July data paints mixed picture and AMLO lacks police rebuilding plan
Not all the news has been negative. Both business and consumer sentiment continue to climb further into optimistic ranges especially when it comes to their expectations as to how the economy is likely to perform. While export activity and construction investment softened in past months, private consumption performed well between April and June of this year. Moreover, industrial activity strengthened slightly in June (0.5% yoy versus the 0.2% average year to date) and the labor market continued to firm even as the informal sector continues to account for more than half of all those employed.
However, inflation remains stubbornly high (4.81%, as of July) and the central bank continues to upwardly revise its inflation forecasts, and public finance has emerged as a growing area of concern as public sector financial numbers through the first seven months of the year suggest that the country’s macroeconomic health might become untethered. Of particular concern is how quickly a 119.3 billion peso public sector surplus during that period of 2017 turned into a 199.4 billion peso deficit this year as budgetary revenues fall and spending grows. Similarly troubling is how fast the debt reductions of last year have morphed in to a steady expansion of such liabilities, posing a risk to stability over the medium term. Moreover, the country’s current account deficit more than doubled as a percentage of GDP during the second quarter. Such concerns are all the greater amid the uncertainty of what the next presidential administration might bring.
The lack of visibility extends to the external front given the prospect of heightened trade tensions globally as well as the problems poses by rising interest rates abroad and a strong dollar, which jointly could contribute to continuing weakness in areas such as private demand and exports, in the opinion of the central bank. While some may have taken heart following last week’s announcement of a tentative trade understanding between Mexico and the United States, it is still unclear how the international trade situation will evolve in the coming months.
On the political side, President-elect Andrés Manuel López Obrador stirred up a firestorm of controversy recently when he said would rely, as have his two predecessors, on the active support of the Army and the Navy to assure public security. That should not have come as a surprise to many, especially among his supporters, who may have hoped he would send the troops back to their barracks. While he seemed to toy with that possibility on the campaign trail he was clearly increasingly inclined toward depending on the military to help trying to cope with the country’s dire problems of violence and organized crime.
The real point of concern should be the obvious lack of any semblance of an exit strategy even over the medium and long terms, much less a plan to deal with the profound structural problems plaguing the country’s entire public security system especially at the level of its myriad police forces. López Obrador’s only nod in that direction was a vague campaign proposal to merge all police and military forces into a national guard that members of the transition team say has either been nixed or indefinitely postponed.
With the vast majority of state and municipal police officers are lacking in basic education, and are extremely poorly paid, equipped, trained, motivated and controlled. And they simply don’t exist in many parts of the country. Alfonso Durazo, the future minister of public security, has spoke of promoting an “emergent training and professionalization program for security agencies” and of dignifying the economic conditions of the police, but at the same time he has ruled out any budget increases for the sector in the near term. It is hard to fathom just how to achieve the former in the absence of the latter. It is simply impossible to rebuild the police system without a sustained expansion of budgetary support and a coherent plan.
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