There will be strong debate over which economic course to follow- The conservative economists want to apply full brakes on Mexico’s rolling economic train. while AMLO is riding on its happy-go-lucky path to steering the economy away from conservatives.

The only certainty regarding Mexico’s yearly storm seasons in the Atlantic and the Pacific is that it is dye to end in November. And so will the upcoming hot discussions on the country’s 2021 budget.

Hang in there; the lull is now.

…Aug. 25, 2020











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