Mexico is preparing to enter again in a field of crisis. The treasury acknowledged Wednesday, for the first time since the emergency generated by the epidemic, which the country can suffer a fall of up to 3.9% of GDP. The calculation is still optimistic compared to the forecasts of banks and institutions. However, there is already a clear consensus: the economy is going to stop almost completely. Is in the hands of the Government of Andrés Manuel López Obrador to soften the blow. The entrepreneurs have claimed, so far without success, measures of fiscal support. Therefore, the announcement that the president will make the Sunday, which will reveal the measures of economic revival, has aroused great expectation.
The country will come to the date with a history little hopeful. The private waited this week signals of oxygen in the boot of a crisis that begins to take shape and that will definitely affect the generation of revenue. The Business Coordinating Council (CCE), one of the main employers ‘ organisations had asked the Government for a moratorium of six months on the filing of the annual statements, which expired its term on march 31. They proposed, instead, to pay in 12 installments and without surcharges. Lopez Obrador said he was not in a position congruent with its policy of avoiding the debt forgiveness tax. “The way it was before, would not pay the above and used the excuse of the crisis. The non-payment of taxes was justified with the supposed economic growth, but what happened during the neoliberal period? There was No payment of taxes and no growth,” he said Wednesday. Mexico collects in taxes, only 16% of the GDP, the amount is the lowest of all OECD countries.
The snub from the president to entrepreneurship came hours after the Administration ripped out the promise of not laying off employees during the month that lasts for a declaration of emergency issued on Monday. The night of that day, the chancellor Marcelo Ebrard said no one can deprive himself of his salary until the 30 of April. The promise seems to be very challenging, especially for a universe of nearly four million small and medium businesses that concentrate over 70% of employment. “Most of them will be very difficult, if not impossible, to survive to a condition of zero sales revenue and at the same time hold 100% of their templates work with 100% of the timely payment of taxes and contributions. It will simply be impossible to fulfill,” says Francisco Cervantes, the president of the Confederation of Chambers of Industry (Concamin).
Small businesses already suffering from the collapse in income and the limited flexibility to reduce their workforce. The entrepreneurs emphasize the significance that the Government has declared the “emergency” health and not “contingency”. The second term, provided for in the Federal Labor Law allows employers to pay their employees the minimum wage for 30 days. If the crisis is prolonged, can fire the personnel. “You have all the effects of the contingency, but without the name”, explains José Manuel López, president of the Confederation of National Chambers of Commerce (Concanaco). “It is desirable to maintain the workforce, the question is whether what is desired is possible.” The confederation estimated in 243.500 million pesos, almost 10,000 million dollars, the economic impact of the 17 to the 31 of march, just before the declaration of the health emergency.
Santiago Levy, a researcher at the Brookings Institution, believes that the main objective of the Government should be this: zero layoffs and no closures. Seek this would make it viable an economic recovery for 2021, where the country would be back to a path of growth, low but growing at the end. The expert warns that the particularities of the crisis of the coronavirus force the Government prevent bailed on counter-cyclical measures such as the increase of the public investment or expand social programs. “Anything that helps to preserve formal employment and formal enterprises do not go bankrupt in three months. The social programs are not part of the solution to this crisis,” he says.
Levy has proposed an aggressive plan of subsidies to businesses. This would include the suspension during months of employer contributions to retirement accounts and housing benefits, which would reduce a 25% the cost. It also proposes a negotiation reduction to temporary salaries to avoid layoffs and the Government’s offer to pay up to 10% of the payroll. All of this would represent a reduction of around 50% of the costs of the firms in the hard months to come. “While more cost subsidize to the companies, the better. You have to innovate quickly and break taboos,” he adds from Washington.
Viridiana Ríos, analyst and academic, proposed to combine this type of assistance with a future tax reform which increases the tax burden on large enterprises, and waiving taxes up to a level that allows the payment of the payroll of the workers. However, as the rest of the experts consulted, believed that the Government is obliged to acquire debt in order to avoid that the huge labor force that lives in the informal pauperice even more. “It is not enough to the budget of the priority programs of the Government. Reach just 20 million people, in a country with 50 million poor people,” he says. The assistant professor of Harvard looks with skepticism to the announcement of the Sunday because he believes it will lack strength in the face of the circumstances. “In the debt projections for 2020, there are no acquisitions,” he adds.
Protecting workers in the formal
The crisis that comes will underline the duality of the mexican economy, where the informality, 56% of the labour market, coexists with the formal workers. “In this crisis can not forget either of the two sectors,” said Roberto Velez, director of the Center for Studies Espinosa Yglesias. This think tank has added to the recent proposals with a document supported by experts and economists of all poles of an ideological match on the urgency of preserving the formal jobs. “The way to protect the informal should be to prevent formal employees to become informal or poor”, he adds. Otherwise, the basis of informal runs the risk of an increase without control, with the force of a black hole.
The center of studies, specialized in social mobility, ensures that Mexico gets little prepared for the contingency. However, it has a fiscal space close to the 2.2% of GDP to go into debt. The debt would cover some of the above measures, as are the coverage of dues laborer employer, the granting of tax credits and other tools to subsidize companies in distress. “The Government has this capacity. This does not kill the economy, but cushions the fall,” adds Velez.
The debt, however, is one of the enemies of the orthodox economic policies of Lopez Obrador, marked by austerity. To avoid that jump off the alarms, Santiago Levy suggested that the debt is accompanied by signals to the market that you will not lose control of public finances. “It can be through the issuance of bonds for the health emergency and of an additional transient tax that will be covered in 2021”, he explains.
The entrepreneurs have claimed the lack of clarity of the declaration of emergency, which supposedly will serve as a roadmap during the emergency. The employer confessed to his confusion by the ambiguity of the message of government and the restrictions on non-essential activities. The industrial of Nuevo Leon, one of the economic engines of the country, suggested to its partners in a negotiation with employees and trade unions to change working conditions during the contingency. Other cameras claim to be negotiating with the Government for the expansion of the list of essential activities to enable them to follow-up.
The business expects initiatives to the height of the circumstances and comparable to those undertaken by other countries in the region. Chile, for example, has allocated resources equivalent to 4.7% of their GDP to address the emergency. The efforts of Brazil and Peru hover around 2%.
The mexican Government, for the moment, has announced an expansion of an existing program of microloans to 25,000 pesos, a few thousand dollars a shot today’s exchange rate, for one million enterprises, the volume falls short, according to the private sector. “I will serve only the self-employed. You need higher loan amounts,” says José Manuel López, of Concanaco. It adds to that the aim of the Development bank allocate more than 60,000 million pesos, about 2,500 million dollars, to support the liquidity of companies and to renegotiate the payment terms of the loans. The relationship of entrepreneurship with López Obrador for the rest of the sexenio is about to be defined. Sunday will be key to what has been a tight partnership.
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