Too little, too late? Mexico unveils $26 bln coronavirus stimulus

Mexico's President Andres Manuel Lopez Obrador said on Wednesday he will increase spending on social programs and critical projects by $25.6 billion in a delayed attempt to jump-start the coronavirus-hit economy. Lopez Obrador's announcement comes a day after the central bank on Tuesday unveiled $31 billion in support for the financial system, with about a third of destined to a financing facility for banks to boost lending.

"Efficiency, honesty and austerity will allow us to increase the budget to strengthen social programs and critical projects by 622,556 million pesos ($25.6 billion)," Lopez Obrador said at his regular morning news conference. The announced package was short on details, but appeared to go far beyond the $2.5 billion he last week said the government was preparing to inject into the economy in May.

However, the plan was met with some skepticism after criticism of his reluctance to support businesses and jobs with aggressive relief measures. The private sector and economists warn the economy risks deep recession without major support. Nikhil Sanghani, an economist at London-based Capital Economics, called Lopez Obrador's announcement a welcome sign he may be ditching frugality, but warned that at around 3% of GDP the package was far smaller than the fiscal support enacted in other emerging markets.

"We fear that this has come too late in the day. That's why we still expect an 8% fall in Mexico's GDP this year, and only a gradual recovery after the coronavirus shock," Sanghani said. Lopez Obrador said the federal government will reduce its activities except for the key energy, health and security sectors, and social programs and his flagship infrastructure projects, such as a new airport and refinery.

He also ordered a reduction of up to 25% in high-level bureaucrat's salaries, including his own. "We will rigorously implement the law of republican austerity," he said.

The Bank of Mexico also cut borrowing costs by 50 basis points on Tuesday. The left-leaning leader repeated his vow to issue 3 million loans for small businesses in the formal and informal economy and to create 2 million jobs.

"This will make it possible to protect 70% of Mexican families, equivalent to 25 million homes, especially the poor and middle class," Lopez Obrador said. It was not immediately clear what areas would face cuts or how 2 million jobs would be created amid a steepening recession. Lopez Obrador promised not to "indebt" the country, or increase revenue through higher taxes or fuel price hikes. ($1 = 24.3300 Mexican pesos)