inversion

The most important ingredient to generate investment is trust. Trust in what? In which the money to be invested will run the risks of the business, but not face risks of changes in the law or risks of macroeconomic stability that can be mitigated. Confidence is vital both for financial investment and for direct investment, such as in a factory, an office building or many others that are traditionally known as ‘iron’ investment. So far, the current administration headed by President López Obrador has mitigated macroeconomic stability risks very well. This has been done with respect for the autonomy of Banco de México and INEGI, as well as maintaining a flexible exchange rate regime, continuing with a prudent bank regulation policy and responsible management of public finances, both in the aspect of income, as of balance.

Regarding public finances, on the one hand, revenues have remained close to 14 percent of GDP, including during the pandemic, where the International Monetary Fund (IMF) considers that there was a drop of close to 3.0 percent of GDP. GDP in tax revenue globally. On the other hand, the fiscal balance has allowed government debt as a percentage of GDP -including Pemex and CFE- to have grown 4.4 percentage points of GDP from 2018 to 2022, well below the growth of more than 15 percentage points between the administrations of former presidents Calderón and Peña Nieto. I am not including the expense part because unfortunately its allocation has not met basic criteria of cost-benefit and optimization among the most urgent and important, among other issues. However, it is difficult to make a criticism when the President enjoys all democratic legitimacy having promoted them since his presidential campaign, which he won with a wide margin.

A major problem in promoting investment during this six-year term has been the confidence in legal certainty. Some of the president’s speeches both in the 2018 campaign and in the 2006 and 2012 campaigns, and in particular, the ‘Reform sit-in’ in 2006, resonated a lot among the business community in Mexico, who decided to reduce or stop investments in their businesses, as well as a large part of wealthy families, who decided to take their money out of the country since 2018. However, there was still hope that, as during his tenure as head of the CDMX Government, López Obrador would be more pragmatic. how ideological Unfortunately, this perception was practically ‘buried’ with the cancellation of the work on the New International Airport in Mexico City. Cancel a project that is more than 40 percent complete, with extensive benefits for the country, and replace it with a project with many doubts about its operation, especially due to the topography of Mexico City, which makes it difficult for more than an airport, made the population think that the President was ready for anything.

On the financial side, the holding of fixed-rate peso-denominated federal government bonds or MBonos held by foreign investors fell significantly from 64.0 percent in January 2018, to 35.6 percent currently (April 19, 2023). While part of that decline has to do with the US Federal Reserve Bank’s (Fed) tightening cycle, it is a sizeable decline. On the side of private investment ‘in irons’, this has fallen significantly from 17.6 percent of GDP in the second quarter of 2018, to 16.0 percent at the end of last year. It is understood that the worst pandemic in a century occurred, but I believe that by comparing the beginning of the six-year term with the current post-pandemic stage and observing it as a percentage of GDP, the necessary adjustments are made to be able to assess the current state of investment. The most relevant fall has been in investment in construction, from 8.8 percent of GDP in 2Q18, to 7.7 percent in 4Q22, but also in machinery and equipment, which fell from 8.7 to 8.3 percent of GDP.

Speaking with various businessmen in Mexico a few months ago, they told me that the President has complied with most of his proposals and campaign commitments –highlighting the maintenance of macroeconomic stability–, and that the result of the midterm elections, where the party in power, Morena and its ‘satellite’ parties lost their constitutional majority, gave them confidence to reactivate various investment projects. However, this optimism has faded with the president’s attempts at electoral reform, as well as the series of legislative initiatives that could end up killing the favorable investment environment, such as the reform of the mining sector – which fortunately was significantly improved by the Chamber of Deputies–, as well as the recent ‘deluge’ of initiatives approved ‘by steam’ by the Chamber of Deputies in various areas. While several initiatives are more administrative changes, the high number of initiatives in such a short window of time, as well as the lack of legislative due process and public debate on the issues, continue to undermine legal certainty.

I deeply regret the recent passing of Alejandro Hope. I had the pleasure and honor of meeting him a few years ago and have always learned something relevant from him, both in discussions and in his writings. I send my deepest condolences to his family and friends, particularly to my friends Pedro and Santiago, Alejandro’s cousins.

* The author is Chief Economist for Latin America at Barclays Bank and a member of the Committee for Dating Cycles of the Mexican Economy.

* The opinions expressed in this column are personal.