COVID 19 in Latin America: Another Populist´s Rude Awakening

“You have to hug. Nothing happens.” These are spoken words from a president in Latin America. You might think they come out of the mouth of Brazil’s President Jair Messias Bolsonaro.

The Brazilian precedent setter

Bolsonaro, the man who also deems himself a “Messias” (and is seen as such by his faithful supporters), has lost two health ministers in less than a month.

One of them was not just a very competent minister, but on the verge of becoming more popular than the President — and was seen as a potential rival in Brazil’s next presidential election.

Political rivalries aside, Bolsonaro seems to have lost any sense of reality. He still dismissed COVID 19 as a little flu, while mass graves were being dug. The country is obviously trapped in a nightmare.

Enter AMLO

The man who called on his people to hug is another Latin American firebrand and populist. He is, however, politically anchored on the opposite end of the political spectrum.

It helps Mexico’s global image that Andrés Manuel López Obrador, President since December 2018, better known as AMLO, has not attracted much attention at the global level.

His announcement came as the answer to a question on March 4, when he was asked about the infections — a week after the first case was confirmed to have spread to Mexico.

By the time that the coronavirus was found in 17 out of 20 Latin American countries, AMLO posted a video of himself hugging and kissing supporters in the impoverished state of Guerrero.

Important course correction

However, two months later, he responded to the wake-up call and started taking both the rapid spread and advice from Hugo López-Gatell, Deputy Health Minister and in charge of the coronavirus in Mexico, seriously.

Some critics assume that the reason for AMLO´s downplaying of the coronavirus was his primary concern of an economic knockout.

There is a good reason to accept that assumption, given that Mexico’s economy is extremely feeble. Others assume that AMLO simply underestimated the destructive force of the coronavirus.

That would explain why it took him several weeks to finally take measures and order a suspension of activities and businesses considered “non-essential.”

Worse than it seems

The situation in Mexico is serious. At the moment, Mexico counts more than 71,000 infections and 7,600 deaths. These numbers sound hardly impressive.

Yet, as López-Gatell admitted, low reported infection levels are at least eight times higher. Under those circumstances, it would be fatal to focus on numbers of confirmed cases, recovered patients and death tolls only.

Economy in freefall

Whatever the ultimate cost in terms of human lives, Mexico faces a double whammy. Its economy is essentially in freefall.

The IMF cut its GDP forecast for Mexico to a contraction of 6.6% from a prior estimate of 0.4% growth — a decline that in its steepness is second only to that of collapsing Venezuela in Latin America.

And according to the IIF, the coronavirus caused greater capital outflows this March than during the entire financial crisis of 2008/2009.

As if that wasn’t enough bad news, for the first time in history, the oil price moved into negative territory. As a consequence, in April, both Fitch Ratings and Moody´s downgraded Pemex, the national oil company, from investment to junk status.

Pemex thus became the world´s largest “fallen angel.” As a result, revenues that are much needed for the Mexican state budget are falling. The company now only contributes to 19% of the national budget — half the level it used to.

Low tax ratio, weak fiscal policy

This is way more serious if one factors in the country’s very low tax-to-GDP ratio of 16.1%. Among OECD members, the average ratio is 34.3%, or more than double Mexico’s level.

AMLO´s refusal to borrow from international financial institutions such as the IMF as well as his refusal to undertake tax reforms begs one question: How does he intend to equip Mexico with the necessary financial means to face the crisis?

A leftist and a populist protector of elites

Even though the president is labeled as a left (populist), when it comes to taxes, AMLO is still sticking with the standard Latin American model of keeping taxes quite low for the rich.

While for many years, before AMLO ever got elected, there had been much ado about Mexico opting for a “leftist” president, even under his stewardship the country remains a low-tax-state with an under developed welfare system.

No safety net

As Mexico is equipped with very weak social welfare institutions, millions of people are bound to slip through the cracks.

About 42% of Mexico´s population, accounting for more than 50 million people, already live in poverty. And following latest forecasts, the current COVID 19 crisis is about to cast another 21 million people into poverty.

Conclusion

Mexico, like all of Latin America, suffers tremendously under the pandemic.

Granted, before the international community jumps into the breach — and it will have to, be it in terms of financial or medical support — the country has to make stronger efforts itself.

Foreign borrowing or an unpopular tax reform seem by far the better alternative to crushing despair.

Yet, under no circumstances will national measures alone be sufficient to rein in this health and economic crisis.

When it seems that a relief fund to help EU regions may well be happening to help the sectors hit hardest by the coronavirus pandemic, we should also look at the larger picture.

In that sense, symbolically speaking AMLO’s earlier call — “You have to hug” — has a serious meaning for Western countries.