Mexico’s Leader Resists Relief for Businesses as Coronavirus Hits Economy
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.
12% of GDP
Guaranteed loans to businesses, investments in health infrastructure, support for mining industry
4.7% of GDP
Deferral of business taxes, special unemployment fund and credit lines,
About 1% of GDP
Direct payments to unemployed workers and pensioners, suspending social security contributions by companies in most-affected industries, addressing goods and medical-supply shortages
Health spending, credit guarantees to small and medium sized businesses
No stimulus announced
Individual measures include loans to households and small businesses worth about $1 billion, advance payments of pensions
Source: the governments
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.”
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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.