The new austerity program announced last week by Mexico’s President, Andrés Manuel López Obrador (AMLO), is supposed to “protect 70% of Mexican families, equivalent to 25 million households, especially the poor and members of the middle class”. If you are a member of this large group, the President seems to be telling you: “Don’t worry, everything will be fine. Cheer up!”
In the old days, the Mexican Finance Ministry was in charge of designing austerity programs. The program would be legally sound, and its underpinnings were very rigorous. The Finance Minister would usually be the one in charge of making it public. The goal was to show economic agents and financial markets a viable route for the economy and public finances.
Today, they will need to change the law to accommodate AMLO’s wishes. The new austerity plan is a public relations exercise: by decree, AMLO says that the Mexican economy will create 2 million new jobs this year. No one believes it.
Allegedly, the Mexican government will also save the equivalent of US $24.9 billion. Featured on the front page of several Mexican newspapers, this amount is another made-up figure.
AMLO says that these savings will be achieved by the “voluntary” reduction of the salaries of senior public officials (up to 25%), by cancelling their Christmas bonuses and by eliminating 10 under secretary offices without laying off staff (whatever this means). In reality, the plan does not result in significant savings. It is pure rhetoric.
The program’s only measure with real savings potential is the idea to freeze 75% of the federal government’s spending budget in general services, materials and supplies. According to the Ministry of Public Administration, this could save the equivalent of US $5.2 billion. This is far less than AMLO’s overall promise and it is something difficult to execute it. A significant part of this budget has already been spent or is committed. Another part of this spending cant just be eliminated, such as paying for electric power. By trying to comply with AMLO’s plan, the measure will reduce most federal offices to a group of employees without resources to enable to perform their duties.
The program does not provide additional money for AMLO’s social development projects. At most, the government has moved up some monthly disbursements for some of these projects. Many poor people are unprotected. An example: a laid-off bricklayer has no support. Even when his family could be receiving help through one the social development projects, his main source of income could be lost. Except for those who live in autarky, workers in informal employment also depend on a functioning Mexican economy. Except for the bureaucrats, whose employment is assured, the middle class is on its own.
AMLO’s overall justification is that his austerity program will not support the wealthy as, according to him, happened under neoliberal governments. He is not lying. There are no relief measures for private companies, except a few microloans for small businesses. AMLO is only focused in saving one firm: the state-owned oil company Pemex. Thousands of small and medium-sized businesses, whose owners are far from being wealthy, will fail along the way. Many of the largest Mexican firms will be reduced in size or will change owners. The Mexican government’s tax revenues will collapse.
AMLO only cares about his personal whims. None of them will lose resources. These include the remodeling of Chapultepec Park. It’s not a joke. Also, how many companies will he let die in order to continue spending on AMLO’s obsession of building a new Pemex oil refinery? This will go down in history as one of the largest unfinished “white elephants” projects undertaken by the Mexican government in history.
Mexico’s economic recession is going to be very deep, at least 7% this year. Far from protecting 70% of the population or even the neediest, as he argues, AMLO’s plan and actions will increase poverty and unemployment.
* Carlos Elizondo Mayer-Serra is professor at the School of Government and Public Transformation at Tec de Monterrey, in Mexico City. A Spanish version of this Op-Ed appeared first in Reforma’s newspaper print edition. Twitter: @carloselizondom