May data, AMLO forecasts; Nestora, self-defense groups and crime
Economic data released in May confirmed that the economy continued to grow at rates similar to those observed during the previous three quarters, but the 1.3% expansion of GDP during the first quarter of 2018 was well under half the 3.3% increase registered for the same quarter a year earlier. On a more positive note, revised seasonally adjusted data showed GDP 1.1% above that of 4Q17 – the strongest such sequential increase in six quarters – and that the economy grew 2.3% above levels of a year earlier.
Industrial activity was unchanged in March compared to the same month of 2017 as the combined effect of a 3.4% rise in factory output and a minimal uptick in construction were offset by another pronounced contraction in the case of extractive industries. But growth in private consumption, which has been a major economic driver in recent years, slowed to its weakest pace in 42 months.
Consumer inflation continued to fall back from 2017 highs and in April recorded its lowest reading since December 2016. Banco de México continues to project that inflation will realign with its 3% target by the second quarter of 2019, but warns of a series of inflation risks and the considerable uncertainty arising out of international factors, as well as the lack of visibility surrounding Nafta talks, and the presidential elections in Mexico.
Considering that some recent polls show Andrés Manuel López Obrador expanding his lead, it is necessary to anticipate what an AMLO administration might imply for Mexico’s macroeconomic outlook. Considering the combination of additional social programs he has proposed and the likelihood his administration would seek to significantly expand public sector investment without offering any compensating increase in government revenues, we would expect such a government to stimulate economic activity initially. However, the increased deficit spending and debt such programs would entail would eventually lead to macroeconomic instability, with inflation rebounding, the peso taking a drubbing and interest rates spiraling higher.
One of the issues raised in the second presidential candidates’ debate that has had the most visible political impact was the decision by José Antonio Meade to call out Andrés Manuel López Obrador for his campaign’s decision to nominate for senate a social activist and former regional coordinator of a community self-defense group in Olinala Guerrero, Nestora Salgado. Meade cited a kidnapping accusation made by a mother and daughter from the town and after the debate noted that Guerrero state authorities had filed multiple charges against Salgado in 2013.
A recommendation from the National Human Rights Commission and the possibility that additional charges yet may be filed against Salgado mean that the issue may take new turns going forward, but the matter served to underscore a much broader problem: the extent to which the absence of effective security and justice institutions throughout broad swaths of the country has led to the emergence of scores of self-defense groups and community police forces.
It is clearly understandable why citizens would band together to defend themselves in regions where organized crime and impunity predominate. However, such projects hardly offer an adequate solution to the problem as they inevitably wind up operating on a discretionary basis outside of any national legal norms, thereby leading to their misuse and all manner of abuses.
Even more troubling is the failure by the authorities to respond to the extent to which citizens lack protection and organized crime operates in the guise of community defense groups. They have failed to establish a permanent federal and/or state police or military presence in such areas to provide public security and eliminate both community police and self-defense groups.
And as we approach a presidential election, it is particularly disturbing that no candidate has put forward proposals that seriously address the grave problem of security posed by the absence of state institutions, and official security forces in many regions of the country in which irregular groups, some of which are thinly disguised groups of enforcers for criminal interests, fill the void by dispensing their own brand of “justice”.
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