AMLO’s spending is resulting in the biggest budget deficit since the 1980s

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Mexico’s once-frugal president has ratcheted up spending, resulting in the biggest budget deficit since the 1980s and potentially leaving his successor in a financial bind.

It’s a departure for Andres Manuel Lopez Obrador, who kept a grip on the public purse all through the pandemic, as leaders elsewhere spent freely. Now, the president is boosting stipends for students and retirees, showering the state oil company with cash, and trying to get landmark construction projects finished.

The popular agenda looks set to help Lopez Obrador’s party retain the presidency with a landslide win in the June election. His party’s chosen candidate Claudia Sheinbaum, a former Mexico City mayor, has a commanding poll lead — especially in poorer southern states like Oaxaca, where public money is driving an economic boom.

“No other government has done as much work,” said Maria Alicia Jimenez Ibañez, a resident of Oaxaca, as she waited to buy tickets for a new train service that connects towns in the Pacific coast state to Veracruz, on the Atlantic side. “Before, the money just disappeared. Now, we’re seeing it.”

Among voters who receive social programs or whose family members do, 64% say they intend to vote for Sheinbaum, while only 21% say they will vote for the leading opposition candidate Xochitl Galvez, a far greater divide than in the general population, according to newspaper El Financiero.

For Sheinbaum, who’s flagged plans of her own including investment in health care, the concern is that funds will get harder to come by. Debt-service costs this year are expected to reach 3.7% of economic output, the most in at least three decades. Adding more spending commitments could put Mexico’s investment-grade credit rating at risk. Increasing taxes to offset that would be politically unpopular, but so would deep spending cuts.

With less debt than many peers, Mexico can afford Lopez Obrador’s final budget, according to Carlos Serrano, chief economist for Mexico at BBVA. It hasn’t always been that way, with a history of leaders setting up their successors for spending crunches — a phenomenon Mexicans refer to as “Crisis Sexenal,” for being a problem for new presidents every six years.

Now, markets are largely unfazed by the fiscal U-turn: The peso has been the top emerging-market currency this year. S&P, Fitch, and Moody’s all view Mexico’s sovereign rating as stable despite the boost in spending and the strain it might put on the country’s finances.

Still, the budget deficit comes during “a year in which things are going well,” said Serrano. “Every year we have to spend more on pensions and on servicing the debt, which is leaving the country without any margin.”

Oaxaca, long a stronghold of the opposition party known as the PRI, serves as a gauge for how the president and his Morena party have cemented control over Mexican politics.

The Morena party took over leadership of the state in December 2022. Even the previous governor defected from the PRI opposition group after his term ended and endorsed Sheinbaum — turning him into the kind of politician Mexicans call a “grasshopper” for their ability to leap to a more promising perch.

Indeed, Oaxaca’s economy grew 10% in the first nine months of last year, the most in the country, largely thanks to public spending.

Those improvements have won over locals like Jimenez Ibañez, 42, whose mother — who sells handmade totopos, a crunchy tortilla that’s a southern specialty — got enrolled in the new universal pension program.

“Even older people get paid,” she said. “We used to say, ‘Where’s the help for them?’ You couldn’t find it anywhere.”

The government set aside some $43 billion for social programs this year, more than half of it for the elderly. They can collect pensions every two months, at new public banks set up all over the country. Payments have more than doubled over the six years of Lopez Obrador’s government.

Benefits like those are one major part of Lopez Obrador’s budget. The other is infrastructure investments, including a $30 billion tourist train that snakes through southern states, a nearly $20 billion oil refinery in Tabasco State, and a new airport for the capital — after he canceled plans for one started by the last president.

He also started a state-run airline, which like many projects is not expected to make money in the short term. The infrastructure works are not yet completed, which means seeing any returns on investment could take longer than originally expected.

Source: El Financiero

The Oaxaca Post