Mexican president pitches frugal economic plan against coronavirus

MEXICO CITY (Reuters) - Mexico’s president unveiled a plan on Sunday to lift the economy out of the coronavirus crisis, vowing to help the poor and create jobs, but his promise of fiscal discipline sparked criticism that the measures fell far short of what was needed.

Mexico's President Andres Manuel Lopez Obrador gives a speech during his first report to the nation at the National Palace after Mexico's government declared a health emergency and issued stricter rules to contain the spread of the coronavirus disease (COVID-19), in Mexico City, April 5, 2020. Mexico's Presidency/Handout via REUTERS

President Andres Manuel Lopez Obrador pledged Mexico would create 2 million new jobs in the next nine months and boost small business and housing loans. He also vowed to tighten public sector austerity to avoid debt.

Governments worldwide have unleashed unprecedented spending pledges to minimise damage to their economies from the coronavirus, including a $2-trillion package by Mexico’s top trading partner, the United States.

But Mexico’s leftist leader, targeting measures for the “most vulnerable”, said he would use a budget stabilization fund and cash from public trusts to fund plans to shield the poor from a slump economists expect to be severe.

“This crisis is temporary, transitory,” Lopez Obrador said in a televised speech. “Normality will return soon. We will defeat the coronavirus, we will reactivate the economy.”

Last week, Lopez Obrador said about $10 billion was available from various rainy day funds, while the finance ministry said “buffers” for the economy included a stabilization fund of about $6.6 billion available from the end of 2019.

Known by his initials “AMLO”, the president said Mexico would announced next week investments in the energy sector worth 339 billion pesos ($13.5 billion) to boost the economy, which some private analysts forecast to contract by up to 10% in 2020.

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That sum is far less than $92 billion in energy investments the private sector has proposed to the president.

His speech coincided with growing calls for his government to emulate the United States and European nations with a major stimulus package to fight the recession.

“The mechanisms that AMLO is thinking about are going to be completely insufficient to deal with this type of recession,” said Viri Rios, a Mexican political analyst.

Gustavo de Hoyos, head of employers’ federation Coparmex, was scathing about the economic plan.

“No relevant measure to deal with the #COVID19 economic crisis was announced,” de Hoyos said afterwards on Twitter.

Lopez Obrador’s former finance minister, Carlos Urzua, called last week for Mexico to run a bigger deficit, saying it was “obvious” national governments should significantly increase public deficits in the crisis.

The government’s latest estimate projects the economy could contract by up to 3.9% in 2020, though Lopez Obrador has said he does not agree, calling for more optimism on the economy, which was already contracting last year.

Without unprecedented measures, there could be “an economic depression and a deepening of poverty not seen in Mexico in many decades,” a group of economists, policymakers and politicians told Lopez Obrador in a letter urging quick government action.

One signatory, Rolando Cordera, a left-leaning economist at the National Autonomous University of Mexico (UNAM), applauded the president’s commitment to helping the poor, but said his initial response to the plan was one of disappointment.

Cordera was sceptical of how a struggling economy would generate hundreds of thousands of new jobs while the government stuck to its budget goals, and felt not enough was being done to protect workers and companies against a potentially huge blow.

“I didn’t see anything that would allow me to conclude that a change was starting to take shape in the vision and focus of current economic policy,” he told Reuters.

Writing by Drazen Jorgic; Editing by Daniel Wallis and Clarence Fernandez