When the Covid-19 pandemic appeared, Germany’s Bauer Group -an industrial conglomerate based in Munich- threw away its 2020 business plan and started from scratch, reshuffling its production from the automotive to the health sector. The change was a resounding success. The largest health and economic crisis in a century is transforming everything. Individuals, businesses and countries have to adapt.
At household level, the pandemic has hurt more those who live day to day than those with resources, or with a stable employment and who can stay at home. At the country level, industrialized economies can inject fiscal resources and finance them by issuing debt in capital markets. Their central banks will print money to buy this new debt, reducing interest rates and keeping debt service payments unchanged even when the total amount of debt grows. Emerging economies, such as Mexico, will have much less access to markets and, therefore, less leeway to stimulate the economy with public resources. If the Mexican economy loses its current investment-grade credit rating, the situation will be dire.
President Andrés Manuel López Obrador (AMLO) puts Mexico on the losing side of the gap: for him, Mexico is, and will continue to be, a poor country. He believes that his mandate as President is to manage poverty by minding the survival of the poor, rather than focusing on their economic mobility. AMLO believes that a Mexican self-sufficient economy matters because he just cannot imagine how Mexican companies can be not only globally competitive, but even globally dominant in some sectors. AMLO prefers a country where everyone has access to a mediocre education system, instead of building an internationally competitive one. He finds it unnecessary to invest in the arts, in technological development, or in scientific research. AMLO prefers that Mexico goes back to being the oil-producing economy of the 20th century, seeking oil rent, over being the manufacturing export powerhouse that it is today.
AMLO’s vision did not make sense at the beginning of his six-year term in 2018. Now, his vision condemns Mexico to backwardness and impoverishment. Due to the Covid-19 crisis, Mexico will have 10 million new poor, according to estimates by Mexico’s social development assessment agency (CONEVAL). Twelve million Mexicans have lost their primary source of income, two million of them in the formal economy. Unlike the U.S., where the Federal Reserve expects a contraction of 6.5% of GDP this year and a 5% recovery next year, Mexico will see a drop in GDP of 10.5% in 2020 and a rebound of only 3.3% in 2021, according to estimates by the International Monetary Fund (IMF). Moody’s forecasts that the Mexican economy will only grow 2%, on average, between 2021 and 2024. This would amount to Mexico’s worst economic performance for a six-year presidential term since World War II.
AMLO should throw away his original plan and start again. The moment demands it. Let’s put Mexico on the winning side of the divide. Let’s move Mexico away from the Latin American left of the Sao Paulo Forum -whose recipes will only make countries collapse- and align it with the North America region, taking advantage of the launch of the new USMCA trade agreement. In order to reduce poverty and set the country in the path to development, Mexico needs to start behaving as a developed country.
Developed countries exhibit a stable and predictable environment that attracts private investment, respect the sanctity of contracts, strengthen democracy, take care of the environment and prefer clean energy, invest in modern education and in state-of-the-art infrastructure that triggers private investment. Developed countries promote orderly urbanization instead of preserving rural misery, strive to forge a rule of law, and seek better administration of justice.
Another challenge that the AMLO government will face stems from the likely change in U.S. politics, where not only the victory of challenger Joe Biden is possible, but also having a U.S. Congress controlled by a Democratic Party majority. If AMLO makes the mistake of meeting President Donald Trump in Washington next month, Democrats will interpret the visit as a campaign act in support of his reelection, as Juan González, a former Biden advisor has warned.
The choice for Mexico is clear: partnering with a new US government that is in need of a reliable neighbor who can host manufacturing supply chains leaving China, or go back to being the polluting, oil-producing country of the last century, at a time when the US will have -if Democrats win-the most environmental-friendly government in its history.
The answer seems obvious.
* 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
