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Feature 071816 Pazos

Monday, July 18, 2016

Mexico: Three Lost Years due to Incomplete or Late Solutions

By Luis Pazos

Mexican President Enrique Peña Nieto said that if Energy Reform had been implemented some years earlier we would have a different Mexico.  Correct, but what he did not say is that it was his party, the PRI, that opposed the reform in 2008.

The administration of President Peña Nieto has been characterized as being more reactive than preventive. In its first three years they did not make the necessary adjustments in order for Pemex to avoid bankruptcy. It was not until they were left without cash to pay its obligations that they changed its d­­­irector, who had not implemented scheduled changes. Something similar occurred in SEDESOL [Social Development ministry], where it took them three years to recognize that while spending rose on anti-poverty programs, the number of poor increased at the same time.

They were three lost years, during which they could have improved the economy, whereas the revenue holes that produced the drop in oil, a phenomenon that many blame on growing macroeconomic imbalances in Mexico, was offset by additional income generated from the increase in taxes; but instead of reduced spending, which would have led to lower debt and lower deficits, they increased it, as if to them there was more than enough money, and with the hidden purpose of counting on the resources to ensure victory in state elections in 2016 – wherein they had a huge failure.

The growing imbalances in public finances in the first three years of this government resulted in record growth of the debt and the budget deficit, which weakened the macro-economic environment and contributed to international volatility that will strike Mexico more in the devaluation of its currency.

In mid-2016 they announced overdue budget spending cuts and they posed a primary surplus, that is to say without entering the debt payment for 2017 that should have been done since 2014.

In the first three years of this administration, postponing changes and acting as if the problem was "managing the wealth'' were the main reasons for lower growth and a greater devaluation, not external factors. 

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Luis Pazos (e-mail: lpazos@prodigy.net.mx), who heads the Free Enterprise Research Center (CISLE) in Mexico City, holds a master's degree in Public Finance and a doctorate in Law from the National Autonomous University of Mexico (UNAM).  A prolific writer and forethoughtful analyst, Dr. Pazos' commentaries on Mexican economics, finance and politics have appeared in newspapers and magazines throughout the Americas.  As well, he is the author of numerous books.  Edited translation by MexiData.info.

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