A Call for Urgent Change in Mexican Economic Policy

File photo from Mexico City. Getty Images

Por Saul Escobar Toledo* (IPS)

HAVANA TIMES – A group composed by women and men, called Nuevo Curso de Desarrollo (New Course for Development) based at the National University of Mexico recently published a document to propose a set of measures to change the current economic policy in Mexico.

This proposal responds to a diagnosis of the current situation: at this point of the year, the serious social damage inflicted by the health and economic crisis can already be observed. As we know, in Mexico as in many other countries, there was a great economic disruption caused by COVID.  Millions of people ceased to receive income from their work.

However, the Mexican government has not carried out sufficient support measures to compensate for these losses. The result is easy to guess: many households have been rapidly impoverished.

It is estimated that between 10 and 16 million people in April earned much less to the point of not being able to acquire many basic foods , a situation that has continued  for many of them during May, June and July. And while it is true that more and more workers are returning to their jobs, the losses caused have not been repaired.

The lack of support has led many people to abandon their confinement to seek an income for their sustenance. This, in turn, puts the population in greater danger. The Group considers that this dynamic can be corrected:  contain the pandemic, protecting sources of employment and revive the economy are   goals that can be achieved at the same time, they are not necessarily contradictory.

The paper recognizes the progress made before the health crisis: there was a significant increase in minimum and contractual wages; the right to a basic pension for the elderly was expanded; and support was extended to other vulnerable groups.   But the situation changed dramatically, and yet the economic policy did not. 

This situation – says this group – must be corrected. Therefore, an emergency strategy is urgently needed for the remainder of 2020 and for 2021. This new course could return some of what families have lost and, above all, make economic reactivation faster.

Since existing social programs are no longer sufficient, immediate action is required to protect formal workers who have become unemployed or underemployed, and informal workers who have not got no income at all.

The Group emphasizes that the reactivation of the economy cannot rest solely on the dynamics of the market. Both private consumption and investment will grow very slowly if there is no determined action from the state. That is, if there is no strong fiscal impulse. So, it is necessary, and it is now more urgent to launch a program to expand public spending.  This means increasing the public deficit for 2020 and prepare a larger budget for 2021.  

Financing of public expenditure can be covered by the flexible credit line of low cost available in the IMF and also by the Central Bank.  Additionally, the banking system can cooperate with the recovery by granting more credit to companies and individuals and to support the government.   Higher public spending should not necessarily become an unpayable debt and an unbearable burden for future generations.     

In addition, it is required to carry out a set of legal reforms to implement unemployment insurance; a basic income for the poorest and most affected ; and the strengthening of development banks (strangely frozen today), as well as an industrial and regional policy that does not rely solely and passively on the supposed benefits of the trade agreement with the United States and Canada.

Additional borrowing should be seen as transitory and confined to overcome the emergency. Therefore, the document says, a tax reform cannot be postponed. A reform that lays the foundations for a new inclusive and sustainable economy. The undeniable political strength of the president of the republic, granted by elections that took place in 2018, must and can serve to achieve this agreement.   

The government can presume that, despite the adversity, there is a balanced budget. But what good is that when inequality and poverty are exacerbated? The Mexican state and, first of all, the federal government have to recognize that there is a debt more important than the one recorded in public finances. And that is the income losses suffered by millions of Mexicans, losses that may last many months more.

If anything has been learned from the crises of capitalism in the last hundred years, it is that the laws of the market cannot be trusted. It is, then, time for politics, for decision-making, for a change of the economic course.


*Saul Escobar Toledo, Economist, Professor at Department of Contemporary Studies in INAH (National Institute of Anthropology and History, México) and President of the Board of the Institute of Workers Studies “Rafael Galvan”, a non-profit  organization. His recent work : “Subcontracting: a study of  change in  labor relations” will  be published soon by Friedrich Ebert Stiftung, Mexico City.

Note: The complete list of members of the Group and their publications are available at: http://www.nuevocursodedesarrollo.unam.mx