AMLO calls for new 'Marshall Plan' for coronavirus recovery

AMLO calls for new 'Marshall Plan' for coronavirus recovery

Economy & Policy Corporate & Sovereign Strategy Debt Project & Infrastructure Finance Energy Gas Politics Mexico US Latin America Coronavirus

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​President Andrés Manuel López Obrador has called on developed countries to draft a new "Marshall Plan" to help emerging markets recover from the economic fallout from the coronavirus outbreak.

"A support plan is needed for countries in development, emerging economies and especially for poor countries. A kind of Marshall Plan is needed," AMLO, as the president is known, said at his daily press conference on Monday morning.

"And I don't see anything. I don't hear anything from the International Monetary Fund, I don't hear anything from the World Bank," he said. "There are no announcements of aid, of support, not with predatory loans, but with cooperation for development."

AMLO then added "a very respectful recommendation" that the Mexican central bank "not fall into the temptation" of dipping too much into reserves to shore up the economy.

AMLO said he discussed various measures to help emerging markets recover from the coronavirus outbreak, including the creation of a new Marshall Plan, with BlackRock CEO Larry Fink on Saturday. The Marshall Plan was a recovery program by the US government to help rebuild Western Europe after the end of World War II.

In a speech on Sunday night, AMLO said the government will lean on public investments and increased social spending to deal with the economic and social impact of the coronavirus pandemic. Rather that raise taxes or fuel prices, AMLO said the government will use money from a budget surplus fund to provide home loans and extend credit lines to small businesses. He also said his administration will create 2 million new jobs in nine months.

In addition, the government will unveil an energy investment program for MXN339 billion ($13.8 billion) next month to go along with the MXN859 billion infrastructure spending plan that AMLO announced in Novemberlast year.

In times of crisis in the past, according to AMLO, the government raised debt, rescued banks and big businesses, increased charges for public services, fired civil servants and cut social security.

"Now it is not going to be like that, those prescriptions are not going to applied," he said, dismissing a bailout for banks or corporations.

While the government plans to cut taxes for the state-owned oil company Pemex by MXN65 billion, it does not intend to offer tax relief to other large corporations. It has also obliged companies to keep paying salaries and barred them from firing workers during the month of April.

In response, the business chamber Consejo Coordinador Empresarial (CCE) called AMLO's proposals "an incomplete answer to the size of the crisis that we face."

According to Copramex, another business chamber in Mexico, the CCE recommended the government raise debt as high as 4% of GDP on a temporary basis to fund loans to companies, especially small businesses. It also suggested government-run development banks funnel MXN100 billion ($4.05 billion) in corporate loans, with an emphasis on small businesses, through commercial banks, Copramex said.

Alberto Ramos, an economist at Goldman Sachs, called AMLO's plan "underwhelming in size and scope" and said it did not match up with measures unveiled in other countries across the region.

"The authorities seem to be underestimating the economic impact of the viral pandemic and the need for a deeper reorientation of fiscal policy," Ramos said in a note to clients.