Mexico’s Low-Key Stimulus Plan Criticized by Business Groups

(Bloomberg) -- Mexican President Andres Manuel Lopez Obrador said the country’s economic answer to the coronavirus outbreak will be limited to public works projects, low-interest loans to the poor and budget tightening, triggering criticism from businesses leaders asking for bigger stimulus measures.

In a speech late Sunday that was short on new announcements and broad measures, Lopez Obrador said he’d tap into Mexico’s rainy day oil fund, known as FEIP, along with disbursing more than 2 million loans for housing and small businesses. He also vowed to create 2 million jobs in nine months, a major undertaking considering Mexico created only about 342,000 net jobs in all of 2019, Lopez Obrador’s first full year in office.

Having spent much of his life criticizing the close relationship between the political and the business elite in Mexico and vowing to protect the poor, the president now refuses to propose measures that he furiously objected to in previous administrations. He is betting that by showing a different approach to deal with an economic crisis he will consolidate his credentials as a leader who’s breaking with Mexico’s recent political past.

“This is a new model. We can’t go on with the same,” AMLO, as the president is commonly known, said Monday morning during his daily press conference, which lasted over two hours. “We said we won’t be applying the same political economy that failed time and time again.”

He repeated there won’t be bailouts or tax exemptions to companies and banks, saying the only rescue plan will be for “the people of Mexico.”

Collision Course

AMLO’s reluctance to aggressively tackle a recession that some economists say will be worse than the devastating Tequila Crisis of the mid-1990s is putting him on a collision course with Mexico’s business representatives.

On Monday, the Consejo Coordinador Empresarial, the country’s top business lobby group, called the president’s announcement “incomplete” for the big crisis Mexico is facing and said measures shouldn’t be delayed.

Canacintra, another business group that represents industrial firms, criticized the government for not implementing counter-cyclical policies, saying the economic crisis may cost Mexico as many as 1.4 million jobs.

Disappointment over Mexico’s answer to the crisis helped send the peso to a record low in Asian trading on Monday, with the currency touching a record low 25.7849 per dollar. It advanced later on, but under-performing Latin American peers.

Some analysts are concerned that the stimulus package won’t be nearly enough to help pull the economy out of a contraction estimated at 5% of gross domestic product this year.

“His message, as we expected, did not have anything new,” said Carlos Petersen, an analyst with Eurasia Group in Washington. “It’s more of the same: his social and infrastructure plans, with some additional resources or through credits.”

Read More: Mexico GDP Expected to Shrink 8% This Year, Bank of America Says

In his Sunday speech, Lopez Obrador reiterated he will continue with the construction of the new Santa Lucia airport in Mexico City and the Dos Bocas refinery, two of his pet projects that will draw billions of dollars from public coffers and which he argues will increase jobs.

His government is also cutting Pemex’s tax burden by an extra 65 billion pesos ($2.5 billion), although it wasn’t immediately clear if this is a new measure. And he vowed not to let Mexico fall further into debt.

The fiscal plan is “underwhelming,” Alberto Ramos, chief Latin America economist for Goldman Sachs, wrote in a note following the president’s speech. Mexican authorities “seem to be underestimating the economic impact of the viral pandemic and the need for a deeper re-orientation of fiscal policy.”

“This Sunday’s message shows a president that faces a drastic change of circumstances but insists that his course of action is the right one,” Citigroup economists led by Sergio Luna wrote in a research piece.

Lopez Obrador added that the government will announce this week an investment package of 339 billion pesos in energy infrastructure with private companies. He said he’ll cut salaries from top government officials including his own, and require further operational expenditure cuts.

“It is extremely concerning that the president is not willing to adjust and change plans in a moment that the economy will really need it,” Petersen said. “It’s clear that Lopez Obrador is convinced that his plans will work, which will make any change in his strategy very difficult. And the later he reacts the worse it will be for the economy.”

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