Mexican advisors discuss economic policy before elections

Mexican advisors discuss economic policy before elections

Economy & Policy Corporate & Sovereign Strategy Interviews Mexico

With only months to go until Mexico’s presidential campaign, Andrés Manuel López Obrador has held a strong lead in polls ahead of the July 1 vote.

The rise of the 64-year-old leftist and former Mexico City mayor comes amid growing public discontent with the administration of President Enrique Peña Nieto over corruption allegations. Making his third presidential bid, López Obrador is aiming to become the first leftist candidate to win the presidency. That prospect has left Mexico’s business and financial leaders trying to determine what a it could mean for the direction of the country’s economy.

A vocal critic of Mexico’s economic reforms, López Obrador has caused concern among some investors because of his harsh rhetoric criticising Mexico’s push to open its energy sector to private competition. Mexican business leaders worry he could slow down or roll back the broader reforms, although he has appeared to moderate some of his positions.

López Obrador holds a double-digit lead in polls, followed by Ricardo Anaya, the head of the right-leading National Action Party (PAN). Running in third is José Antonio Meade, Mexico’s former finance secretary and the candidate for the ruling Institutional Revolutionary Party (PRI).

Economic advisers for the three leading candidates recently outlined their candidate’s visions and priorities in separate onstage interviews by LatinFinance and LaPolíticaOnline at LatinFinance’s 13th Cumbre Financiera Mexicana.

The following is a partial transcript of the highlights of the interviews, edited and condensed for clarity.


Abel Hibert, economic adviser for Andrés Manuel López Obrador

On fiscal policy
AH: It is important to come up with other policies that help the low economic growth rates and help to improve wealth distribution and income inequality in our country. In terms of fiscal policy, it is absolutely fundamental that we carry out an true fiscal reform. But not fiscal reform in the way it has traditionally been done by raising taxes. We don’t want to raise taxes or create new ones. What we’re proposing is a profound reorientation of public spending. We need to reduce our current expenditure by paying particular interest to ensuring that we are spending in an honest, austere and efficient way. We want to review how the government is spending money, particularly spending by high-ranking officials, in the use of official vehicles, communication programs, travel expenses and the public purchasing program among other things. We also are looking at social programs — a lot of the programs seem to overlap or are duplicated. We need to review the government’s budget and lower current expenditures so that we can dedicate more money to public investment. It is worth noting that our levels of public investment are at the lowest levels since the Second World War.

On private investment
AH: We hope private investment will continue in [infrastructure] projects. We want to make sure there are clear and competitive rules. Private participation is not, on its own, good or bad, but there are good and bad contracts, good and bad projects. Private participation in infrastructure projects does not always ensure that the project is efficient. It often depends on which company is involved in the project and under what conditions. But I want to emphasize that we want private-sector participation.

On economic growth
AH: Since 1994, we have registered on average economic growth of 2.4%. We believe we have to do do something different, something disruptive but not irresponsible to get different results in terms of growth, development and reducing poverty. Because if we continue to apply the same recipes of the previous administrations, it won’t be long before we start complaining that we don’t have a more prosperous country.

On Mexico’s energy reforms
AH: The traditional position of the left has been to oppose the privatization of the state’s resources. López Obrador and members of his Morena party have traditionally believed that — I should point out that I am not a member of Morena. The entire economic team has been evaluating the energy reform and believe it has been carried out well. Contracts have been handed out in a transparent way. So there is an ongoing conversation on the team and awareness about that the way energy reform is being carried out is beneficial for Mexico. It’s the way to help reverse the fall in oil production, particularly at a time when in a few years it could become difficult to meet our internal demand. There has been a process that López Obrador and some of his aides and I think they are understanding and if it’s good for Mexico then it’s good, right? The reforms are a now a part of the constitution, changing that is impossible.

On the new Mexico City airport
AH: It’s a similar case as energy reform. There are contracts, [and] up to $6 billion in debt has been issued for the airport. I think that when [López Obrador] sits down and sees the numbers, it would obviously create an image problem for the country if a project that is up and running is stopped. This is public debt that is being issued. It has the backing of the federal government. We on the economic team want to be sure that this a project in seven or eight years won’t need a financial rescue from the government, which has happened with some infrastructure projects in the past. But obviously the risk for investors right now is absolutely zero because the debt is completely backed by the federal government. We hope that airport brings benefits that have been promised. It would be very costly to reverse this project.


Salomón Chertorivksi, economic advisor for presidential candidate Ricardo Anaya

On economic policy
SC: We can’t think about growing the economy and then distributing the wealth, we need to grow distributing it. We don’t need a new economic model. We need to continue what we’ve been doing. But we need to make some adjustments and make changes to some parts of the model. One of the principal reasons for our low levels of economic growth is that salaries in Mexico are very low, beginning with the minimum wage. We know that if we raise salaries in a gradual and moderate way, there is little inflationary impact. We know that higher salaries will lead to more consumption. Mexico has made great strides since the 1980s getting our fiscal policies in order and managing monetary policy but we need to do more to get the economy to grow.

On infrastructure
SC: We also need to increase public investment in infrastructure. In 2017, public investment in infrastructure was 2.9% and private investment was 17.6%. Obviously, the state needs to be intelligent in its investment, but there clearly is room for more public investment. We would like to increase public investment to 5% of GDP by 2021, with private investment growing between 1% and 1.5% so that around 25% of GDP will be public and private investment in infrastructure.
If a country doesn’t use its own resources invest in infrastructure, it will eventually make it hard to attract private investment. Our infrastructure plan would also focus on areas we need so the country can modernize — sustainable energy, fiber optics, ports, airports and trains.

On proposed plan for a universal basic income
SC: It’s an issue that as soon as it is raised the first question is, “How are you going to pay for this?” The idea isn’t that as soon as we take office there would be an immediate move right to implement this. We would do this in a gradual, responsible way. Look at the country-by-country salary statistics of the Organization for Economic Cooperation and Development. Mexico is far down the list. We’re not saying that as NAFTA is being renegotiated that Mexico’s salaries should be on par with those in the Canada and the United States. But one of the aspirations of NAFTA was that there would be a gradual convergence that would help to improve income levels in Mexico and that has not really happened. Let’s take a look at berry pickers, for example. Berry pickers in San Quintín, Mexico earn around 100 pesos [$5.30] a day. If they cross the border and do the same work in California, they earn $10 an hour. Something isn’t working. Again, I’m not saying there should be an immediate convergence in salaries, but it should be an aspiration for Mexico to achieve that.

On plans to combat corruption
SC: We need to take advantage of all the technologies available to better control government spending. There is technology out there that can track government spending in real-time and we think we should adopt it. We believe that if a government official is found guilty of corruption, he or she should never be allowed to work in government again.


Luis Madrazo, economic advisor to presidential candidate José Antonio Meade

On economic policy
LM: Today, Mexico has financial stability. We have an independent and a healthy monetary policy, we have implemented structural reforms and we finally have an opportunity, after 10 years, when global growth is harmonized. Over the last 10 years, Mexico has faced an adverse external context. The price of oil fell around 70% and with it so did public investment. Pemex is an important part of public investment in Mexico. Something similar happened in 1998. The recession in the United States had a profound effect on the Mexican economy. But facing a broader adverse context over the years, the Mexican economy was able to grow. The structural reforms helped to accomplish that. We understand there is frustration with Mexico’s growth levels. We believe we need to make some adjustments but at the same time not give up on what has worked well. The opening of the telecommunications and economic sectors are offering the country new growth opportunities. The economy has solid pillars on which it can grow over the next decade. It is also important to keep in mind that the US economy is expected to continue to grow and that’s good news for Mexico.

On social policy
LM: We need additional steps to improve public safety. You can’t safety and at the same time not get tough on criminal leaders. This is a key point. Meade has proven his ability to manage the economy. He has also proven his ability to build consensus. Public safety is a key component to providing economic stability. We also believe that education reform is a key component of much-needed changes in social policy. We also think that we need to focus on social policies that could help contribute to economic growth. For example, Mexico, when compared to other emerging markets, has seen women play active roles in the economy. We need to develop social policies that can help improve women’s access to the labor market. That means thinking about daycare and other initiatives to improve that access.

On Meade’s time as finance minister
LM: He obviously has real experience helping to manage Mexico’s economy. I saw it first hand. I vividly remember one critical day after Donald Trump won the presidency. We needed to come up with an economic plan within 24 hours to help generate certainty in the economy. Some people questioned the plan. Others said it was impossible to implement. But it helped to provide the economy with stability, and we’re still seeing the effects today. It’s important to take note of his prudent and responsible management of Mexico’s fiscal accounts. LF