Coronavirus: In Mexico, left-wing presidents cut spending

Mexican President Andrés Manuel López Obrador is one of the most powerful left-wingers in the world – a long-time champion of the poor who delivered harsh charges against neoliberalism and the global elite.

But his approach to government spending – even in the face of the COVID-19 pandemic and its economic collapse – may be better than the conservative icons Ronald Reagan and Margaret Thatcher.

López Obrador has abolished all government departments, cut officials’ salaries and canceled year-end bonuses. Cost-cutting measures come on top of steep cuts imposed from the start in his administration that targets everything from the country’s Olympic training program to public hospitals.

At the same time, López Obrador has rejected bailouts, tax breaks and debt relief, making Mexico the only major country in the Western Hemisphere that has not yet announced an economic stimulus package to counter the economic impact of the pandemic.

“We have to look for savings and only consume what we need,” he told a press conference Wednesday where he urged Mexicans to save their money. “If we already have shoes, why buy more?”

Economists across the ideological spectrum warn that austerity in the midst of a crisis pushes the nation towards disaster.

The economy is expected to shrink at least 7% this year – hammered by a deadly combination of falling oil prices, reduced demand for manufactured goods, less money transfers and a collapse in the tourism industry.

In March and April alone, Mexico lost more than 700,000 jobs in the formal economy. The Inter-American Development Bank estimates that at the end of the year 2 million more people will lose their jobs.

The National Council for Evaluation of Social Development Policy predicts the crisis could push as many as 10.7 million people – around 8.5% of the population – into extreme poverty, which is defined as having a monthly income of less than $ 67 in cities or $ 60 in regions the countryside.

Recent Catholic leaders urgent the president to divert money from some of his favorite infrastructure projects – including the construction of a $ 8 billion oil refinery – to provide cash payments to families, warning that in a country without unemployment insurance, many are already starving.

Some presidential policymakers themselves have pushed for stimulus measures. Gerardo Esquivel, a left-wing academic nominated by López Obrador to the central bank’s board, has called for a new spending program that will provide checks to unemployed people and tax breaks for small businesses.

Nearly all economists agree that the government should run a budget deficit during a recession, Finance Minister Arturo Herrera Gutiérrez wrote in a policy document late last year.

López Obrador has held fast.

Although he campaigned with promises to help lift the poor out of poverty, he also vowed to drastically cut government spending, waste, and corruption.

Much of his popular appeal comes from the savings he practices in his own life. He had avoided the presidential palace for the sake of a simple apartment in the building where he worked and only flew with commercial airlines – and always with coaches.

López Obrador also seems to be guided by haunting memories of past economic disasters, including a government bailout of banks after the fall of the 1994 currency, where taxpayers were stuck covering up bad loans given to friends and family members of bank executives.

“Throughout his political career he has spoken out against this,” said Genaro Lozano, a political scientist at Iberoamerica University in Mexico City. “One of the reasons he got to the presidency relates to the fact that people are very angry about using public money for frivolity.”

Andrés Manuel López Obrador at the rally at the campaign.

Instead of going through economic stimulus measures, López Obrador took what he considered a more direct approach to solving the financial crisis: pushing to reopen the economy.

On Wednesday, nearly two months after he ordered a halt to all unnecessary trade, he said businesses and schools in hundreds of countries where coronavirus infections had not been reported could be reopened starting May 18, with the rest of the economy gradually starting to return on June 1.

He also said he had given the green light to the three main industries to be resumed next week – construction, mining and manufacturing of cars and auto parts. “There is light at the end of the tunnel,” said Lopez Obrador.

Later that day, Deputy Health Secretary Hugo López-Gatell said the car, construction and mining industries would not actually be allowed to reopen until June 1.

News of the factory reopening was welcomed by many US businesses that depend on cross-border trade and have lobbied to lift restrictions, said Michael Camuñez, president of consulting firm Monarch Global Strategies and former assistant secretary of the US Department of Commerce.

The economies of Mexico, Canada, and the United States are increasingly integrated, but each country has issued its own guidelines on which businesses can continue to operate and which should be closed.

“That creates a lot of heartburn on both sides of the border,” said Camuñez.

But others worry that Mexico is moving too fast, increasing the risk for another wave of transmission.

The governor of the state of Puebla, which is home to a large Volkswagen factory and dozens of parts manufacturers that supply it, criticized the decision by federal officials, saying it would erase the hard-earned profits after weeks of keeping social distance.

“They will ruin everything,” said Governor Miguel Barbosa, who is a member of Morena López Obrador’s party. “And we are talking about this happening in the midst of the most critical pandemic moment.”

On Tuesday, Mexico recorded 353 deaths from the new corona virus – the highest number in a day – and on Wednesday it confirmed a total of 4,220 deaths. Authorities say the actual number of deaths is almost certainly higher because relatively few COVID-19 tests have been carried out.

At the end of April, Mexico had conducted only 0.4 tests for every 1,000 residents, according to the Organization for Economic Cooperation and Development. That’s the lowest level among 37 organization countries and about 1/40 level in the United States.

“Considering what is not reported … returning to normal activities in two or three weeks seems impossible,” political analyst Ezra Shabot wrote on Twitter. Others cite recent outbreaks in factories along the northern border where some work deemed important continues.

Jose Carlos Moreno-Brid, an economist at the National Autonomous University of Mexico, said the pressure to lift restrictions is very high because only 20% of Mexican workers do work that can be done at home.

“We must reopen the economy at some point,” he said. “But I’m not sure now is the time.”

Moreno-Brid chose López Obrador in 2018, moved by his offer to the poor and his promise to fight corruption. But he said he had lost confidence in the president, partly because of a stubborn refusal to increase spending.

“The main lesson from the Great Depression is that the government should not follow the austerity during difficult times,” he said. “All savings are made to extend the recession.

“His discourse is very good,” Moreno-Brid said of the president. “But the real way is a disaster.”

Cecilia Sánchez at The Times ’Bureau of Mexico City contributed to this report.