Mexico Unveils $44 Billion Infrastructure Plan to Boost GDP

(Bloomberg) -- President Andres Manuel Lopez Obrador announced an infrastructure plan worth 859 billion pesos ($44 billion) that includes highways, railways, ports and airports as well as investments in telecommunications with most of the capital coming from the private sector.

Lopez Obrador presented the plan for the first 147 projects alongside Carlos Salazar and Antonio del Valle, heads of two of the country’s biggest business chambers. The plan includes heavy spending from the private sector as the government continues to cut spending to meet fiscal targets.

The plan comes just a day after economic data showed that the Mexican economy suffered a slight recession in the first half of the year. Analysts forecast Mexico’s gross domestic product to grow just 0.2% this year, the lowest since 2009 amid stagnant oil output, slumping construction and stalled services activity.

“It’s a great initiative given that it recognizes weakness in the investment and construction segment and recognizes the need and important role of the private sector,” said Gustavo Rangel, the chief Latin America economist at ING Financial Markets in New York. “Having said that, implementation risks are still hard to assess at this stage.”

The first stage of a later amended version of the plan is expected to be implemented by 2020 with 431 billion pesos of outlays going largely to the tourism and transportation sectors. The second stage, which will be completed by 2022, includes nearly 256 billion pesos in planned spending with an additional 172 billion pesos invested by 2024.

After the initial presentation showed a discrepancy of $7.6 billion, one of the business chambers shared an updated presentation that showed energy projects that amount to nearly 149 billion pesos.

“The presentation of the energy projects was postponed,” Jesus Ramirez, the president’s spokesman, said in response to questions about the difference.

In comments to reporters after the event, Salazar said that all the first 147 projects are new, and that it was merely a first step toward boosting the economy. He pointed to a project in his home state of Nuevo Leon where he says a road project has been waiting between as long as 25 years for funding. He also said that the projects will be more transparent because they are being announced in public and comply with standards set out by the business chamber CCE.

“We want all of this to be done according to the code of ethics of the CCE and our member organizations,” Salazar said. “Everyone should be aware and the projects should be tendered.”

Lopez Obrador has pledged to lift growth to 4%, but his decision to scrap a $13 billion airport project before taking office last year and a slump in construction have pummeled the nation’s building industry. During the press conference, the president was careful to emphasize that his administration did not have disputes with the business sector.

The head of the Mexican Banking Association Luis Nino de Rivera joined Lopez Obrador on stage, saying that Mexican banks have 600 billion pesos ready to lend to boost growth.

“This is of the highest importance,” said Lopez Obrador. “Participation of the private sector in the country’s growth is necessary.”

--With assistance from Eric Martin.

To contact the reporters on this story: Andrea Navarro in Mexico City at anavarro30@bloomberg.net;Justin Villamil in Mexico City at jvillamil18@bloomberg.net

To contact the editors responsible for this story: Carolina Wilson at cwilson166@bloomberg.net, Daniel Cancel, Carlos Manuel Rodriguez

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