Proceso: Jesús Cantú*
Translated by Helena Redman
During the past 18 years, there has been tireless talk about Mexico’s inability to regain constant and sufficient economic growth. Due a lack of structural reform, which would put Mexico’s growth on a par with that of the world’s other emerging economies, the average annual increase in GDP has been less than 5%. Now that these reforms have finally been consolidated, in President Enrique Peña Nieto’s own words, it will be possible to build a “new Mexico”, with higher per capita income, an improvement in income redistribution and a better quality of life for the people.
Apart from the fact that there are neither specific commitments nor precise goals to achieve–only promises and declarations with no data to back them up–there are at least three good reasons why we should mistrust the President’s words. The first is the fact that it has been impossible to advance upon these promises in the past 30 years, ever since the present economic model was established. The second is the absence of serious, clear studies showing that the reforms will strengthen–not weaken–the tax collection system. The third relates to the lack of evidence that the reforms will have the expected impact under current global and national conditions.
Concerning the first reservation, it is enough to look at official figures, which state that in the past 34 years, the average annual increase in GDP has been 2.5%, barely half of the desirable minimum. Worse still, the increase in real per capita GDP has followed a downward trend during this period: from a 35.4% increase during Carlos Salinas’ six years in office it dropped to 14.4% during that of Felipe Calderón. Defenders of the economic model attribute these results to the absence of structural reforms, so now that they are approved there will be no excuses.
The second problem relates to fiscal dependence on oil, as more than a third of taxes collected by the federal government comes directly from a tax regime that bled the economy of Pemex [state-owned oil company], preventing its healthy development. With the energy reforms, a new tax regime has been approved for Pemex, which will directly impact government income. This regime can certainly not be compensated for by the additional income attributed to the tax reforms. So there will be an income deficit to be made up for. In line with the hypotheses–since, so far, there are no public predictions or estimates–this regime will have to exceed current tax collection.
If this prediction does not come true, the consequences will be catastrophic for the social and economic bets of Peña Nieto’s government, and public finances will be become imbalanced, with two possible outcomes: the government could either suspend or cut the program for the construction of infrastructure and/or social programs, in order to avoid a permanent budgetary debt. This debt would increase and break the so-called macroeconomic stability, the neoliberal model’s sole success.
As for the third aspect, even if the assumptions of the model’s defenders turn out to be right, there are many considerations to be incorporated into the current situation. First of all, the reforms are being passed 30 years after the work of the pioneers, while those [earlier reforms] are now undergoing important corrections and amendments. Secondly, today’s hydrocarbon market–the centerpiece of the structural reforms–is not a market for suppliers, but for buyers. This is becuse of the dramatic change that implies that the primary consumer–the United States–may not only become self-sufficient, but also a new exporter, without even taking into account the development and expansion of alternative energy.
The third issue is the weakness and instability of the global market, and the fourth is the weakness of the Mexican market, following three decades of severely limited growth. The fifth is the weakness of the Mexican state, which is evident in its inability to control the extraction of fuel from Pemex’s ducts (this should be a technically easy operation) and to maintain control in its total national territory, among other things. Finally, the out-of-control corruption could be a determining factor in slowing down the arrival of international capital, due to its inherently high costs.
But supposing that all these problems were overcome and that the structural reforms trigger an increase in GDP, as its advocates (particularly the government) suggest, the reality is that this will almost certainly create more corruption and socio-economic inequality. We have already experienced this once, during the so-called era of the “Mexican miracle”.
Despite the predictions of the government and political parties who are members of the so-called Pact for Mexico, the reforms do not just fail to strengthen the Mexican state: they actually weaken it. This is principally evident in the absence of rule of law, and in the lack of attention paid to the social needs of large sectors of the Mexican population.
Paradoxically, the reforms still pending have to do with the regulations that limit excess, abuse and perversion of power, as well as reforms in transparency, the fight against corruption and the regulatory laws for constitutional Articles 6 and 134 [Article 6 addresses freedom of speech and access to information, Article 134 addresses the State's management of its resources, including granting of contracts and concessions to private parties], so there is no existing framework to stop the effects that the economic abundance generated would have upon corruption.
Moreover, without the appropriate public policy, a greater generation of wealth will only create a higher concentration of income for some. There would be no improvement in the wellbeing of the masses.
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*Jesús Cantú is a professor and holder of the chair in Democracy and the Rule of Law in the School of Government and Public Policy (EGAP) of Monterrey Tech. He is also Director of the Masters in Political Analysis and Media of EGAP in Monterrey. He has a bachelors degree in economics from Monterrey Tech and a masters in banking and economics from the Bank of Rome, Italy.