Prior to his victory in the 2018 presidential election, many of us warned that a victory of Andrés Manuel López Obrador (AMLO) posed a threat to Mexico. However, there was always the possibility that if elected, due to his unquestionable mandate, he would be well suited to solve some of the country’s most complex problems. Two years later, it is astonishing to see how he has been able to undermine Mexico’s few strengths and deepen its many weaknesses. It would take a lot of space to list all of AMLO’s blunders during his first two years in office.
Much of the damage is irreversible. Much will be impossible to measure. But Mexico’s economic decline and impoverishment during AMLO’s term are quantifiable. His government has wasted all the nest eggs that previous Mexican administrations had built, by throwing them away in current spending and clientelistic programs. He opted to prioritize spending in absurd white elephant projects instead of offering lifelines to hundreds of thousands of private companies and small firms -employing millions of Mexicans- that will be forced to close permanently due to the pandemic. AMLO’s administration has contributed to the harrowing growth of the informal economy just at a time when tax collection and increased productivity are most needed. It has created a hostile environment for private investment at a time when the government is investing less than ever. As a consequence, AMLO has ruined the potential growth of the Mexican economy, which will be, for the first time, smaller at the end of a six-year presidential term than at the beginning of it. More than 10 million middle-class Mexicans will join the ranks of poverty and more than 33 million are now unemployed or underemployed.
Mexico’s debt has grown 12 percentage points of GDP in just two years, to a level not seen in three decades. By the way, the AMLO administration justified its tough austerity policy to prevent borrowing more. However, government debt will continue to increase as a consequence of an expected annual deficit of two percentage points of GDP. According to Bank of America, Mexico could lose its investment grade credit rating in late 2021.
AMLO’s questionable goal to keep Pemex, the state-owned oil company, afloat, will cost Mexico two points of GDP a year. Moreover, not conditioning Pemex’s rescue to deep changes in the company’s obsolete, corrupt, inefficient, and unsustainable structure is suicidal. Other oil companies that are extracting oil at a fraction of the cost of Pemex are going in an opposite direction. While Pemex “invests” in building more oil refineries, Saudi Arabia’s Aramco and Great Britain’s BP are multiplying their investment in clean energy exponentially, anticipating that demand for fossil fuels will disappear. At this rate, Mexico will proudly have in Pemex the most expensive and most polluting gasoline-producing company in the world, just as the demand for gasoline disappears. Ironically, it will cost Mexico billions of dollars -that the country does not have- to achieve this “honor”.
AMLO’s administration is putting Mexico on a path towards more debt when perhaps we will see a more inflationary environment in the coming years. A government so much in debt will crowd out Mexico’s private companies from credit markets, they will have a hard time financing themselves at competitive costs.
As prominent British journalist Martin Wolf said, it is possible that we are about to see a reversal of the change that occurred in the 1980s when China entered the world economy and globalization began. An era in which with so many more people around the world producing than consuming, and with so many workers joining the global labor market, inflation and interest rates fell like never before. Definitive demographic changes, and painful processes of deglobalization and protectionism are coming. Incurring in debt is infinitely easier today than it will be in a few years. Being in debt without an investment grade credit rating will cause Mexico’s indebtedness to be asphyxiating. The country is embarking on a path of excruciating impoverishment and pauperization with no return on sight.
It will be difficult to measure much of the damage that this terrible administration will cause. But economically, many zeros are needed to express numerically AMLO’s devastation.
* 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