Former Bank of México chief Carstens. Former Bank of México chief Carstens.

Banker warns many businesses won’t recover; AMLO says MX unaffected

There won't be any bankruptcies because there was no fiscal support. But thousands have already closed

A prediction by a former central bank chief that government financial support amid the coronavirus-induced economic downturn could send businesses into bankruptcy doesn’t apply to Mexico, according to President López Obrador.

Agustín Carstens, governor of the Bank of México between 2010 and 2017 and now general manager of the Bank for International Settlements (BIS), said this week that central banks around the world acted in a timely manner to counter the economic impact of the pandemic.

But their actions created an excess of liquidity and many companies took on debt they will be unable to repay, he said.

Speaking at his news conference on Thursday, López Obrador said the bankruptcies Carstens predicted won’t occur in Mexico because fiscal support wasn’t extended to companies and they didn’t receive large cash injections from the government.

He asserted that the BIS chief was referring to countries where companies were given extensions to meet their tax obligations and/or bailed out by governments that increased their debt in the process.

López Obrador: bailing out companies and taking on debt hasn't worked.
López Obrador: bailing out companies and taking on debt hasn’t worked.

“[In many countries] the formula of giving extensions in the payment of taxes, bailing out companies and taking on debt was applied and the truth is it hasn’t worked. They opted for that in Europe and the United States,” he said, adding that the government support there hasn’t resulted in a significant economic recovery.

“In our case, … we didn’t give money or fiscal stimulus to businesses, none of that.”

The government’s strategy has been criticized for not helping businesses, thousands of which have closed before they could go bankrupt.

An association representing small and medium sized business estimated in September that 320,000 such businesses closed their doors between April and August due to the coronavirus pandemic.

The president of Alampyme said as many as half a million small businesses were expected to shut down permanently by the end of the year, putting 3 million people out of work.

López Obrador highlighted that his government has supported the nation’s neediest through welfare programs and loans for small businesses. He also said that remittances sent to Mexico from abroad, which have reached record levels in 2020 despite the economic downturn, have provided significant support for the economy.

“[There are] good signs that we’re picking ourselves up, we don’t have major problems, we have inflation under control, we have debt under control,” López Obrador said.

The president noted that jobs recovery is underway and asserted that the government’s tax revenue is higher in nominal terms in 2020 than last year.

“We have healthy finances, we don’t have a deficit in [tax] collection. … What interests us is the recovery of jobs [and] yesterday I saw the data for October. In August we recovered 92,000 [formal sector] jobs, in September about 120,000 and … up to October 6, we recovered 30,000. We’re not losing [j0bs] anymore.”

Source: Milenio (sp), El Financiero (sp) 

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