The economic medal that President Andrés Manuel López Obrador boasts the most is that he has not borrowed.
He mentions it frequently and uses it as a differentiator with respect to neoliberal governments.
For his part, the head of public finances, since June 2019, Arturo Herrera raises as his main achievement solid public finances and a stable level of debt. We have not gotten into debt, says the Secretary of the Treasury, although he acknowledges that the value of the debt has increased due to the depreciation of the peso and the fall in the Gross Domestic Product (GDP).
This policy of no indebtedness is very likely to have been applauded in a different circumstance.
But in the context of the pandemic and the crudest economic recession in history, it has been questioned because it did not protect and boost the productive sector. Consequently, according to the IMF, Moody’s and other institutions, the impact on economic growth, employment, revenues and the number of companies that failed, was higher. And the recovery will be slower.
And although, as the President of Mexico and the Secretary of the Treasury affirm, the Mexican government did not request debt beyond the debt ceiling authorized by the Congress of the Union, the debt today is higher.
The debt rose by 10 percentage points, from 44.8 to 54 percent. Thus, the debt problem is caused more than by greater demand for debt, by the deep fall in GDP and the exchange rate depreciation.
What is to be recognized is that the finance team has done everything in its power to refinance the debt; extend the expiration dates and reduce their cost.
In this task, the work of the Undersecretary of Finance, Gabriel Yorio, has been fundamental.
So far this six-year term, the Mexican government has carried out a total of 14 debt restructuring operations in the domestic and foreign markets that have allowed it to adjust the payment term and improve the interest rate.
The constant monitoring of the markets and the confidence of investors in Mexico has allowed the finance team to carry out refinancing to improve the debt maturity profile and the cost, in addition to diversifying and expanding the investor base.
One of the objectives of this government is to reduce the percentage of debt with respect to GDP and reduce its financial cost.
The financing strategy of the Treasury seeks to avoid exceeding the debt ceiling authorized by Congress.
The objective of the strategy is to access financing at the lowest possible cost through two programs.
The peso issuance program, in which most of the debt is held, since Mexico, unlike other countries in the region, has a much more developed domestic market.
The other program is the placement of bonds in international markets, especially in dollars, euros and yen.
Since July 2019 to date, the Treasury has proactively carried out various liability management exercises that have contributed to significantly reduce the debt portfolio repayments scheduled between 2021 and 2023.
Repayments of external debt under refinancing operations have been reduced by 81% by 2021; 75% by 2022 and 36% by 2023.
It is questionable that greater debt has not been incurred to cushion the effects of the crisis in the productive sector, but there is no doubt that the Treasury has done a good job in refinancing the debt.
Most analysts agree that the decline and recovery of the economy would have been less if the government had allocated more robust fiscal support programs. What is pending is economic growth to reduce the ratio of the size of the debt to GDP.
To the extent that the recovery of the economy is delayed, it will take to the same extent to reduce the size of the debt.
Mexico Daily Post