Mexico's private industry proposes economic stimulus

Author: ICIS Editorial

2020/03/26

  • Mexico’s business groups rally for economic stimulus measures
  • Groups ask government to pause tighter fiscal, monetary policy until crisis passes
  • Manufacturing among those that face most pressure from downturn

MEXICO CITY (ICIS)--As Mexico’s President Andres Manuel Lopez Obrador (AMLO) and his administration has faced criticism for the slow reaction to the coronavirus pandemic, its private sector is calling on federal intervention to counteract the impact on Mexico’s already-fragile economy.

As businesses brace for the economic impact, several trade groups are urging the federal government to take steps to help counteract the drastic drop in foreign investments and preserve desperately-needed liquidity.

The steps are designed to help stave off the expected lack of cashflow for small and medium-sized businesses.

“We are trying to make progress on a national crisis, in terms of saving our employees and our companies, where millions of Mexicans work, to lessen the economic burden it provides for them,” said Carlos Salazar, the president of the business coordinating council (CCE) during a 19 March online press conference.

Moody’s Analytics has estimated that the Mexican economy could contract as much as 2.3% in the coming year. It anticipates that the currency depreciation and inflation rebound will result in the government maintaining a tighter fiscal and monetary policy to stave off future instability.

However, these are measures that industry advocates are begging the government not to implement immediately, until the crisis at hand has passed.

“These are practical steps that will be effective in the short term, to help our workers and our consumers,” Salazar said. “We are not asking for subsidies - this is not a mistaken request to simply boost the private sector. We are trying to figure out how to rescue companies so that they can continue to operate.”

One key recommendation is for the federal government to reallocate funds to stimulate the economy.

Mexico currently has a target of maintaining a 1% surplus of its annual GDP - a target that these business organisations say needs to be set aside during these emergency conditions.

Groups are also calling for greater energy sector public-private cooperation, by leveraging the Private Sector-Government Infrastructure Investment Agreement that was signed last December. This agreement aims to enable the private sector to fund 147 new projects between 2020 and 2024.

Business organisations have also recommended the federal government provide subsistence wages to any employees with jobs that have been cut due to economic contraction.

Alicia Barcena, executive secretary of the UN Economic Commission for Latin America and the Caribbean, said in a 19 March online presentation that aid for Mexico’s vulnerable will need to be supplemented with cash transfers, unemployment insurance and support to the informal sector, which makes up roughly half of Mexico’s workforce.

MANUFACTURING PRESSURE
Industrial trade group Canacintra has asked for 100% of its social security payments that it makes for employees to be covered by the federal government, representing one of the most drastic measures proposed.

Canacintra, reflecting the tremendous pressure Mexico’s manufacturing sector is under from the disrupted supply chain, also is seeking a return of VAT taxes by the end of March, and for immediate deductions for working capital. It is also requesting a 90-day credit for electricity payments and a suspension of all audits.

Business leaders are also pushing for state-run Pemex and CFE to be prompt with payments for suppliers, something Pemex promised to do in its most recent earnings call. Contractors to both companies have frequently complained about difficulties in collecting payments.

Low oil prices and Mexico’s reliance on Pemex to fund the government via tax revenue could make deferrals of payments to suppliers tempting, but CCE notes it would be devastating for small business.

“Pemex has a very complex cost structure and a high level of fixed income, so facing a crisis like this is very difficult,” said Rosanety Barrios, a former senior official at energy ministry SENER.

“Companies need more liquidity than the government right now,” the CCE said in a 19 March statement.

By Emily Pickrell

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