Mexican citizens and foreign residents were still reeling under the weight of President Enrique Peña Nieto’s most recent brain storm – a new, amazingly confusing, confused and onerous set of tax laws – when the Republic was hit by a government move surprising economists here and abroad.
Friday, June 6 Mexico’s central bank launched a record-setting key interest rate cut to three percent. It was an attempt to compensate for continuing weak economic growth administrated by a president who came into office vowing to re-invigorate the Mexican economy. The cut followed 2013’s disappointing growth of 1.1 percent.
Despite Peña Nieto’s subsequent airy pitch that the economy would soar simply with the announcement that legislators had approved his wish to end the government monopoly of Petroleos Mexicanos (Pemex), the Republic’s only oil production agency. Contrarily, consumer confidence took a dive, and now seems sure to drop more on the back of government’s sprawling, irritatingly confusing effort to try to supervise every monetary transaction in the country.
No one, inside government or out, seemed to really understand what the new regulatory laws meant or how they would, theoretically, function beyond boosting the cult of insider political machinations and profit. Questions by students studying economics at local schools of higher learning seemed to have slim chance of getting a clear answer regarding how the new regulations are really meant to function. There are, of course, solemnly delivered explanations that tend to become garbled and logic-tangled once questions begin to sprout. Those were often uncharitably accompanied by references to “just another shakedown.”
The implications of this new “tax code” turned out to be the newest addition to the present “modern” era’s unblushing embrace of George Orwell’s dazzling, prescient novel “Nineteen Eighty-Four.” With an irony that only reality could unblushingly present, the full significance of Peña Nieto’s new tax code didn’t appear to fully strike most of Mexico’s citizens and foreign residents until last Friday, Orwell’s 111th birthday. The giddy embrace of the “electronic age’s” capacity to steal any semblance of the personal privacy (meaning true freedom) that people of a certain age once reveled in. So we get the current fever to widen the tax base by the present administration’s blunt creation of laws aimed at tracking down financial activities of everyone in Mexico to find out how much money they have, how much they make (and from where) and how much they spend (and for what).The era’s constant surveillance doesn’t bother a great many people who have, with an odd sense that they’re making themselves “modern,” just like everybody else, acquiesced to this folly. The universal argument made by prayers such as, well, Dick Cheney, widely known as representative of the type, is that constant surveillance shouldn’t bother you unless you have something to hide. Despite the fact that everyone, including Cheney, has things they prefer to keep personal. There is much of our lives we consider to be not everybody’s business.
However that may be, with Peña Nieto’s popularity already in descent – dropping in one recent poll to 37 percent – this move promises to continue to pummel his favor with the people.
Meanwhile, toxic weeds crop up. Here, as the cash flow began to slow down, politicians ratcheted up the intensity of “their search for revenue and new areas to regulate,” as someone said. And locally, small businesses are in the government’s sights as part of the present nationwide shakedown. Traditionally, they are the nation’s (legal) critical engine for growth and job creation. Yet they are being starved for credit and slammed with more taxes and government directives and litigation. This policy means weaker profits and fewer jobs, risking further deterioration of a sinking Peña Nieto economy and the wounding of a relatively quiet but prime element of Mexico’s private sector – one which all indicators show is one that the president should be energetically nourishing instead of pirating.
This series of unpleasant setbacks – a battered gross domestic product, the central bank’s unexpected cut in its key interest rate to a record low of three percent; the demoralizing installation of a nationwide series of laws specifying how Mexicans and foreigners can deposit and withdraw money in their bank accounts – wounds his standing at home. Abroad, he’s applauded for many of his initiatives, such as a constitutional amendment to open the state-owned energy sector to foreign investment. Yet it may take years for benefits to appear, analysts note. “In concentrating on reforms, it is tougher to pay attention to important development projects,” economist Luis de la Calle has said. “Often an ambitious reform agenda tends to introduce uncertainty into the economy.” It’s a dicey way to spend domestic political capital. Foreign economists approve of many of the president’s moves. But those same moves are costing him at home. The concept that retired foreign residents need to be “careful” regarding “significant” withdrawals from their United States and Canadian bank accounts, and at ATMs, seemed not win him cheers among local bank branches and businesses along Lake Chapala’s north shore.
Peña Nieto’s political party, the oxymoronically named Institutional Revolutionary Party, oligarchically governed Mexico for 71 years, 1929 until 2000 when it was jubilantly thrown out of power. In other words a political party which has gone down in history known for its brutal, bloody, often openly psychotic one-party rule has just announced that it is presently hogtying everybody in the Republic because it doesn’t trust them.
Meanwhile, it apparently is going to take months for businesses – particularly mid- and small- size operations – to untangle the new set of Orwellian fiscal policies bristling with an armory of punishments for non-adherence. The policy has already forced a good number of puestos and shops to close down, and promises to wreak havoc among many others, unleashing a surge of unemployment, with the lucky freshly unemployed going into Mexico’s huge “informal” economy, say some University of Guadalajara observers. More than 60 percent of Mexican workers are now employed in the informal sector. Some local economists say the new tax policy will feed a new, and large shadow economy. Tens of thousands of official swindlers, they speculate, will profit from that.
The dizzying new tax “reform,” says the government and its PRI spear-carriers, is designed to put money laundering operations out of business. But analyses by drug cartel-associated money launderers convince several savvy observers that this seemingly tightly knotted “tax policy” is not at all an effective obstacle. One Mexican friend said, “This will simply create a whole a new level of corruption.” If so, that certainly will not boost the president’s popularity.
Jorge Castañeda, Mexico’s former foreign minister, and a highly regarded author of analyses of Mexican history, economics and culture, as well as one of its leading columnists, says, “This guy was elected with 38 percent of the vote, and his party hasn’t gotten anywhere beyond that during the past 20 years. They have a glass ceiling they can’t crack. And they probably never will. The country just doesn’t like these guys.”