Recession or not-recession: that is not the problem.

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political-analisis

Over the last few days, the National Institute of Statistics and Geography (INEGI) announced that the Mexican economy has been in recession for the past seven months. Immediately, Luis Videgaray denied that the country’s economy was under recession, by arguing that job creation, the increase of exports and the dynamic expenditure of public resources are promoting Mexico’s economic growth. Knowing that on May 23rd it will be known whether the Secretariat of Finance will modify its current forecast of economic growth for 2014, currently predicted to be of 3.9%, the struggle between the heads of the Finance and INEGI leaves more questions than answers. What is the current objective of the country regarding economic growth? What are the indicators used to diagnose the health of Mexican economy? Is there a long-term vision to generate economic growth in Mexico? Will it be true that all is being prepared for a long-term sustainable growth even though it is not being materialized at this very moment?
Although it is more palpable that the objectives of the current administration have distances themselves from the needs of the Mexican population. Economic growth is a necessary but not the only condition needed for economic development. Even if the gross production of goods and services in the country would be increased by almost four percent – as estimated by the Secretariat of Finance – this is no way guarantees a boost in the population’s standards of living via the enhancement of its human capital, the establishment of a critical infrastructure, a greater regional competitiveness, further social inclusion, a solid rule of law or the implementation of better social, political and economic institutions. Mexico does needs to grow to achieve these goals, but the target of the federal government should cover more than just a number dealing with economic growth.
In that sense, what number is more adequate in determining the Mexican economic health? The growth rate of the industrial production? The number of jobs created? The amount of exports? If those are the parameters, Videgaray is right and the economy in Mexico is thriving. But, what about considering the 55th place (out of 148 countries) in which Mexico’s competitiveness is ranked? The 139th place (out of 148) of the country regarding the cost of crime and violence for businesses? The fact that only 1 out of every 5 Mexicans is not poor or vulnerable due to social or income deprivation? The fact that the second most important source of revenue for the country –after oil – are remittances sent by migrants? From that perspective, Mexican economy appears to be a patient that requires attention and whose health is weakening. Thus, while the conditions of the Mexican economy suggest a “half-empty glass”, the current administration would rather interpret them to be as a “half-full glass”.
Robert Shiller, Nobel Laureate in Economics, stated that Mexico should promote saving as a long-term economic growth policy. This is in contrast with the fact that 84% of Mexicans do not save for 5 to 10 year periods. The consequences of the latter are serious, since empiric evidence points out that in emerging economies such as Mexico, household savings are fundamental in enhancing the foreign investment flow that will promote technological breakthroughs, a key element for long-term economic growth.
Therefore, rather than getting involved in discussions of whether Mexico is in recession or not, the government ought to implement solid policies that will enhance long-term economic growth that will reduce its fragility. As argued by Shiller, the future starts today.

CIDAC

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