Poor Treasury, Uncertain Future – Tech Viral Tips

Director of Mexico Evalúa

He wants to give me something every time I hear market analysts say that the indicators of public finances in Mexico look good. I don’t share your opinion, because we see different things. The important thing for analysts is that the country does not lose its ability to fully meet its financial commitments. They ignore more specific issues in budgetary matters and little for subtle implications. From my point of view, which builds on the work and analysis of my colleagues in Ivala, Mexico, what I see (we see) is a very deep deterioration of public finances, which equates to a decline in state capacity. A decline that affects you and me and the generations to come.

The weakening of public finances is gradual but continuous. A dear friend, a very good economist (I will not name him because I did not ask permission to quote him), says that López Obrador found a very weak public treasury. And it doesn’t say it literally, but it implies: what we’ve seen in recent years is almost unique in terms of decline, and yet it’s not noticeable (for now).

There are, among many other things, four aspects to which I would like to draw your attention.

1. Governance. It has always been a national problem (it is not in vain that the original mandate of México Evala considered contributing to its revision). Our ‘formal’ model is designed so that there is agreement between other actors in the cycle of the design and execution of the public budget, as well as control and transparency mechanisms at various stages. In this process the powers of the legislature vest with the legislative chambers, which have almost never been made effective. The control of the President of the Republic over the majority party in the Houses and the blind discipline of legislators affects governance, with mechanisms provided for retribution and control. Not to mention other instances that have acted in the process, such as the Superior Audit of the Federation, which has done what is necessary in order not to disturb the power. Wow, the president has all the power. The only thing that limits him is his own belief that a financial disaster is ‘ruining’ his six-year term.

2. Destination of expenditure. When I say there are micro-victims, I mean that budget allocations are not funding public policies aimed at reducing our backwardness, strengthening state institutions or promoting the country’s human capital. Evidence suggests that investing in social affairs, for now, does not help the poorest. In terms of physical investment, the President’s symbolic projects show no signs of generating real value; They were not analyzed under the sieve of social benefits or with a medium- or long-term view to promote productivity growth or convergence between different sectors. Educational and health services deteriorate, and the pandemic doubles their gap. Public spending doesn’t change in this country remain so, strengthens and strengthens it.

3. Weakness of public finance. We have consumed money for reserves, savings, catastrophic expenses… all to maintain a balance that is no longer the case. I return to my economist friend’s argument: López Obrador found a very weak hacienda, but who had resources in FEIP and Fonden, with various trusts to finance projects in different sectors. In other words, funding was available to respond to serious risks or contingencies, despite the shortcomings. Today, when we have an emergency due to covid like some others, we are not provided with information on how the resources available in some stores have been used (it is more likely that their destination marks Pemex and CFE compared to the mitigation of the pandemic). The fact is that the balances of these funds, for example FEIPs, are at a low level. Those resources, which are likely to finance current expenditure, will not last for future financial years. Slow, but the rope tightens our neck.

4. Fiscal federalism. States and municipalities will have tough years, as transfers from the federation will be smaller. Their lack of financial independence places them in the arena of financial risk. There is a lot of responsibility on your part at this time. State and municipal governments have tax powers which they do not fully exercise. For example, entities that have decided not to collect tenure exhibit an alarming situation similar to municipalities that do not take advantage of property tax collection. Thus, their dependence on the Sangh is both economic and political. They prefer to subjugate themselves rather than dare to rule, starting with the collection of taxes.

These items do not appear on the government balance sheet. But you only need to look a little deeper to see that public finances are getting worse. And so the future may not look good for any of us.

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