The irresponsibility, improvisation, ignorance and ineptitude of Mexican President Andrés Manuel López Obrador (AMLO) will cost lives. The future of Mexico itself is at stake. Back in 2018, many of us warned about the risk of electing President of Mexico someone who lacked a project and basic abilities. They told us that any change would be better than what we had and that things could not be worse. They are.
The pandemic is not AMLO’s fault. But having gutted the Mexican public health system is. This serious crisis is hitting Mexico with understaffed and overtaxed hospitals while facing the greatest health challenge in a generation. President AMLO’s insistence on trivializing and politicizing a pandemic prevented the country from taking timely measures to get ready. The cost of AMLO’s negligence will be measured in loss of life. President Donald Trump, the other populist leader in the neighborhood, reacted initially very similarly to AMLO. But now he is trying to make up for the lost time, teaming up with companies, private hospitals, civil society entities, and planning a fiscal stimulus larger than Mexico’s entire economy.
The collapse of the oil market is not AMLO’s fault either, but he insistence on throwing scarce taxpayers money into a bankrupt, structurally unsustainable state-owned company (Pemex) is. Many experts have enlightened him on why suspending Mexico’s oil exploration bidding rounds and Pemex’s farm-outs was a bad idea. One of the President’s top advisers once privately complained to me saying that I seemed to believe that the members of AMLO’s team were some kind of “idiots” (he used an even stronger word) who would cancel Mexico’s oil exploration bidding rounds, when “…we know that Pemex is the great winner of that process because it does not have the resources or technology to exploit deep-water deposits, where its reserves are. In addition, Pemex receives generous royalties (from the rounds) if the winning company finds oil -which in fact, would be ours- and if it fails (in finding oil), the loss would be theirs”. He restated: “Do you think we are ‘fools’?” They were.
AMLO was also told about why investing in oil refining is a terrible idea. Now, Pemex has the rope around its neck, after losses of US $35 billion in 2019 (half of them operating losses). The price of the Mexican mix is trading below US $19 per barrel. The Mexican Finance Ministry budgeted at US $49 per barrel and its hedging program only covered 1/3 of total oil production.
The most recent growth estimate for Mexico (Credit Suisse) forecasts a 4% GDP contraction in 2020. That’s after the country suffered a mild contraction last year. In addition to the collapse in oil revenues and the enormous loss that Pemex will post, tax revenues will collapse. AMLO’s pipe dream of a great welfare state, that would be Mexico’s dominant investor has turned into a distressing nightmare. In the midst of a world economic crisis, his government will not have resources to cover even basic needs. During his first year in office, AMLO spent half of the Budget Revenue Stabilization Fund (FEIP), which was endowed with 18 years of savings and designed to be used exactly to soften the kind of blow that is about to hit. Private investment was never more urgent or indispensable. It will not happen. Now AMLO’s decision to cancel the US $14 billion Mexico City airport back in 2018 hurts more than ever. A decision made out of arrogance killed a project that would be priceless in the current environment.
All governments on Earth face a major economic crisis that was exclusively caused by an unexpected global pandemic. The challenge is to prevent that a severe transitory crisis causes permanent damage. Given its magnitude, AMLO should make use of meaningful public resources (contracting more debt) to prevent the bankruptcy of companies in distressed sectors (from airlines to small businesses); and to give money to millions who would die without aid. It is also important to provide relief to those who would be forced to work even when infected. Not being able to keep them isolated will make it impossible to contain community contagion. The extreme stubbornness of President AMLO will prevent him from following this course. We will see countless bankruptcies, massive layoffs and irreparable damage.
While other leaders have embraced the challenge in the face of adversity, President AMLO showed-off the religious stamps in his wallet during his daily press conference. It is urgent that Mexican companies, civil society and citizens unite to make for the lack of leadership at the top. Let’s stop wasting our time watching cheap shows.
* Jorge Suárez-Vélez is an economic and political analyst He is the author of The Coming Downturn of the World Economy (Random House 2011). A Spanish version of this Op-Ed appeared first in Reforma’s newspaper print edition. Twitter: @jorgesuarezv