On top of its brutal cost in lives, the main sequel to this terrible pandemic will be the loss of jobs. During the 2008-2010 financial crisis, the United States lost a total of 8.8 million jobs. Just in the last two weeks, the country has already lost 10 million. The Mexican economy created 342,000 jobs in 2019 (more or less half of its usual production pace). During the last three weeks 346,000 jobs were lost.
Humanity faces its worst crisis with its worst leadership. Donald Trump, Jair Bolsonaro, Boris Johnson, and Andrés Manuel López Obrador (AMLO) all downplayed the threat that COVID-19 posed, and their people bear the consequences. At least, the system of checks and balances in developed countries has forced the governments to adopt -sometimes late- sensible health policies.
There is total consensus in the world regarding the urgent need to adopt countercyclical policies that soften the tremendous economic blow that comes from the world’s induced coma. The objective is that, once we “wake up”, it is possible to recover activity by having avoided bankruptcies of companies or permanent closure of businesses. Their survival is vital for them to re-employ people later.
In Mexico, the punditry is imploring for the adoption of similar policies. Nobody wants AMLO to do badly despite what those who attack pundits like me say. This would be like wishing that the pilot of the plane in which we are traveling crashes. There is no real satisfaction in saying: ‘I told you so”. But I fear that our plea has a dangerous dose of innocence.
Our country has room to borrow and Banco de México (Mexico’s central bank) has room to detonate monetary stimulus. Either measure would endow the government with the necessary resources to mitigate the atrocious damage that is expected. We assume that AMLO would use those resources to provide liquidity to companies, or to support small businesses. However, if we assume rationality, we are ignoring irrefutable evidence. AMLO is not rational.
For AMLO reality is much less relevant than his utopian idea that Mexico can go back to the 1970s, despite the fact that today’s world is a whole lot different. AMLO still longs for the days when Mexico was an oil power. He will waste a fortune in Pemex, despite the state oil company’s brutal losses last year, in addition to the biggest ever drop in oil prices, at a time when the days of fossil fuels are numbered.
AMLO will waste resources in a refinery despite the fact that today all the refineries in the world show significant losses. He canceled farmout tenders and bid rounds where private companies would invest helping Pemex develop oil fields, even though the company lacks the resources and technology to exploit its deep waters reserves, making it impossible for it to achieve its production goals. AMLO keeps talking about raffling a leased Presidential plane, when 90% of the airlines’ fleets are grounded, as global air traffic collapsed. He will insist on building an airport where all the aeronautical authorities have told him that it is not feasible. He canceled the planned new international airport for Mexico City (NAIM), the most important public work in Latin America, which would have triggered huge complementary private investment, but AMLO believed that cancelling provided him with a political gain that he did not need. AMLO made an illegal plebiscite to shut down the construction of a $1.4 billion brewery in the US border city of Mexicali, at a time when Mexico has the unique opportunity to attract value chains that are leaving China (a country that is no longer the reliable supplier to the US industry). AMLO is not rational.
If Mexico contracts more debt to put together a countercyclical plan, this government will use those resources for AMLO’s white elephants projects: the Mayan Train, the Dos Bocas oil refinery, the Trans-Isthmus Corridor. These are absurd projects that do nothing for Mexico’s productivity. He will waste the money in hand-outs to his political clienteles. Mexico would end up more indebted and with less potential growth than before.
For his epic stubbornness during his youth, López Obrador was nicknamed “The rock”. The lackluster performance of Mexico’s economy last year demonstrates that his strategy is clearly flawed. Mexico’s economic weakness precedes this crisis, and it happened despite full-employment in the US. To assume that AMLO will start being a rational actor could be a burdensome fantasy.
* 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