Thursday, January 08, 2009

Mexican Government Anticrisis Plan

Yesterday the federal government made public its counter-cyclical action plan which seeks to alleviate the impact of the current economic crisis on the population. The plan rests on five pillars: jobs, family economy, small and medium corporations, infrastructure investment, and finally public expenditure.

Jobs: Expand the temporal jobs program, allow for withdrawals from retirement accounts, expand social security coverage to unemployed workers.

Family economy: prices for gasoline will be frozen during all 2009, gas prices will be lowered 10%, credits will be given for purchasing energy-saving appliances, and entry-level housing mortgages will be expanded.

Small and medium corporations: electricity costs will be reduced 9-20%; the federal government will make 20% of its purchases to small and medium companies; a $5 bln peso program to support SMEs; government financing will increase 21%, and rural credits will go up 10%.

Infrastructure: the National Infrastructure Program will be accelerated; PEMEX will receive an additional $17 bln pesos for investment; additional credits of $65 bln pesos will be given in order to guarantee to realization of the main infrastructure projects of the administration.

Public expenditure: a new Goverment Accounting Law, and swift allocation of resources for their prompt use.

The total cost of the plan is of approximately $60 bln pesos, about US$4.5 bln at today's exchange rate, which is ludicrous considering a national GDP of close to US$900 bln. Furthermore, the actions which will probably have the biggest effect are the freezing of energy prices, which will cause yet another distortion in the economy. That's the kind of political decision that gets made in an electoral year and that later becomes impossible to revoke.