Mexico weakened Economy Staggers as Coronvirus Hits

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Salvador Almonte has been doing a roaring trade in antiviral citrus cocktails at his stall in Iztapalapa, a sprawling working-class district of Mexico City. He makes about $9 to $13 a day selling juices and sandwiches and — like his customers — cannot contemplate staying at home to slow the spread of Covid-19. “We live day to day,” he said. “If we don’t work, we don’t eat.” After urging Mexicans only days earlier to take their families to restaurants to keep the local economy moving, President Andrés Manuel López Obrador on Friday finally began urging everyone to “step up our . . . sacrifice” and stay indoors as Mexico braced for infections to surge.

The country currently has 848 confirmed cases in a population of 126m. Balancing the competing needs to keep citizens healthy without devastating the economy is particularly tricky in Mexico. Despite being the world’s 11th-largest economy and home to one of the world’s richest men, almost 50 per cent of Mexicans live below the poverty line, another 30 per cent are vulnerable to sinking into poverty and 30m work in the informal sector, where they receive no social benefits. If the economy plunges by 5 per cent this year — and some estimates are worse: JPMorgan is pencilling in a 7 per cent collapse — economist Luis de la Calle estimates that 1.7m jobs could be lost, including 700,000 in the formal sector. “There’s nothing that would cushion the shock,” said, Marcos Casarin, chief Latin America economist at Oxford Economics, who estimates that a two-week lockdown in Mexico plus four weeks of social distancing and factory closures could slash gross domestic product by a staggering 0.7 per cent a week.

 

Jude Webber MARCH 30 2020Print this page10 Be the first to know about every new Coronavirus story Get instant email alerts Salvador Almonte has been doing a roaring trade in antiviral citrus cocktails at his stall in Iztapalapa, a sprawling working-class district of Mexico City. He makes about $9 to $13 a day selling juices and sandwiches and — like his customers — cannot contemplate staying at home to slow the spread of Covid-19. “We live day to day,” he said. “If we don’t work, we don’t eat.” After urging Mexicans only days earlier to take their families to restaurants to keep the local economy moving, President Andrés Manuel López Obrador on Friday finally began urging everyone to “step up our . . . sacrifice” and stay indoors as Mexico braced for infections to surge. The country currently has 848 confirmed cases in a population of 126m.

Balancing the competing needs to keep citizens healthy without devastating the economy is particularly tricky in Mexico. Despite being the world’s 11th-largest economy and home to one of the world’s richest men, almost 50 per cent of Mexicans live below the poverty line, another 30 per cent are vulnerable to sinking into poverty and 30m work in the informal sector, where they receive no social benefits. If the economy plunges by 5 per cent this year — and some estimates are worse: JPMorgan is pencilling in a 7 per cent collapse — economist Luis de la Calle estimates that 1.7m jobs could be lost, including 700,000 in the formal sector.

“There’s nothing that would cushion the shock,” said, Marcos Casarin, chief Latin America economist at Oxford Economics, who estimates that a two-week lockdown in Mexico plus four weeks of social distancing and factory closures could slash gross domestic product by a staggering 0.7 per cent a week. Covid-19: Mexico and Brazil leaders challenge LatAm lockdowns Ricardo Salinas, a billionaire media and bank mogul and a business adviser to the president, stirred controversy last week when he said that halting the Mexican economy would do more damage than the virus. “The way we’re going, we’re not going to die of coronavirus, but of hunger,” he said. The government’s response to date has been piecemeal, despite the advice of Santiago Levy, a respected economist who was finance under-secretary in the 1990s amid the “Tequila crisis” and its aftermath. Writing in the magazine Nexos, he said past crises had taught that governments should “act fast and without timidity — it’s best to do too much than too little”. The architect of an acclaimed conditional cash transfer social programme, he urged the government to help businesses by extending state-guaranteed loans; not to burden very small businesses with additional debt; and to suspend state infrastructure projects for the duration of the crisis — a reference to Mr López Obrador’s controversial signature airport, train and refinery projects. The government has so far promised to boost social programmes and provide low-interest loans. But Raymundo Vargas, who owns a garage now suffering a lack of car parts from China as supply chains are disrupted, said a three-month tax breather would be better. Mexico’s tax agency, SAT, instead has urged taxpayers to pay up promptly and “chip in” so that there will be funds to buy ventilators. Angel Chora, owner of a printing shop in Iztapalapa, said his sales were already down 70 per cent.

He would only be able to manage for three months if activity dried up completely “and that’s without paying expenses like electricity and telephone — that would be the last thing we’d pay”. “Whenever there’s a crisis, inequality in Mexico rises,” said Viridiana Ríos, a Harvard professor who urged the country’s government to turn the crisis into “an opportunity for fiscal reform”, including offering tax breaks now in exchange for higher taxes in future, and more effective tax collection among Mexico’s wealthy.

Mr López Obrador has, however, vowed no new debt or taxes. Cuauhtémoc Rivera, head of the Association of Small Businesses, warned that a quarter of a million corner shops could close, with the loss of 500,000 jobs. He called on the government to give food coupons to those in the informal sector, and loans to small businesses. “In a shock of this type, vulnerable people can fall permanently into poverty . . . it’s a poverty trap that can be inter-generational,” said Ricardo Fuentes-Nieva, head of charity Oxfam in Mexico, noting that when incomes fall, some families stop sending children, or at least daughters, to school. “My concern is if the government doesn’t step in with a massive programme [of aid for companies] . . . we will enter a period of depression with very high unemployment,” Luis Téllez, a former minister, told a Wilson Center webinar last week.

“The US government should also think about it, given the migration flows that will result.” Mexican migration has dried up in recent years but the country received record remittances of $36bn last year from Mexicans in the US — a vital lifeline that will be hard hit as the US economy dives. “If this goes on for a long time, I don’t know how we’ll all survive,” said Enrique Rosas, who has a fleet of 20 taxis. “We’re talking about an apocalypse.”