Mexico should be in relatively good shape to fight the Great Recession. The budget was basically balanced going in and bond traders have treated the country more favorably than the rest of Latin America. The combination of NAFTA membership, the special relationship with the U.S., and the proven conservatism of the Mexican electorate do, in theory, allow the Mexican government to engage in fiscal pump-priming without confronting the dilemmas of emerging market Keynesianism. In fact, the country’s sovereign bond spreads have returned to normal. The government could stand to run a deficit much larger than 3.5 percent of GDP.
Better still, as regards stimulus, Mexico has a bajillion shovel-ready projects. The construction of the past five years has done an incredible amount to ease congestion in the D.F., but it still isn’t done. Frex, while the overpasses built over the last five years are great, Circuito Interior still isn’t a freeway.
The Metrobús has made my visits to the D.F. much much easier, now that it runs all the way south along Insurgentes, but there are many routes to be added. Periférico’s second deck is a marvel, but it doesn’t go north of Viaducto. The metro is awesome, but construction on Line 12 is only now getting underway. Plus, well, the water supply needs work.
And that’s just the capital! There are also port and highway projects in Michoacán and Mexico State, the expansion of the Toluca airport, and umpty-scrump other things all laid out and ready to be built. Not to mention the fact that one could and I would call improving the training of the Mexican military and national police an investment; ditto the expenditures needed for the nation’s courts and jails.
Which makes this insane:
Translation: “Cuts hit infrastructure: Communications and Transport will take $12 billion in reduction, obliging contract cancellations.” (Hit tip: Gancho.)
It seems crazy. First, the cuts are only 0.7% of the country’s (shrinking) GDP. Second, Mexico needs infrastructure, and now is exactly the right time to build it, when costs are low. Third, there is no evidence that investors are panicking. Fourth, Mexico is not the United States: AFAIK, there is no big constituency for Hooverism and hairshirt economics for it’s own sake. So the politics don’t figure either, at least AFAICT.
In other words, WTF? I do not understand what the Calderón Administration is trying to accomplish. They should be expanding their stimulus program, not cutting it. If markets panic, then they can retrench, but right now they seem to trying to get out ahead of some sort of investor concern that just isn’t materializing.
Explanations? Or have I got it wrong?