Introduction
The current and past governments have, through their broad public policy decisions and particularly their economic policies, written a chapter in an economic growth textbook that serves as a cautionary tale. The destruction of the institutional framework, including judicial reform that subordinated it to the executive power and the disappearance of autonomous state organs, eliminated checks on authoritarian power exercise. This has significantly reduced legal certainty and discouraged private investment.
Key Policy Mistakes
- Fiscal Policy Errors: Incorrect decisions in fiscal policy, injecting nearly two trillion pesos into the failing Pemex without addressing its structural issues, regulatory changes in the energy sector that favored two inefficient government companies at the expense of more efficient private firms, and channeling over a trillion and a half pesos into socially unprofitable public works that destroyed national wealth and reduced economic growth potential.
- Government Transfers Expansion: Growth in government transfers, particularly non-contributory pensions like the Adults Program, has strained public sectors such as education and healthcare, impacting human capital formation and accumulation.
- Rising Crime Rates: The increase in homicides and extortion acts as an additional illegal tax, affecting legal businesses.
Economic Growth Impact
The result of these decisions is evident: the adjusted PIB in Q3 2024 was only 5.7% higher than Q4 2018, indicating a meager average growth of 0.2% over 23 quarters and a nearly 6% decrease in per capita PIB.
Prospects for the Next Six Years
The outlook for the next six years, under President Sheinbaum, is also grim. Expected growth of just 0.8% this year implies further PIB per capita reduction.
- Amparo Law Reforms: Proposed reforms eliminating provisional suspensions against government actions violating individual rights would expand the government’s discretionary power at the expense of private property, reducing legal certainty and negatively impacting private investment and growth.
Persistent losses across all government companies requiring transfers to cover them and the growth of non-contributory pensions and inflation-indexed programs strain public finances, making significant debt reduction difficult. This, along with converting Pemex debt to sovereign government debt, threatens the investment grade. - Low Public Infrastructure Investment: Efforts to reduce fiscal deficit have led to further public investment contraction, especially in areas that could stimulate private investment like transportation (air, sea, and land) and energy infrastructure.
- Trade Policy Under Trump and T-MEC Renegotiation: Uncertainty from potential broad tariff imposition on Mexican exports and the renegotiation of the free trade agreement under a U.S. president with a mercantilist view of international trade as a zero-sum game hinders investment and growth.
Conclusion
The institutional destruction in the previous six-year term and the first year of the current one, combined with the four elements mentioned, predict another period of very low economic growth.
