President López Obrador is betting that more government austerity rather than greater spending will help the economy weather the coronavirus storm.
López Obrador outlined a range of spending cuts on Wednesday morning although none will affect the government’s social programs, infrastructure projects, the Health Ministry, the National Guard or the armed forces.
The salaries of high-ranking officials will be cut by up to 25%, they won’t receive end-of-year bonuses and 75% of the federal budget approved for the payment of general services and the purchase of supplies will not be used in 2020, the president said.
Ten deputy ministers’ offices will be eliminated but no federal employees will lose their jobs, López Obrador said, adding that many government offices that don’t provide essential services directly to the public will be temporarily closed to generate additional savings.
While there will be no dismissals, the government will not hire any new staff, he said.
The president said that the deep cuts as well as government “efficiency and honesty” will allow an extra 622.5 billion pesos (US $25.4 billion) to be spent on social programs and key infrastructure projects.
López Obrador also said that the government will provide 3 million loans to poor and middle-class Mexicans to help them through the coronavirus-induced economic downturn and reiterated his pledge to create 2 million jobs by the end of the year.
Many of those jobs are expected to be created by the government’s infrastructure projects. The Santa Lucía airport, the Maya Train, the Dos Bocas oil refinery and many other projects are all going ahead despite the coronavirus pandemic.
Among the social programs that will either maintain their existing funding or receive additional resources are the Sembrando Vida (Sowing Life) tree-planting employment scheme, the youth apprenticeship scheme, student scholarship initiatives and the pension schemes for the elderly and disabled.
There will be no cuts to health care or the state oil company and agricultural schemes that deliver fertilizers to farmers and pay them guaranteed prices for five products will continue.
Despite the additional austerity measures, López Obrador stressed that the Finance Ministry will have the funds it requires to provide resources to the states, make debt repayments and pay all government employees.
He said that his response to the crisis – cutting spending while supporting the poor – is “completely different” to what was done in Mexico in the past when “neoliberal” governments responded to economic crises.
The measures outlined by the president will take effect today after their publication in the government’s official gazette and remain in place until the end of the year.
The plan presented by López Obrador this morning includes many of the measures he announced just over two weeks ago to mitigate the economic impact of the coronavirus pandemic. Mexico’s most prominent business groups have criticized the government’s economic response to the coronavirus crisis, claiming that it doesn’t do enough to support the economy.
The Business Coordinating Council (CCE), an umbrella organization representing 12 business groups, responded much more warmly to the support offered to the economy by the central bank, which cut its benchmark interest rate to 6% on Tuesday and announced 750 billion pesos (US $30.5 billion) in support for the financial system.
Those measures will provide “relief” to the battered Mexican economy, the CCE said.