The Reasons for and the Solutions to the Fiscal Conundrum

I meant to get to this last week. Here's Macario Schettino on Mexico's "fiscal shock", as Carstens called it last week: 

The Secretary of Finance has recognized the historic magnitude of the fiscal problem. But he wasn’t sufficiently clear: it’s not a temporary problem, resulting from the global financial crisis. It’s a permanent phenomenon: the source of funds with which we lived for 30 years is gone; that which paid the external debt and allowed us to grow, although it was at very moderate levels, for three decades. Without counting the present year of crisis, Cantarell contributed more to the GDP in these three decades than the total growth of the economy.

The idea that the model has failed has become commonplace. Of course it failed, it has since the 1970s. The model is a political regime of distributing rents to maintain power. It’s not an economic problem, but a political one, and it always has been. It has nothing to do with neoliberalism or a mixed economy, neither of which ever existed. It has to do with a system constructed to extract resources from those who aren’t organized so as to hand it over to those who are and are therefore part of the political regime. And this didn’t come to an end with the arrival of the PAN to the presidency, because divided governments haven’t been able to confront the old regime.

The revolutionary regime constructed an economic system whose principal objective was the distribution of rent, and not growth. That’s why we didn’t grow. The defenders of revolutionary nationalism continue to insist that Mexico had a great post-war era, when we grew for 25 years. That’s false. We grew the same as the world grew, nothing spectacular, we did so because in those years there was available territory and scarce population. The 30 previous years Mexico hadn’t grown at all, and only slightly in the post-war era were we able to begin to catch up.

We didn’t grow so as to produce better, but rather because we went along occupying idle territory. When we ran out of territory, in 1965, the only form of maintaining fictitious growth was to put the country in debt, and later to base growth on oil…

But that is irreversibly over with. In the coming years oil production will continue to fall, to such a degree that we won’t have money with which to support the refinery that we haven’t begun to build. It’s a small temporary inconvenience, but a historic crisis.

To respond to that we have only two options. One is to do the same as always, which we know how to do: fake change and place the country in debt. It’s a direct and, unlike on other occasions, short path off the cliff. Remember: we haven’t had an economic crisis in Mexico without having oil behind; in every case, oil has provided us a way out.

The other path is more complicated. It implies recognizing the secular failure of a political project and making decisions of the same size as the crisis: historic. The changes necessary to resolve the fiscal problem aren’t otherworldly: in this space we have this week presented a proposal that was integrated, liberal, redistributive, and revenue-increasing all at the same time. That’s not the complicated part, which is the acceptance of failure that is required before the decisions. Which aren’t merely fiscal, let’s be clear.