Mexico enjoys a break from economic sadness with the help of Biden

The sadness of the business has been so widespread in Mexico since then Andrés Manuel López Obrador won the presidency in 2018 on a stringent anti-establishment platform that a recent outburst of optimism about the country’s growth prospects feels like a ray of sunshine breaking the clouds.

Last October, the IMF predicted that Mexico would grow only 3.5 percent in 2021 after declining by 8.5 percent last year during the pandemic. However, as the economy opens rapidly, coronavirus infections remain low and the effects of the giant U.S. stimulus ripple across the border, many economists and bankers here see Mexico expanding almost twice as fast.

“The combination of continued reopening with strong remittances and a US-led global recovery has allowed Mexico to close the gap with other Latin American economies, outperforming all in the first half of 2021,” said economist Marcos Casarín head of the region at Oxford Economics. The recovery tracker shows that Mexico is returning to pre-pandemic levels of activity faster than any other Latin American country.

“Mexico is growing 6.0 percent this year and could be higher,” said former finance minister and academic Carlos Urzúa, citing the repercussive effects of the U.S. fiscal stimulus and the increase. of remittances from Mexicans working the border. These could reach $ 55 billion this year and are “much more important than oil,” he added.

But few believe that this year of growth inspired by the United States heralds a bright new dawn for Mexico. The expansion, say bankers and economists, is almost entirely thanks to the policies of President Joe Biden, rather than those of López Obrador. The biggest beneficiaries are Mexico’s export-oriented manufacturing companies in the north of the country and the tourism industry, while companies serving the domestic market struggle with depressed demand.

“Mexico is going to grow 6 percent this year whether it likes it or not, driven by the United States,” said a retailer who manages an investment fund in the country. “It will grow quite well in 2022 as well. That’s not the point.” What matters is what happens after 2023. ”

Here the picture is much less sunny. An almost universal complaint in the business community is that López Obrador’s hostile rhetoric, constant attacks on regulators and justice, his unpredictable political announcements and his preference for state-owned companies have scared away the foreign money they owe. comes to Mexico to take advantage of preferential access to the US-Mexico-Canada free trade agreement.

“The ritual of bringing the global CEO to Mexico to announce a new investment is over,” said a leading member of the international business community. “There is a break.” No one is leaving the country but no one is proposing an incremental investment. “

The most frequently cited example to dissuade investors is the energy sector, where López Obrador tries to reverse an opening to private money initiated by his predecessor and returns to a state-run fossil-fueled model, limiting a renewable energy boom once promising in the process.

“The problem is the investment and the question is medium and long term,” said Gerardo Esquivel, deputy director of the central bank. “It’s been stagnant since 2015-16.”

Urzúa said public investment would be only 2.7 percent of gross domestic product this year, barely more than half of the level at which it should be treated. Much of the spending is directed toward López Obrador’s animal projects, which include a new oil refinery in his native state of Tabasco and a new tourist railroad around the Yucatán Peninsula.

Despite his government’s focus on social programs to help the poor, López Obrador stands out from other populists for his stubborn refusal to increase loans to allow for more spending. Most economists here do not believe his decision last week to change finance minister and appoint longtime allies. Rogelio Ramírez de la O, 72, will change this.

Those close to the president say his aversion to debt stems from a belief that the Mexican governments he most admires in the 1960s and 1970s have been paralyzed by excessive indebtedness. “Amlo is turning into a panther when he suggests he should take on more debt,” a former minister said. “It’s not just something you can discuss. I won’t spend it.”

Even in the midst of the pandemic, López Obrador was one of the few presidents in the world to refuse additional loans to alleviate the suffering, despite the fact that Mexico has the fiscal space to do so. Critics have criticized his “austerity” policies. And while public investment remains weak, the president does little to encourage the private sector to pick up the slack.

“López Obrador must promote private sector investment,” said the general manager of a Mexican bank, adding that the private sector accounts for 86 percent of Mexico’s total investment. “There is no way to grow without private investment. “This refusal of private investment has to stop.”

And as for Mexico’s recovery: “Growing 6 percent this year and 3.5 next year is not magic, it’s inertia.”

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