David Agren

Special to USA TODAY

MEXICO CITY — Mexican business leaders begged President Andrés Manuel López Obrador to announce a stimulus package for an already ailing economy about to be battered further by the coronavirus pandemic.

But López Obrador balked at the idea of bailouts and tax breaks. Using his quarterly state-of-the-nation address – delivered in an empty National Palace – he instead announced plans focused on the poor, along with “belt-tightening” in the federal government – mostly by slashing bureaucrats’ salaries.

The president also called the pandemic a “transitory crisis” and promised to restore normalcy “as soon as possible.”

López Obrador, commonly called AMLO, has tried to convey a sense of normalcy since the coronavirus arrived in Mexico – to the point that he toured the country until recently and even violated social distancing warnings to greet the mother of convicted drug cartel kingpin Joaquín “El Chapo” Guzmán.

The normalcy of Mexico prior to the pandemic, however, had been rife with worrisome signals such as a sluggish economy, which didn’t grow in 2019 and was projected to stagnate in 2020. The murder rate – which reached a record high in 2019 – also continued climbing as drug cartels disputed territory throughout the country.

Analysts say those pre-pandemic woes have only worsened. Bank of America recently predicted that Mexico's economy could contract by as much as 8% in 2020, according to the Associated Press – marking two consecutive years of negative economic growth for the first time since the 1930s.

Mexico’s homicide rate also raced past another grim milestone in March with 2,585 deaths. It marked Mexico’s most murderous month on record and came as businesses were closing and many in the country had started to stay home.

“We were already in the middle of the economic crisis,” said Manuel Molano, director of the Mexican Institute for Competitiveness, a think tank. “COVID-19 just makes it worse.”

Rising violence and an economic downturn “render Mexico especially vulnerable,” said Carlos Bravo Regidor, a pundit in Mexico City.

“There’s a leadership problem,” he added “AMLO insists in pretending that this is just a ‘transitory’ crisis and he does not want to alter the priorities he had already set,” which include the continued construction of a suite of megaprojects – including an $8 billion refinery, a new airport north of Mexico City and a railway circling the Yucatán Peninsula – even as public finances strain.

Mexico has recorded 5,014 COVID-19 cases and 332 deaths – less than 1 percent of the U.S. totals – the Health Secretariat reported April 13.

Like the USA, Mexico’s response to COVID-19 has come under criticism. Health officials delayed calling off mass events and ordering nonessential activities halted. Testing also hasn’t been widespread and the Health Ministry has instead depended on disease modeling to direct its response.

Public hospital employees have protested in the streets, saying they lack personal protective gear and supplies to treat COVID-19 cases. “(Doctors) are falling like flies,” Baja California Gov. Jaime Bonilla said Monday in a video after staff in a Tijuana hospital spoke of shortages and the federal official in charge called the complaints “fake news.”

“The biggest flaw is that we are not identifying real patients and this is dangerous. We simply don’t know who the infected people are.” said Xavier Tello, a Mexican health care consultant, who called the country’s response “very late.”

For his part, López Obrador said Saturday that Mexico ranked among the 10 countries with the fewest COVID-19 cases and commended the population for practicing social distancing. The next day he expressed hopes the country could lift its admonishment to self-isolate by May 10 – Mother’s Day in Mexico, when large family gatherings are common.

The consensus on COVID-19’s economic impact on Mexico has proven less polemical.

Mexico isn’t the only country projected to feel the fallout of COVID-19, though the World Bank projected it would suffer the sharpest economic contraction in Latin America, along with Ecuador.

Centro de Estudios Espinosa Yglesias, a think tank, predicted the COVID-19 crisis would push 21 million more Mexicans into poverty – raising the poverty rate to 57 percent of the population.

With the COVID-19 crisis, “Our key economic sectors are going to be hit particularly hard,” said Jorge Andrés Castañeda, a Mexican political and economic analyst. “It’s the perfect storm.”

Castañeda pointed to four key sectors taking a hit, including manufacturing for export. Tourism, meanwhile, accounts for 9% of Mexico’s GDP, but has evaporated as visitors stay home.

Low oil prices threaten government finances as petroleum sales float roughly 20% of the federal budget – though the Mexican government is protected in 2020 due to a tradition of hedging its oil sales. Remittances sent home by Mexicans abroad and which totaled $36 billion in 2019 “sustain a large part of consumption in the country,” Castañeda said, but are already on the decline.

In response to the economic crisis, AMLO has taken an unconventional approach: austerity. He discarded adopting countercyclical measures and instead promised to not raise taxes or take on new debt.

His COVID-19 response also included $1 billion for loans to households and small businesses, more social spending and pushing forward pension payments.

AMLO has resisted ordering a complete quarantine – unlike most Latin American countries – saying it would hurt the roughly 55% of the population, working in the informal economy, in which no taxes are paid nor social benefits given. AMLO has also resisted bailing out businesses – arguing bailouts have an unhappy history of benefitting the wrong people in Mexico – and slammed the door on calls to defer or cut tax payments, saying government has to pay for social programs.

“It’s not that those with the best economic prospects are abandoned,” he said last week, “it’s that we have to show a preference for the neediest.”

AMLO later responded to the business sector’s complaints by accusing 15 of the country’s biggest companies of failing to pay $2 billion in taxes. “It they paid us, we would have more money to help small and medium businesses,” he said.

Mexico is no stranger to economic crises, enduring currency crashes in the 80s and 90s. Analysts say the COVID-19 crisis is different, however – though the country is in better macroeconomic condition to confront it.

“This is a crisis of employment, which we’ve never seen before,” said Valeria Moy, director of México ¿Cómo Vamos?, a think tank.

Mexico lost 346,000 formal-sector jobs between March 13 and April 6, according to the Labor Secretariat. Unlike the United States, Mexico has no system of unemployment insurance, Moy said. López Obrador has said families will look after each other – something analysts say is an old practice in tough times.

“It’s a very Mexican solution,” said Ilán Semo, a historian at the Iberoamerican University. “We’ve done it on various occasions and it works.”