Budget Doubts Cast Pall on 2018, While the Government Acts Promptly after the Earthquake
Economic indicators were contradictory over the past month. Business and consumer optimism continued to recover, the leading indicator rose for a sixth month in July, and private consumption continued to grow even as there was evidence of a softening in some segments. In news just this past week, the monthly GDP proxy grew a mere 1.3% in July owing to setbacks in industrial output (-1.5%) as three out of four industrial components showed negative results alongside a cooling of service sector growth (2.7%).
Mexico’s trade balance showed a deficit of 2.73 billion dollars in August as opposed to the 1.88 billion dollar deficit of a year ago. This weakening of the trade balance reflected a 113.8% annual increase in the petroleum deficit. But on a brighter note, that month’s rate of unemployment (3.29%) was the lowest August reading since this indicator was first published in its present form in 2005.
Looking ahead, the government’s economic program for 2018, especially the tax revenue and broader fiscal goals, pose a number of potential risks. The goal of expanding the oil production platform seems unrealistic. The same is true of the relatively minor debt-reduction target, given that we are talking about an election year, and considering how domestic and foreign investors might begin to reassess Mexico country risk.
The budget proposal does nothing to address mounting pension spending, much less redefine retirement contribution schemes and the system of fiscal coordination between the federal and state governments even as public investment is projected to be slashed to its lowest level in recent history.
And then there is the usual risk that the Chamber of Deputies will make politically motivated changes to the budget package, such as arbitrarily raising the projected price of oil or the foreign exchange rate in order to “accommodate” new budget programs or augment existing ones, particularly in this coming election year. As the Ministry of Finance traditionally does, expenses associated with “sensitive” items (agriculture communications, etc.) have been low-balled to give congress leeway to increase them. We can expect that this year will prove no exception, particularly in the urgency of raising money to fund the reconstruction efforts after the earthquakes of September 7 and 19.
This year’s earthquakes may eventually produce major political effects, but we are unlikely to see a repeat of the developments of 1985, when a government’s indifference and incompetence produced powerful political aftershocks that are felt even today. There are many critics of how federal and local authorities have responded to the latest events, but so far the public is expressing general approval of the way President Enrique Peña Nieto and other institutions are dealing with the disaster.
The relatively favorable approval numbers may change in the coming days and weeks, especially should further evidence emerge regarding the issuance of construction permits for, and inspections of even new buildings that collapsed, as well as more complaints of assistance being far too slow and limited. To the extent that such narratives become more common and visible, the quakes’ political toll could extend to actors that have remained largely unscathed so far.
Prominent politicians from every major electoral force are already becoming targets of public ire, including the PAN-PRD-MC front (Morelos Governor Graco Ramírez in particular, and Mexico City Mayor Miguel Angel Mancera appears poised to encounter more criticism), Morena (its future Mexico City mayoral candidate Claudia Sheinbaum), and the PRI (Minister of Education Aurelio Nuño). Parties are already trying to insulate themselves from criticism by making what are probably empty gestures to dedicate their own funding to deal with reconstruction. And unlike in 1985, all parties, whether in power or in the opposition, are affected.
What this past month’s quakes and those of 32 Septembers ago have in common is the overwhelming outpouring of citizens donating to, and becoming directly engaged in rescue and relief efforts, a phenomenon with a proven ability to greatly reshape politics in Mexico.
So even if we assume that the current image of a more or less competent response by most governmental authorities and institutions holds up, it is too soon to anticipate how a growing disaffection with political parties on the part of a newly mobilized and hypercriticial society may manifest itself going forward, beginning with the 2018 elections.
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