The economic growth structural reforms failed to deliver

External factors, oversights, and optimism are the main reasons why the reforms of the Peña Nieto administration failed to deliver the promised economic growth, say experts
Mexico City – Photo: Lucía Godínez/EL UNIVERSAL
12/02/2018
15:03
Ivette Saldaña
Mexico City
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The Peña Nieto administration failed to hit the promised economic growth that was expected to follow the structural reforms, as experts claim an annual growth rate of 5% was too optimistic, to say the least.

Economic development didn't even manage to reach the “inertial” scenario of 3% rates, considering Mexico's gross domestic product (GDP) for 2016 and 2017 was of 2.9% and 2.1%, respectively.

Pursuant to experts, the 5.2% and 5.3% rates promised by the current administration for 2017 and 2018 will fall short of their mark, despite structural reforms were said to have a multiplying effect. Overestimating the potential of changes done to legal frameworks wasn't the only factor in this outcome, the neglect of supplementary issues, such as the fight against corruption and the strengthening of the rule of law, also had a negative impact on our economy.

“Thinking there'll be a 5% growth was a bit of excessive optimism,” claims the director of the Center for Economic Studies of the Private Sector, Luis Foncerrada. He added that the factor with the greatest impact was the lack of investment. Whereas reforms have contributed to a greater economic growth, they needed the backup of public and private investment, legal assurances, and anti-corruption measures.

“The potential of the reforms was overestimated, especially that of the energy reform, because investments didn't come at the expect times nor by the expected amounts,” said the general director of the Institute for the Industrial Development and Economic Growth, José Luis de la Cruz.

The information on the official website of the Presidency claims that in just 18 months 11 reforms “vital for the political, social, and economic” development of Mexico were implemented, and these were the following:

  • Labor reform
  • Economic competition reform
  • Telecommunications reform
  • Financial reform
  • Energy reform
  • Political-electoral reform
  • Transparency reform
  • Reform of the National Code for Criminal Proceedings
  • Education reform
  • Social Security reform

According to the Ministry of Finance and Public Credit, the reforms were supposed to boost Mexican economy by 4.7% in 2015; 4.9% in 2016; 5.2% in 2017; and 5.3% in 2018. However, our GDP for those same years has been 3.3%, 2.9%, 2.1%, and an estimated 2.3% for 2018.

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(Photo: Alejandra Leyva/EL UNIVERSAL)

External Factors

External factors have also a negative impact on our dwindling economic growth, such as the spike of interest rates in Mexico and the United States, the impact of insecurity on investment plans of corporations, uncertainty caused by the revamping of the North American Free Trade Agreement (NAFTA), and the 2018 electoral process, according to the Confederation of Industrial Chambers.

Moreover, in recent years there's been a depreciation of the Mexican peso against the U.S. dollar, a fall in oil prices, the arrival of Donald Trump to the White House, and the inflation increase, among other factors.

The president of the Employers Confederation of the Mexican Republic (COPARMEX), Gustavo de Hoyos, claimed that Mexico has grown, in the past five years “at an average rate of only 2.2%. Because of this meager and insufficient growth, Coparmex has constantly insisted on increasing public investment to boost economic growth. In the last quarter, public investment has only grown 0.1%, with some quarters of 2017 in red numbers.”

“Broadly speaking, structural reforms don't have the expected impact because the changes economy needs have to go further than that,” said De la Cruz.

“We need a more productive environment for companies, a reduction in the cost of energy, an improvement to regulations, as well as a development program per sector and region, accounting for the national disparity.”

For his part, Foncerrada explained that what we are currently perceiving is the decline in consumer spending and an increase of poverty due to the loss of purchasing power caused by the inflation rate brought on by the 2017 hike in gasoline prices, low public investment, and a debt increase by 80%, when compared to the amount the Peña Nieto administration began with.

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