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News Article

López Obrador’s Economic Recovery Strategy Criticized

By Sofía Hanna | Tue, 03/09/2021 - 14:52

President Andrés Manuel López Obrador recently celebrated the economic recovery strategy that his government implemented. However, there have been opposing statements mentioning that said strategy has no definite direction and could actually bring Mexico harm in the future. Above all, there has been criticism regarding the decision to not engage in more debt.

 “To finance this plan without increasing taxes or gasoline prices, we will resort to using savings from the Budgetary Income Stabilization Fund (FEIP) and the resources that were kept in trusts. We will also rely on the development bank … We are doing everything we can to maintain the commitment to not increase public debt,” said López Obrador during a 2020 Quarterly Report at the National Palace, according to El Financiero.

The government announced the following measures toward economic recovery: 

  • Creation of 2 million new jobs in nine months
  • No tax increases and no creation of new taxes
  • An additional MX$65 billion (US$ 3.1 billion) for PEMEX following tax relief measures
  • Sufficient financing for CFE to build the needed thermoelectric plants in the Yucatan Peninsula
  • Lowering of salaries of senior public officials and the elimination of Christmas bonuses for high governmental positions, from deputy directors to the president of Mexico. 
  • Cutting of government advertising expenses
  • Construction of the Santa Lucia airport, the rehabilitation of the country’s six refineries and the construction of the new Dos Bocas refinery
  • Investment of an additional MX$ 25 billion (US$ 1.2 billion) for construction of drinking water, pavement and other infrastructure in marginalized areas in the country
  • Over 2.1 million personal, housing and small family business loans for members of the formal and informal sectors of the economy

In February 2021, López Obrador celebrated his government’s decision not to borrow more money to support the Mexican economy, given that said strategies have worked to support, manage and strengthen the popular economy. “We have avoided a consumer crisis and the people at the bottom of the pyramid … have had no problems getting their food and basic consumption items,” he said, according to Infobae. 

Valentín Diez Morodo, Chairman of the Board of Directors of Grupo Financiero Citibanamex, recently said, however, that the government’s development strategy seems to have no definite direction. “The circumstances have coincided with a change of government regime whose decisions are creating enormous uncertainty in the development of the national economy,” he stated in a Forbes article. 

Alicia Bárcena, Executive Ministry of the Economic Commission for Latin America and the Caribbean, agrees with Diez in the expected uncertainty the country will experience in the next years. “We are expecting a recovery for Mexico in 2021. Hopefully, it could be around 3.2 percent but it is still too early to give a figure, because of investment actions, a flexible monetary policy and an expansionary fiscal policy, as USMCA will support Mexican exports. However, a full recovery will be achieved until 2025,” she said, according to El Financiero. 

Both Moody’s and the UN Economic Commission for Latin America and the Caribbean (ECLAC) have forecast that the Mexican economy will regain pre-pandemic levels until 2023 at the earliest. By making the decision of not acquiring more debt, this could take even longer. As previously reported by MBN, the decision to not engage in more debt toward profitable projects or to give development banking a more active role could result in a longer recovery period. 

The data used in this article was sourced from:  
MBN, Forbes, Infobae, El Financiero
Sofía Hanna Sofía Hanna Junior Journalist and Industry Analyst