Populist presidents are not famous for saving every last penny. But Mexican President Andrés Manuel López Obrador is an exception. He is so afraid of increasing the country’s fiscal deficit that he is skimping on stimuli, despite the International Monetary Fund (IMF) calculating that the Mexican economy could contract 10.5% this year. History holds you back.
AMLO, as it is known, is experiencing a terrible crisis. Its ineffective response to Covid-19 has been widely criticized by economists. The country has the sixth highest number of victims and one of the lowest evidence rates in the world. As an oil exporter, it has also been affected by low demand for crude oil as well as by confinement, and some 12 million people have lost their jobs since March, according to official statistics.
With everything and with that, the leftist president continues to be stingy. It has made small loans and advanced some pension payments, but fiscal measures only account for about 1% of output, according to the IMF, despite the country running a deficit of just 2.3% of GDP for the year. past. Meanwhile, Brazil’s efforts exceed 10% of GDP, and Argentina – a country in the suspension of payments – has approved measures amounting to approximately 5% of production.
AMLO’s frugality and opposition to helping big business are influencing factors, but history can play a role. When the 66-year-old president came of age, the Mexican economy registered high growth, balanced budgets and much state intervention. When this economic model began to fail in the 1970s, pressure increased to increase spending, especially after a new oil discovery and skyrocketing oil prices increased export earnings. Deficits soared, and the public sector’s external debt almost multiplied by 14 between 1970 and 1982.
An inevitable crisis ensued, and then another erupted in 1994. IMF loans and the need to stimulate growth led to economic reforms over the following decades. But AMLO rejects liberalization measures, such as opening up the energy sector, and has increased state control since coming to office in 2018. He wants to return to mid-century economic prosperity without a waste crisis. But you have learned a wrong lesson. No type of fiscal discipline can make a failed economic model work in the long term. And the fact of spending during a crisis when a country has the margin to do so is not the same as squandering. Nostalgia is a habit that AMLO has to abandon.