Economy#Between the lines | The (poisoned) legacy of AMLO

#Between the lines | The (poisoned) legacy of AMLO

(Expansion) – Legacies are often welcomed for the fortune they bring with them. Few, very few, cause misery. Today, one of them is beginning to take shape with a high component of precariousness, vulnerability, and uncertainty: the economy that Andrés Manuel López Obrador will leave.

The President of the Republic, on September 1, gave his IV Government Report and left several sayings for posterity: “The economy collapsed, but we have already been recovering after the COVID-19 pandemic.” “In 2020 inequality was reduced to 26 times.” “Economic growth is not enough, but justice is indispensable”…

However, it is already more than proven: the political narrative disappears quickly when it collides with the harsh reality. Also, last week, the Bank of Mexico released its projections for the remainder of this year, next, and with these there are reasons to document the pessimism. The worst is not over.

In general terms, the Central Bank warns that the rise in prices could worsen with runaway inflation and, although it does not estimate a recessionary storm coming from the United States, it does consider a strong blow to the Mexican economy. Thus, it drastically reduced its GDP growth estimate for 2023 to 1.6% from the previous 2.4%.

“The revision for 2023 reflects the most adverse scenario that the Mexican economy is expected to face for its growth,” Banxico said.

Given these estimates, the last stretch of the current government has complicated economic conditions and several fronts that could sow (or burn) the way for the next administration, depending on the caliber of the strategies to be followed.

Today, our economy is accompanied by various balls of fire.

A more restrictive monetary policy is coming from the Bank of Mexico. In the face of this, the government of Andrés Manuel López Obrador can do nothing. The question is how restrictive monetary policy will be considering that a long season of high rates is coming.

A restrictive monetary policy will imply less growth and that places the government in a delicate position, since it could go down in history as one of the six-year terms with the lowest growth rates.

Then, in the face of a drop in economic growth, less investment, less consumption, less taxes; more crisis in public finances, more unemployment, more informality.

The so-called fourth transformation, in these four years, has presumed its caution in handling the debt. However, now he is at risk of losing that ‘medal’. Until now, the Mexican government has been quite cautious in terms of not ‘over-leveraging’ the economy, but it is possible that its management will take another direction since it has room to do so and thus allow public finances to breathe.

At the end of the day, debt metrics depend on two things: how much you spend and how much you grow on a sustained basis.

Another way out would imply breaking with the trend that has been sustained throughout all this time related to private sector investment. On the one hand, the president maintains that foreign investment has registered a constant increase since the start of his government in December 2018 and, on the other, the majority of the business community questions the lack of legal certainty to bet on Mexico.

Be it one thing or the other, an injection against low economic growth is investment. Thinking about investments for the megaprojects of the six-year term is not enough. Will the tap open to invest in businesses that are not tied to a concession?

Consumption will continue to be punished. The decline will intensify in the Big Ticket Items. The sales of cars and houses will fall, the eligibility for a credit will decrease for the simple reason that the payment will represent a higher percentage of the person’s income, in such a way that the rationale will be to wait for a better moment to acquire these estate.

Tax policy could also get complicated. Tax collection, at the end of July 2022, fell at an annual rate of 9.4%, which means its biggest drop for a July since 2007; Taxpayers left the public treasury a collection of 291,750 million pesos, a decrease of 9.4% compared to the same month of 2021.

Although we are facing a snapshot of the moment, the fiscal challenge is final judgment given that companies will not pay more taxes because economic activity will be lower; the operation is elementary: less investments and profits, less growth and less taxes.

With this comes good news and bad news, depending on the glass you want to see them with. The current environment puts more pressure on public finances and that will trigger the formulas to collect more taxes. The tax reform debate, like it or not, will return to the fore.

A moderate growth rate implies a more challenging circumstance for public finances, not necessarily an immediate fiscal crisis, but definitely, any administration, whether Tyrian or Trojan, from 2024, will have a hot potato.

There is an oxygen tank: the T-MEC. If the electricity dispute falls into the worst scenario, the payment of tariffs will come with all its impacts, but the trade agreement will continue to be a good engine for the Mexican economy. A third of the Mexican GDP is linked to the T-MEC. Also, we will get some juice out of nearshoring, not as much as we would like, but we will take advantage of some investment opportunities.

Under this scenario, the state of the Mexican economy, based on the decisions made by the current government, will mark the start of the next six-year term. What will the successor of Andrés Manuel López Obrador receive? An economy with the ingredients to take off? Or a legacy full of misfortunes?


What evaluation do the businessmen have of the four years of the six-year term of Andrés Manuel López Obrador? Impossible to have a single answer. Entrepreneurs linked to concessions prefer to remain silent, but those who do not depend on them are more vocal and express their concern.

Editor’s note: Jonathán Torres is managing partner of BeGood, Atelier de Reputación and Storydoing; business journalist, media consultant, former editorial director of Forbes Media Latam. Follow him on and on Twitter as . The opinions published in this column belong exclusively to the author.

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