All non-essential activities have been suspended for at least a month. But where are the bailouts?
Mexico faces its biggest economic storm since the Tequila Crisis in the mid-1990s. Then, the peso lost almost 50% of its value against the dollar in a matter of weeks, wiping out the life savings of much of the country’s middle class and stoking fears that collapsing asset values would push Mexican banks over the edge, taking part of Wall Street with them. In the end, that fate was averted with a bailout and the creation of one of the world’s first ever “bad banks.”
Today, as a whole different 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 it 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 only for Mexico’s exports but also for the remittances that Mexican workers living in the U.S. send back to their families. Last year, remittances from the US and other countries totaled $36 billion.
In some Mexican states, these payments can represent as much as 10% of total revenues, most of which gets spent very quickly in the Mexican economy. Thousands of businesses depend on the funds for capital. But as more and more of Mexico’s migrant workers fall prey to America’s jobs cull, a lot of that money is no longer going to arrive.
“Unemployment in the United States poses a big risk to the Mexican economy”, says José Luis de la Cruz, director of the Institute for Industrial Development and Economic Growth (IDIC). “The remittances have been a key pillar for the economies of many towns, cities and even entire states. Now we are expecting a fall of up to 20% in these funds this year.”
Mexico’s economy already stopped growing last year. Now, it’s beginning to seize up altogether following the government’s declaration on March 30 of a national emergency to tackle Covid-19. All non-essential activities have been suspended for at least a month.
The banks are once again beginning to fret. On Tuesday, Citibanamex sent a letter to clients warning that the economy is in an “state of agony” and in desperate need of “audacious” fiscal measures. Bank of America cautioned that Mexico’s president Andres Manuel Lopez Obrador’s “pro-cyclical measures” will not only deepen the coming depression, they will hasten the downgrading of Mexico’s sovereign debt to junk status.
In part, the banks are talking their own book, hoping to push AMLO into a bailout deal that will serve nobody’s interests but their own and their largest clients’. For the moment, it’s not working.
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