Mexico: How the government is restructuring the economy

As a result of the corona crisis, Mexico is threatened by the most severe recession in Latin America. But the government is leaving companies and employees to their fate. This will damage the important location of German industry in the region.

by Alexander Busch, Latin America correspondent for Handelsblatt and Neue Zürcher Zeitung

 

The upside down world in Mexico: in the Corona crisis, left-wing populist President López Obrador of all people is relying on a hard-nosed austerity policy instead of government aid programmes. His government spends just 1.3 percent of its economic output to mitigate the consequences. Mexico is thus the tail light in Latin America. Yet no other country in the region is likely to shrink as much, with a drop of almost nine percent.

No aid measures at all are envisaged for companies or workers: There are no short-time work benefits, tax deferrals or aid loans. López Obrador makes no secret of the fact that he sees the crisis as a welcome opportunity to trim the private sector. The relationship of trust between business and government has been profoundly disturbed, according to industry and associations.

López Obrador uses the Corona crisis to restructure the economy at a rapid pace: State-owned corporations, led by Pemex, are once again expected to dominate the economy. He wants to create jobs in state infrastructure projects such as the Tren Maya railway line, the construction of the Dos Bocas refinery and the new Santa Lucia airport in Mexico City. The energy turnaround was abolished without further ado. Instead of renewable energies, the government is now focusing on heavy oil power plants. That Pemex will soon be downgraded to junk level by the rating agencies – the government doesn’t care. But that will severely disrupt the flow of investment to Mexico.

This is a severe blow for German industry: Mexico is the third most important market for machinery and equipment outside Europe after the USA and China. The German car manufacturers Audi, BMW and Mercedes have only recently built new plants there. Mexico is the fourth largest exporter of automobiles worldwide.

But the president will not stop his anti-economic course. He has a majority in Congress. More importantly, he has the support of 60% of the population.

COVID-19 in Latin America

Development of case numbers in the region


Currently reported cases in the countries

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