Mexico's next president is expected to grapple with limited governing budget

 Mexico is almost certain to elect its first female president in June – both leading candidates are women – but it is almost equally certain that she will not have much room to act independently of outgoing President Andrés Manuel López Obrador .

The populist president has continued to propose new, expensive projects in the final months of his administration, before leaving office on September 30. He will also leave many big projects incomplete.

This will likely tie his successor's hands for most of his six-year term. Even if opposition candidate Xochitl Galvez wins, a mountain of financial commitments will weigh heavily on him. Claudia Sheinbaum, candidate of former Mexico City mayor Lopez Obrador's party, is leading in the polls. The chances of a third male candidate from a small party winning are almost negligible.

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"The next administration will inherit a country with a fiscal deficit that will limit room for maneuver in the next term," said Alfredo Coutino, director of Moody's Analytics. “To neutralize the existing fiscal vulnerability, the incoming administration will have to adjust fiscally (spending or taxing) in 2025.”

Lopez Obrador has said that before leaving office, he will take over US-owned Vulcan Materials if the Alabama-based mining company wins an ongoing international arbitration complaint against Mexico that has cost the Mexican government $1.9 billion. Could.

Then again, his promise to bring passenger trains back to Mexico before leaving office has yet to be fulfilled. On November 20, López Obrador published a decree stating that if private freight operators refuse to run passenger service, the government will step in to make them do so.

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While trains would have to run on tracks operated by private subsidized operators – Mexico closed its money-losing state-run railroads in the late 1990s – the government would likely have to buy the trains, fix up the stations and administer the ticketing. Have to do- Sales plan.

Thoughts of losing money keep coming. On December 26, López Obrador launched a state-owned airline at a time when most countries have decided to close or sell their airlines. With extremely low ticket prices guaranteed on flights to under-utilized, government-run airports, the possibilities for cash-strapped airports are endless.

To end this, on February 5 he announced that the government would guarantee workers retirement on full pay.

The plan, as it was once explained, was less generous than originally portrayed. Only workers covered by official retirement plans will have their pensions topped out, and only up to the level of the average salary of registered workers, about $10,000 a year. Still, it will likely cost billions of dollars.

The same day Sheinbaum, who is running for López Obrador's Morena party and is seen as his most devoted follower, claimed she would advance the president's programs, and add some of her own.

"Certainly these (López Obrador's programs) are the foundation, the basis of what our government will be like, and in addition we are going to present other proposals as well," Sheinbaum said.

But as soon as he spoke, evidence emerged that he would not have the financial power to do so.

A few days later, Moody's ratings service further downgraded the debt of the national oil company, Petroleos Mexicanos, or Pemex, to junk bond status.

Moody's believes "further deterioration in the government's fiscal position is projected in 2024" due to a "large increase in the deficit, social expenditure, persistently high borrowing costs and increased spending on key projects".

Consider what the next president will have on his plate: He must complete a $20 billion oil refinery plagued by cost overruns that have often been delayed. There is a similarly priced 950-mile (1,530-kilometer) railway running in a rough loop around the Yucatan Peninsula to link beach resorts and archaeological sites. López Obrador considers both his major projects, but the train is not yet complete.

Work will not be completed on the modernization of other oil refineries, or on a train service to Mexico City, or on any other train service from the Pacific Ocean to the Gulf of Mexico. Many other construction projects are also still incomplete.

López Obrador claimed at the beginning of his administration in 2018 that all of these projects would be completed by the time he left office, and all would be paid for by cutting government costs and reducing corruption. This turned out not to be true.

"In fact, last year we ended with a budget deficit of 3.4% of GDP, the highest since 1989," said Gabriela Siller, director of analysis at Nuevo Leon-based Banco Base. "This year they are predicting a deficit of 4.9% of GDP, the highest since 1988, and debt means borrowing more. Their numbers don't add up."

Infrastructure projects – planes and trains – are unlikely to ever turn a profit at the current pace.

For example, the first segment of the Maya Train project on the Yucatán Peninsula attracted about 1,780 foreign tourists in the first two months, or about five tourists per train.

The original plan stated that tourists would be the train's most attractive source of income, but officials are now suggesting that the train's revenue could come from carrying fewer passengers or carrying freight. There is very little industry on the peninsula and nothing seems to indicate an urgent need for trains carrying consignments of sunscreen.

López Obrador has defended his free-spending practices and increased debt, saying it is less than that of his predecessors.

"We are going to be less than (Enrique) Peña and (Felipe) Calderon in the percentage of borrowing," the president said in September.

Mexico's debt currently stands at about 50% of its GDP. Although this does not seem high compared to the United Kingdom and the United States, which are both around 100%, Mexico has excess debt from the state-owned oil company and does not have unlimited access to low-cost borrowing, such as That the U.S. Does.

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Historian Lorenzo Mayor wrote in the newspaper El Universal that López Obrador's actions "were not an attempt to limit his successor's freedom of action, but rather a destruction of the enormous political capital he had built up in helping launch the new administration. Was a productive investment."

The largest bombshell ever delivered by an outgoing president to his successor in Mexico occurred on September 1, 1982, when President José López Portillo, who had three months left in office, announced that he would freeze the entire banking system amid currency devaluation. Taking over the industry. debt crisis.

His successor, Miguel de la Madrid, spent his entire six-year term struggling to deal with the fallout and repay huge debts owed to bank owners.

López Obrador's mountain of debt, though less dramatic, is "a way to set the political agenda for the next administration, a way to leave his mark on the next administration," said Siller, head of analysis at Banco Base.