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An Uncertain Recovery

"In the absence of his own economic plan, AMLO bets on the U.S. recovery," writes Veronica Ortiz in this Expert Take.

Along with the health contingency, the world is beginning to perceive the other emergency: a global recession greater than that of 2009.

As for Mexico, the SHCP foresees a growth range between -3.9 and 0.1% for this year, adding to the stagnation recorded in 2019. However, in the face of this dramatic scenario, the response of the federal government remains fixed: greater budget cuts, expansion of social programs, and the continuation of public investment projects such as Dos Bocas, Santa Lucía, and the Tren Maya.

In the absence of his own rescue plan, President López Obrador is betting on the U.S. economic recovery as a driving force for the Mexican economy. In fact, he welcomed the billion dollar U.S. plan and even asked President Trump to implement the USMCA as soon as possible in order to achieve a quick economic recovery. Unfortunately, the reality is very different and collides with the presidential voluntarism.

On the external front, if the entry into force of the USMCA on June 1 was already challenging, the arrival of COVID-19 made it impossible. It is not only about the pending regulations, but also the protectionist comeback in the face of the upcoming economic crisis. This trails the request of the U.S. Senate Finance Committee to the commercial representative Robert Lighthizer to delay the start of the new treaty, given the impact suffered by "governments, companies, workers, and farmers in the US".

Internally, the investment climate continues to erode. The presidential attacks against business denote a deep-rooted prejudice and ignorance of the national reality.

The private sector employs more than 20 million workers, formally affiliated with Social Security. The public sector cannot match the formal employment offer. For this reason, the daily mistreatment of entrepreneurs of all sizes is incomprehensible.

Even worse is the repeated mechanism of "popular consultations" to cancel works and projects. In addition to it being illegal, it is a boomerang that will turn to be very costly in terms of job creation and wealth.

If we proceed on this route, it is clear that even the entry into force of the USMCA will not guarantee the expected benefits. The axis that sustains trade agreements is the certainty of the rules for the participants. NAFTA was successful in containing political discretion (on the Mexican side) and giving certainty to investors.

If in Mexico the rules of the game continue to change arbitrarily, there will be no trade agreement that will attract investment to our country. The President welcomes the willingness of businessmen to accommodate to his decisions but does not estimate the impact that illegality and uncertainty will have on our path to recovery.

This article was originally published in Spanish onEl Heraldo de Mexico.

The opinions expressed here are solely those of the author.

About the Author

Verónica Ortiz-Ortega

Political Analyst, El Economista and Canal del Congreso
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Mexico Institute

The Mexico Institute seeks to improve understanding, communication, and cooperation between Mexico and the United States by promoting original research, encouraging public discussion, and proposing policy options for enhancing the bilateral relationship. A binational Advisory Board, chaired by Luis Téllez and Earl Anthony Wayne, oversees the work of the Mexico Institute.   Read more