Mexico’s Leader Resists Relief for
Businesses as Coronavirus Hits Economy
By Robbie Whelan
(WSJ)
April 11, 2020
1:00 pm ET
While many other
Latin American nations plan to bolster companies, Mexico’s president wants to
aid the poor
MEXICO CITY—Many Latin America countries are announcing
hefty support packages to keep businesses afloat during the economic downturn
from the coronavirus. But Mexico’s nationalist leader is giving the private
sector the cold shoulder, leading to growing friction between the government
and business in the U.S.’s largest trading partner.
President Andrés Manuel López Obrador has ruled out tax
breaks or other kinds of help for businesses, saying those policies amount to a
handout to the rich. Instead, he wants to focus the government’s aid on the
country’s poor, including Mexico’s vast underground economy of street vendors.
“Why do the poor come first? Because we must show humanity,
we must show solidarity,” Mr. López Obrador said Tuesday in his morning press
conference, before citing Jesus Christ’s teachings on evangelizing to the poor
as justification for his plan.
The tensions mark a new low in the relationship between
Mexico’s leader and much of its business community. Mr. López Obrador has
already cast doubt on the security of capital investments by canceling large
private-sector projects, including a new international airport that was under
construction outside Mexico City and a beer plant in the northern state of Baja
California.
Business owners worry that without government financial
support, Mexico’s economy could suffer through a deeper downturn as a result of
the pandemic.
As measures restricting work and mobility begin to cause
steep job losses, the country’s leading business chamber recently asked the
government to offer a large-scale program of federally guaranteed loans to keep
workers employed, and to defer taxes and employer social-security contributions
until the worst of the pandemic passes.
“We’ve tried to give our support to this problem, to this
beauty salon, to this little stationery store, this corner shop, this dry
cleaner, to all the people who earn their living day-to-day, with their
services, with their efforts,” said Carlos Salazar, president of the business chamber.
“For some reason, we’ve gone totally un-listened to.”
So far, Mr. López Obrador hasn’t agreed to any of the
proposals, business leaders say. In a speech on Sunday laying out his plan to
counter the pandemic’s economic hit, the former Mexico City mayor ruled out
taking on more debt or any big jump in spending, including private-sector
credit.
Instead, he offered several million small loans of roughly
$1,000 each to households and businesses with fewer than 10 employees. To help
pay for that, he said government employees above a certain pay grade would take
a pay cut and lose their year-end bonuses.
On Tuesday, Mr. Salazar broke publicly for the first time
with Mr. Lopez Obrador, calling it incredible that the government wasn’t
willing to help.
The president replied a day later by sending Mr. Salazar a
list of large Mexican companies that the government says owe a combined $2
billion in unpaid federal taxes. The letter said that if the taxes were paid,
the money could cover millions of new loans to families and small businesses.
The moves stand in contrast to other Latin American
countries embarking on more aggressive stimulus to counter the economic hit
from the lockdowns. Peru, for instance, has put together a stimulus worth $26.4
billion, or about 12% of annual economic output, including loan guarantees for
small businesses and heavy investment in medical infrastructure.
Alberto Ramos, Goldman Sachs’s chief economist for Latin
America, called Mr. Lopez Obrador’s proposals underwhelming.
“The authorities seem to be underestimating the economic
impact of the viral pandemic and the need for a deeper reorientation of fiscal
policy,” Mr. Ramos said in a note to clients.
Mexico’s president argues that past government responses to
crises, such as the 1995-96 peso crash that ended with
a large, taxpayer-funded bailout of banks, have always benefited only the
wealthy while burdening the public sector with losses and debt.
“We’ve broken the mold that they used to apply so-called
countercyclical measures that only deepened inequality and allowed for more
corruption, for the benefit of the few,” he said on Sunday.
Mexico lost nearly 347,000 formal private-sector jobs since
mid-March, government officials said Wednesday, or about 1.7% of workers
registered for health and other benefits at the Mexican Social Security
Institute.
The government sharply criticized companies shedding
workers. Labor Minister Luisa María Alcalde said the losses were concentrated
in companies with more than 50 employees, “showing that those companies with
the most capacity to resist, are the first to let workers go faced with this
emergency.”
Officials showed a list of companies that had laid off the
largest portions of their workforces. Ms. Alcalde said authorities are “closely
following all these companies that are showing an obviously atypical behavior
of laying off all their workers.”
On Wednesday, Claudia Sheinbaum, the mayor of Mexico City
and a close ally of the president, threatened to ban large companies that lay
off workers as a result of the crisis from launching new businesses in the
city.
“There are going to be consequences in Mexico City,” Ms.
Sheinbaum said. “If it’s a big company that has the ability to pay their
workers, and they’re laying off workers…those that don’t show solidarity…won’t
be able to have another business in Mexico City.”
Business groups say the president’s plan isn’t nearly big
enough to avoid a massive economic crisis and record layoffs. Some investment
banks, like JPMorgan Chase & Co. and Bank of America Corp., expect Mexico’s
economy to decline 7% or more this year, putting it among the hardest hit in
the world.
“The cost of doing nothing…would be the death of thousands
of businesses and millions of jobs disappearing,” said Mauro Garza Marín,
president of Coparmex, a large business association
for the state of Jalisco, where many of Mexico’s small and midsize businesses
are concentrated. “The private sector is not asking for free money or to not
pay what we owe. All we’re asking for is oxygen.”
Yesenia Gerón, a mother of two who
owns El Chino Bakery in Ecatepec, a gritty industrial city near the capital,
said her daily net profit of 500 pesos (about $20) has been cut in half since
late March. In recent days, she has been searching for ways of applying for
government support, without success.
On Tuesday, the supplier where Ms. Gerón
buys her monthly supply of lard for baking rolls shut down, forcing her to
close her bakery until she finds a new supplier.
“I just hope they find some way of solving the problem of
the coronavirus soon,” Ms. Gerón said. “Everything is
closed as a result of this crisis, and it has a brutal effect on people like
us. Local businesses especially are being left behind.”
The one area where the president is continuing robust
spending plans is on his three signature infrastructure projects: the Dos Bocas
oil refinery in his home state of Tabasco; the Maya Train, a tourist train
across in the Yucatán Peninsula; and the Santa Lucia airport in Mexico City,
which he is building as an alternative to the airport project that was halted.
Most economists say the $8 billion refinery and $8 billion
tourist train are likely to lose money. A guaranteed loan program of roughly $8
billion proposed by business groups would allow companies to pay employees for
60 days, said Mr. Garza Marín, but so far the proposal
hasn’t gained traction.
“The president did not listen to any of it. He’s basically
not giving any resources at all to the private sector,” he said. “Practically
every country in the world with the capacity to take on debt is doing so to
inject resources into their economies. Here, we are continuing to throw money
in the trash on unprofitable projects like the oil refinery.”
The president’s refusal to provide more help to business
shows his deep-rooted mistrust of the private sector, said Shannon O’Neil, a
Mexico expert at the Council on Foreign Relations.
“You see the rest of Latin America doubling down on programs
where they’ll pay some wages, or give businesses a
pass on taxes if they keep people employed, or providing interest-free business
loans,” she said.
Mr. López Obrador is “doubling down on a political and
economic project he’s had since the 1970s, where the state is the arbitrator
between businesses and the people. In his worldview, the state is the
benefactor to the people, and they depend on it for their well-being, not on
private companies.”
—Anthony Harrup contributed to
this article.
Write to Robbie Whelan at robbie.whelan@wsj.com