After approving a historical amount of money available for distribution, up to the equivalent of 4.46 trillion pesos the formal discussion of the 2014 Draft Federal Budget (PPEF 2014) started this week. Despite the fact that the Senate limited the exercise of current expenditure during the next two years, the lack of control in transparency and accountability, along with the non-existence of effective mechanisms to tackle corruption, enhance risks that are part of the discretional management of public finances, especially regarding political\/patronage purposes.
\nEven though the use of public money with political means is not uncommon, the current negotiations in laws referring to income, taxes and rights, already envision a governmental modus operandi that echoes the old regime. This involves a quiet recovery of the same manners and tricks that enable the Executive Power to do as it pleases according to its own interest. Within this patronage framework, every stakeholder that is capable of establishing a communication channel with the government (businessmen, unions, political parties, Governors, peasants\u2019 trusts) has the possibility of being \u201crewarded\u201d via the allocation of resources, as long as it exhibits \u201cgood behavior\u201d. One of the most notorious cases is Mexico City. Unlike what happened in the previous term between the federal and local administrations, Miguel \u00c1ngel Mancera has kept a close relationship with President Pe\u00f1a (in addition to the fiscal alliance of PRI and PRD), which has resulted not only in the future allowance of the so-called Capital Fund (which is thought to be between 6 and 9 billion pesos), but also in the allocation, for the first time since PRD rules the country\u2019s capital, of a Fund for Contributions to Social Infrastructure (FAIS) \u2013 a program that has the purpose of fighting poverty in the most marginalized communities \u2013 that amounts up to one billion pesos. The 2014 Economic Package is already taking for granted an increase in the number of resources destined for projected expenditure (which amount around 78%) in welfare programs throughout the country. The example of Mexico City could be replicating, for instance, to alleviate Governors of northern states to pressures in which the VAT homologation might have already been approved.
\nThe government\u2019s current point of view regarding a supposed growth enhancement using public money could effectively create an economic expansion in the short term. Nevertheless, a parallel tax rise will bring along a contraction of the manufacturing sector and, thus, a large percentage of the country\u2019s exports, an increase of incentives for informality as well as an important adjustment to the general population\u2019s budgets, including those who benefit from welfare. In addition, given the effect of internal resources\u2019 displacement generated within the economy, the broadening of the financed budget (9.1%) \u2013 as if it were little \u2013 using a 4.1% GDP deficit constitutes an unsustainable long-term solution. Likewise, the pressure put on the productive sector and its (higher) link to government purchases \u2013 in the end, it\u2019s where the money is headed \u2013 will resonate in the motto \u201cliving out of budget is living in a mistake\u201d. This scenario will prevent the Secretariat of Finance from complying with the goal of returning to budget equilibrium by 2018.
\nIn the end, expectations have fell short over making an integral budget plan that is able to balance recollection, boosting productivity, tackling poverty and a less expensive and more transparent public administration. The main question is how private investors will react to this new scenario.<\/p>\n
CIDAC<\/p>\n","protected":false},"excerpt":{"rendered":"
After approving a historical amount of money available for distribution,
\n up to the equivalent of 4.46 trillion pesos the formal discussion of
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