AMLO Ally at Mexican Central Bank Says Ditch Fiscal Conservatism
AMLO Ally at Mexican Central Bank Says Ditch Fiscal Conservatism
(Bloomberg) -- One of Mexico’s top policy makers is calling for a larger stimulus, putting pressure on the fiscally conservative President Andres Manuel Lopez Obrador.
Gerardo Esquivel, a leftist academic who was first tapped by Lopez Obrador as deputy finance minister for spending and was then nominated by the president to the central bank’s board, said economic measures announced so far won’t be enough to deal with the fallout from the coronavirus pandemic.
Mexico’s aid package is by far the smallest among major economies in the region, according to the International Monetary Fund, despite forecasts that it will be among the hardest hit. Lopez Obrador took power in December 2018, pledging to not increase the country’s debt, and he has rejected issuing more bonds to fund the country’s coronavirus response.
A chart posted by IMF Western Hemisphere Director Alejandro Werner shows that Mexico’s announced package of resources available is equivalent to less than one percent of gross domestic product. That compares with spending commitments of about 12% of GDP in Peru and more than 10% in Brazil.
The leftist president has said countercyclical policies promote corruption, and is hostile to bailouts. He has repeatedly attacked Mexico’s bank bailout of the 1990s as a heist of public funds for the rich. On Friday, he said big companies did not deserve tax breaks after decades of evasion.
In a paper posted to Twitter on Thursday evening, Esquivel called for a second wave of stimulus measures that could cost around 1% of gross domestic product, in order to provide unemployment payments to formal and informal workers and support small businesses with breaks such as deferrals of social security payments.
So far, Lopez Obrador’s economic response has consisted of speeding up payments under his existing cash aid programs to the poor and offering 3 million loans to small businesses. He said Friday the government will create jobs with infrastructure spending, including initial work for a tourist train project.
After Mexico’s Finance Minister Arturo Herrera participated in a G20 meeting of finance ministers and central bankers on Wednesday, he warned Mexico has yet to face the worst part of coronavirus contagion and will need tools and flexible measures. In a local radio interview on Thursday evening, he said Mexico has multiple plans and options ready if economic conditions worsen, but he said Lopez Obrador is betting on his “Plan A” for the time being.
Fitch Ratings Inc. cut Mexico’s credit rating to one notch above junk on Wednesday as it warned a “severe recession” will increase the country’s debt burden.
©2020 Bloomberg L.P.