A time of demanding fiscal wrestling – as analysts note a recent slowing of the economy – is taxing President Enrique Peña Nieto.
He and his top aides are locking wills, brains and dreams with Mexico’s economic problems as they “negotiate” a convincing 2016 budget. They face a discomfortingly close deadline of November 15. And this takes place as the United States – alarmed by Mexico’s human rights “recklessness” – has just cut anti-drug funds.
This 2016 budget deadline, and a broad swath of pressure from Mexico’s veteran economic communities, has already prompted some reluctant, if necessary, changes of heart by the president. Example: In June, the president, speaking to Bloomberg Business News editor-in-chief John Micklethwit, surprisingly stopped short of promising to nominate Agustin Carstens to a second term at the helm of the Mexico’s central bank. That alarmed many in the business and fiscal community. Carstens is highly thought of by such people.
Additionally, Peña Nieto was facing fresh accusations of corruption regarding the purchase of a pricey personal property, and growing alarm regarding unsolved killings (especially the massacre of 43 student teachers, still not solved), both of which caused a sharp decline in the president’s personal popularity.
Under pressure by fiscal/economic analysts, Peña Nieto earlier this month made a sharp u-turn in proposing Carstens for a second six-year term.
The 2016 budget is the first to be adopted since the collapse in oil prices. Yet there is more for the Peña Nieto administration to deal with. Finance Ministry analysts point to worrying changes which show a major reversal of the administration’s “fiscal ambitions.” Most discussions focus on the scale of the cuts (not as sharp as once feared) and the enforcement of the so-called “Budget Zero” process of item-by-item justification of spending. Their projections appear to severely compromise the government’s ambitious spending commitments over the remainder of the administration —a result of the absence of a “Plan B” to raise more needed revenue.
Reluctantly, government has tailored its GDP forecasts to a less dreamy reality. Yet it stubbornly assumes GDP can hit a five percent level by 2018. This bravely assumes that GDP will find a home at a new “structural rate” of 2.6 to 3.6 percent next year, and 3.5 to 4.5 percent in 2017. Sounder minds believe such estimates to be wishful thinking.
Non-governmental forecasts are more doubtful. Many of them put GDP growth levels at 3.5 percent by 2019. The International Monetary Fund is even more doubtful, putting Mexico’s growth rate at 3 to 3.5 percent in 2021. Or figures no different than Mexico’s existing potential growth rate which generally hovers around 3 to 3.5 percent.
Oddly, the present administration appears unusually dour regarding mid-term oil prices, being placed at just US$61 a barrel in 2021. Yet Peña Nieto and his colleagues have GDP growth as high as five percent. Something that puzzles most analysts.
Other problems facing the president: Capital spending will be hit by a “disproportionate share” of cuts, and a debt that is unflagging in its continuing growth.
The politics of all this are not cheerful for Peña Nieto & Co. They are blocked from making radical change during this presidential term by pledges not to raise taxes, or impose new ones, and by a “more hostile” opposition. The urge is to impose sales taxes on food and medicines, but that would derail consumer demand, and any possible short-term economic recovery, especially when domestic demand remains fragile. To say nothing of the political cost in the 2018 elections.
More worrying: It would expose the veneer of responsible fiscal management and a commitment to austerity. This at time when the government’s own forecasts reveal a medium-term outlook shorn of ambition that lays bare the grand plans made earlier in the Peña Nieto term: most of the massive infrastructure projects (aside from the new Mexico City airport) have been shelved. Does this mean Mexico’s (Fiscal) Moment is pretty much over?