The temptation of financial recklessness in electoral times.

share on:

Several political theorists have written about the temptation of governments in electoral periods of spending more than they should, with the goal of attaining the best possible result in the coming ballots. More social programs, more infrastructure and more publicity are some of the ways in which governments squander their resources prior to an election. These attempts to convince voters through public expenditure are not for free and if they are financed through more taxes they will be financed through more debt. Mexico has had a dark history of managing its debt. This ghost appeared to have been defeated in the 1990s decade, but now it seems that it has come back to haunt the national economic panorama. After the follow-up that some media has given to the 119% growth of the incurred debt during the first nine months of 2014, the question is whether the Secretariat of Public Finance will control the addiction of past federal administration for the easy resource of falling into debt, overestimating oil revenue within an exchange rate that tends to weaken (and a decreasing oil price), as well as an inefficient but substantial tax collection of a productive sector that is already burdened.
Although the debt levels of the Mexican government remain low when comparing it to other more developed nations – financial requirements of the public sector (RFSP, for its Spanish acronym) the country has a rate of 42% of its GDP, whilst Germany has 55.7%, Spain has 60.4%, United States has 81.3% and Japan has 134.1% – and Mexico has an important export sector –the growing trend of government debt should be handled with care. The Peña administration has shown that it considers public expenditure as a decisive tool in its policy-making and it sees it as an economic boost. However, although it has provided with several rewards when talking about political agreements – as was the case of the 2013 reforms – as of now, there have been no satisfactory results in the economic scenario.
The Secretariat of Public Finance has stated in multiple times that it has spent considerably more than it did in 2013, attempting to compensate the blunder that has been the expenditure of the current year and, therefore, boost a downcast economy. Still, the country grows at very little rates. If the government is indebting itself more in order to spend more but results are not to be seen, what is the money being spent on? Even more so, if productive sectors were squeezed by a mistaken fiscal legislation in 2013 that has not enhanced formality, competitiveness or productivity, why have the aforementioned sectors not put greater pressure in order to hold the government accountable for its way of spending resources?
Since 2015 is an election year, it puts a great deal of pressure for the government to be accountable or be punished in the ballots, thereby increasing the temptation of allocating more resources for electoral activities, without taking into account the negative impact that it may cause upon the Mexican economy. The Mexican electorate, satisfied with the argument that the government debt levels are small and seeking to compensate the current taxes, tends to back up a risky policy that bases itself on the premise that the economy will finally grow in an accelerated manner via the massive investments that will arrive as a result of the energy reform. Within an environment of decreasing oil prices, a deteriorated oil production and a high hope on U.S. interest rates, not mentioning the economic implications of a paralysis and an increasingly complex uncertainty in the U.S. Congress after the defeat of Democrats in the recent mid-term elections, the Mexican government ought to see that perhaps not many investments as expected will end up arriving. Regardless of the number of maneuvers at disposal, a more complex scenario requires the government to be more cautious on the use of resources in order not to make
the same painful past mistakes.


share on: