Mexico will likely have a president without a budget

Mexico City.- Mexico is almost certain to elect its first female president in June — the two leading candidates are women — but it is almost equally certain that she will not have much room to operate independently of outgoing President Andrés Manuel López Obrador.

The popular president continues to propose new and expensive projects in the final months of his administration before leaving office on September 30. It will also leave many large projects unfinished.

This would keep her successor’s hands tied for much of her six-year term. Even if the opposition candidate, Xóchitl Gálvez, wins, she will be burdened with a mountain of financial commitments. The candidate for López Obrador’s party, former Mexico City mayor Claudia Sheinbaum, is leading the polls. A third male candidate from a minor party has almost no chance of winning.

“The next administration will inherit a country with a fiscal hole that will limit room for maneuver during the next term,” said Moody’s Analytics Director Alfredo Coutino. “To overcome the current fiscal weakness, the incoming administration will have to adjust fiscally (spending or taxes) in 2025.”

Lopez Obrador has said that before he resigns, he will visit the U.S. The company will seize Vulcan Materials, a move that could cost the Mexican government up to $1.9 billion if the Alabama-based quarry company wins an ongoing international arbitration case against Mexico.

There is also a promise to return passenger trains to Mexico before he leaves office, yet to be done. On November 20, López Obrador published a decree stating that if private freight operators refused to provide passenger services, the government would intervene to do so.

Although the trains would have to run on the tracks of private concession operators — Mexico abolished its money-losing state railways in the late 1990s — the government would probably have to buy the trains, fix the stations and set up a ticketing system.

Thoughts of losing money keep coming. On December 26, López Obrador launched the state airline at a time when most countries have decided to close or sell their airlines. With ultra-low price guarantees on underutilized flights at government-run airports, the possibilities for hemorrhaging money are endless.

To make matters worse, on February 5, the government announced that the government would guarantee retirement with full pay to employees.

The plan, once explained, was less generous than originally described. Only workers with official retirement plans will have their pensions supplemented, and only up to the average salary level of enrolled employees, about $10,000 a year. However, it will probably cost billions of dollars.

That same day, Scheinbaum, considered the candidate of López Obrador’s Morena party and his most enthusiastic supporter, said he would carry the president’s programs and add some of his own.

“Of course these (López Obrador’s programs) are the foundations, the basis of what our government will be, and we are going to present other proposals as well,” Scheinbaum said.

But almost as soon as he spoke, evidence emerged that he did not have the financial power to do so.

A few days later, Moody’s Rating Service further downgraded the debt of the national oil company, Petróleos Mexicanos, or Pemex, to junk bond status.

Moody’s was based on “forecasts of a further deterioration in the government’s fiscal position in 2024”, with “a material increase in the deficit due to social spending, persistently high borrowing costs and rising spending on flagship projects”.

Consider what the next president will find herself in: She will have to finish a $20 billion oil refinery, often delayed and plagued by cost overruns. A similarly priced 950-mile (1,530-kilometer) railroad line is intended to run in a rough loop around the Yucatan Peninsula to connect beach resorts and archaeological sites. López Obrador considers both his flagship projects, but the train is far from finished.

Neither the modernization of other oil refineries will be completed, nor the rail service that will lead to Mexico City, nor another rail service that will run from the Pacific to the Gulf of Mexico. Other construction projects have also remained incomplete.

López Obrador said at the start of his administration in 2018 that all of these projects would be completed by the time he left office, and that they would all be paid for by cutting government spending and reducing corruption. That turned out not to be true.

“In fact, last year we ended with a budget deficit of 3.4% of GDP, the highest since 1989,” said Gabriela Siler, director of analysis at Banco Base, based in Nuevo Leon. “This year they forecast a deficit of 4.9% of GDP, the highest since 1988, and debt means more debt. Their numbers don’t add up.”

Infrastructure projects – planes and trains – are unlikely to turn a profit at current rates.

For example, the first section of the Mayan train project in the Yucatan Peninsula transported about 1,780 foreign tourists in its first two months, that is, about five per train trip.

The original plan called for the train to be the most attractive source of revenue for tourists, but officials now suggest that train revenue could come from short passenger runs or freight shipments. There is little industry on the peninsula and nothing to suggest that trains are urgently needed to transport shipments of sunscreen.

López Obrador has defended his free spending and increased debt, saying it is less than his predecessors accumulated.

“We will have a lower debt percentage than (Enrique) Pena and (Felipe) Calderon,” the president said in September.

Mexico’s debt currently stands at 50% of its GDP. Although that does not seem like a high figure compared to the United Kingdom and the United States, which are almost 100%, Mexico has additional debt from the state oil company and does not have unlimited access to low-cost loans like the United States. States.

Historian Lorenzo Mayor wrote in El Universal newspaper that López Obrador’s actions “were not an attempt to limit his successor’s freedom of action, but a productive investment of the enormous political capital he had accumulated to help launch a new administration.”

The biggest bombshell to date by an outgoing president in Mexico for his successor occurred on September 1, 1982, when President José López Portillo announced that he was seizing the entire banking sector amid the currency. Devaluation and debt crisis.

His successor, Miguel de la Madrid, spent his entire six-year term dealing with the consequences and struggling to pay off the enormous debt owed to bank owners.

López Obrador’s debt mountain, while less dramatic, is “a way of setting the political agenda for the next administration, a way of putting his stamp on the next administration,” said Siler, Banco Base’s head of analysis.