Globe, United Kingdom

Mexico and Covid: an economy on the brink of the abyss

Since the beginning of the Covid-19 pandemic, Mexico warned about how difficult it was for a country of 127 million inhabitants (half of them living close to or below the poverty line) to achieve the correct balance between preventative health measures and containing the coronavirus and the functioning of the economy.

 

Luis Manuel Arce Isaac

 

At the sharpest moment of the epidemiological curve, Mexico did not hesitate to fight the pandemic and see the collapse of the economy, with almost no possibility of stopping it.

But in June, with huge losses aggravated by the fall in international oil prices, it was decided to abandon lockdown measures and enter the so-called new normal.

The alternative was to prioritise the economy as it had suffered from a very dangerous depletion that government social programmes, grants and loans could hardly diminish.

The effort of recovering from the double crisis in a country where more than 60% of the economically active population belongs to the informal economy, was tremendous. Seven months after the pandemic, a weak reactivation is being observed, surrounded by great risks.

One of them is a probable outbreak of Covid-19, since the country neighbours the United States (which has high contagion and death rates). For its part, Mexico also has very high rates of transmission, hospitalisation and death.

That is why each month both nations have agreed to support a partial closure of the numerous border access points, and only allow the passage of vehicles and essential personnel.

The economic dependence of Mexico on its neighbour is increasing after the signing of the tripartite Free Trade Agreement with Canada.

Thus, Mexico’s economic recovery is subject to external risks due to the global crisis, which may have a counterproductive effect on the expected benefits of the tripartite treaty, according to the CESF (Financial System Stability Council).

This is due to the possibility that the recovery of the world economy will be less vigorous than anticipated and because of the risk of additional negative adjustments to the credit ratings that the country, including Pemex, has received.

Additionally, the banks refuse to sacrifice part of their profits to make capital reductions to debtors affected by the economic crisis.

The government plan

The government of President Andrés Manuel López Obrador has an anti-neoliberal recovery plan, which has taken positive steps in restoring activity, albeit slow. It is based on the slogan “first those from below”, the logic of which is to benefit the pockets of the majority through a system of mini-loans, grants and low-skilled jobs, reinforced with an increase in remittances from emigrants living abroad.

According to López Obrador’s logic, if the more than 60 million poor people that Mexico has have a minimum solvency, the internal consumption capacity will not be affected, nor will the goods and services industry be paralysed, and neither does employment decrease nor will it need to resort to public debt.

This assessment divides the business community: one part – including big capital – considers it reasonable; another – the very important middle capital – considers it harmful and insufficient and advocates the traditional formula of going to the International Monetary Fund to rescue that sector through social adjustment, ‘downsizing’ the State and loans.

What middle capital and the government agree on is to “shrink” the State.

Middle capital advocates limited State intervention in the economy, which implies layoffs and openness to private initiative.

The government thinks that one way to have savings and republican austerity is to cut its government functions, for example, eliminating numerous deputy ministers.

With the Employers’ Confederation of the Mexican Republic (Coparmex) – which generates 30% of the GDP and millions of jobs – middle capital wants to apply formulas close to the neoliberal readjustment, but they seek to polish them to reconcile interests with the government. However, the strategic sector (which has not been affected by Covid-19 and has not stopped working) and the operation in which Coparmex operates depend on the evolution of the pandemic. (PL)

(Translated by Hannah Phelvin – Email: hphelvin@gmail.com) – Photos: Pixabay

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