Is New Mexico on Lockdown Again
All non-essential activities take been suspended for at least a month. But where are the bailouts?
By Nick Corbishley, for WOLF STREET:
Mexico faces its biggest economic storm since the Tequila Crisis in the mid-1990s. And so, the peso lost almost l% of its value against the dollar in a affair of weeks, wiping out the life savings of much of the country's middle course and stoking fears that collapsing nugget values would button Mexican banks over the border, taking part of Wall Street with them. In the end, that fate was averted with a bailout and the cosmos of one of the earth'southward first ever "bad banks."
Today, as a whole unlike kind of crisis — this time a health crisis, global in nature — builds, the peso is once again sinking. In March, it suffered its biggest monthly decline since 2009, though information technology has since firmed a little. The economy of its biggest trading partner, the United states, has all but ground to a halt. This has major implications not merely for United mexican states's exports just also for the remittances that Mexican workers living in the U.S. send dorsum to their families. Terminal year, remittances from the US and other countries totaled $36 billion.
In some Mexican states, these payments can stand for as much as 10% of full revenues, virtually of which gets spent very rapidly in the Mexican economy. Thousands of businesses depend on the funds for capital. But every bit more and more of United mexican states's migrant workers fall casualty to America'southward jobs choose, a lot of that money is no longer going to go far.
"Unemployment in the United States poses a large gamble to the Mexican economy", says José Luis de la Cruz, director of the Constitute for Industrial Development and Economic Growth (IDIC). "The remittances have been a cardinal colonnade for the economies of many towns, cities and even entire states. Now we are expecting a fall of upwards to 20% in these funds this year."
Mexico'southward economy already stopped growing last year. Now, it's beginning to seize up birthday following the authorities'southward declaration on March 30 of a national emergency to tackle Covid-nineteen. All non-essential activities have been suspended for at least a month.
The banks are over again beginning to fret. On Tuesday, Citibanamex sent a letter to clients alert that the economic system is in an "state of desperation" and in desperate need of "adventurous" fiscal measures. Depository financial institution of America cautioned that United mexican states's president Andres Manuel Lopez Obrador'southward "pro-cyclical measures" will not but deepen the coming low, they will hasten the downgrading of United mexican states's sovereign debt to junk status.
In part, the banks are talking their own book, hoping to push button AMLO into a bailout deal that will serve nobody'southward interests just their own and their largest clients'. For the moment, it'south not working.
About Latin American economies, including the region'south two powerhouses, Brazil and United mexican states, have neither the financial firepower nor monetary leeway to intervene as aggressively in the economic system as, say, the U.S. or nigh EU countries. To try to stop things from spiraling out of command, the Federal Reserve has announced information technology is opening swap lines with Mexico and Brazil's central banks.
There'south too plenty more than that AMLO could do to support the economy. Public investment under his administration remains extremely low. So far, his government'southward financial proposals for combating the slowdown are, pound-for-pound, among the most timid in Latin America, representing simply 2% of annual Gross domestic product, compared to 3-five% in many other countries in the region and xx-twoscore% in some countries in Europe and Due north America.
Most of that coin volition get toward bolstering social welfare programs for the most vulnerable, including the elderly, unmarried mothers and the unemployed. The government volition besides offer mini-loans of upwardly to 25,000 pesos ($i,000) to a meg micro-businesses with interest rates of 6.5%, the same as Bank of United mexican states's benchmark charge per unit. But that won't happen until the terminate of April. And every bit nonetheless no coin has been earmarked to assistance larger businesses ride out the tempest. And that is causing major business organisation.
"Allow me emphasize: this is a trouble of liquidity, non solvency," said Carlos Salazar Lomelín, president of the Business organization Coordination Quango (CCE). "Companies both large and modest were operating perfectly well in February, meeting all of their fiscal obligations. But suddenly, from one mean solar day to the next, they had to close upwardly store… [due to] a state of affairs that was completely beyond their control."
AMLO says he will not give tax breaks to people or firms. He will not incur public debt that will burden taxpayers for years to come. And he volition not create another "FOBAPROA," in reference to the eolith insurance fund the Zedillo authorities used to directly bail out many of United mexican states's biggest banks, and indirectly many of the corporations at the superlative of the Tequila Crisis. It was i of the world's first (and worst) "bad banks."
Lawrence Kudlow, who was then economic science editor of the bourgeois National Review magazine, added some spice to the Tequila Crisis in sworn testimony to the US Congress: "It is a bailout of U.S. banks, brokerage firms, alimony funds and insurance companies who own short-term Mexican debt, including roughly $16 billion of dollar-denominated tesobonos and about $ii.five billion of peso-denominated Treasury bills (cetes)."
And it price the Mexican people, who concluded upward having to pay for it via newly issued debt, an incalculable sum of money and hardship.
Given all that has happened since Zedillo signed along the dotted line, AMLO for now refuses to kowtow to the banks and businesses' latest request for some other blank check to be paid for by the Mexican people. But this crunch is vastly different from the final one. Obviously, these businesses cannot be blamed for what is happening to them. And many need support during the lockdown. In the terminate, AMLO will probably stop up helping them out. But information technology may be on his — not their — terms. By Nick Corbishley, for WOLF STREET.
Never before take so many property funds shut the doors on and so many holding investors. Read… Lockdown Hits UK Commercial Real Estate, Retail Landlords & Their Investors: Most Property Common Funds All of a sudden "Gated"
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Source: https://wolfstreet.com/2020/04/09/in-lockdown-with-exports-remittances-plunging-mexicos-economy-slides-banks-companies-clamor-for-bailout-government-refuses/
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