Growth Drivers Soften, While Loyalty Trumps Credibility in Cabinet Shift
Evidence that growth drivers continued to weaken was apparent in indicators published during October, beginning with last week’s Global Index of Economic Activity (IGAE), which showed the economy slipping at a real -0.1% rate in August 2016 compared to July of this year, according to seasonally adjusted data. By sector, the report showed industrial activity contracted by a sequential 0.4% even as services were unchanged from the immediately preceding month.
In a separate report from the National Statistics Institute, industrial activity was seen to be declining at a 12-month rate of 0.8% in August, according to seasonally adjusted data, as construction activity fell 1.3% following a 0.6% decrease during July.
Market analysts currently expect GDP will grow at an average 12-month rate of 2.13% over the course of 2016, three basis points lower than their forecast of the previous month. For 2017, they now estimate 2.36% growth, down from a previous 2.52%.
Inflation concerns increased in recent weeks. Consumer prices have experienced mounting pressures in the past three months after having remained below the central bank’s 3% target for 17 consecutive months. After the 12-month rate of consumer inflation came in at 2.97% for September it reached 3.09% by the middle of October.
The steep depreciation of the peso that began in November 2014 and accelerated during the second half of 2016 has begun to generate significant pressures on producer prices. While these pressures have yet to clearly pass through to the headline rate of consumer inflation, they have propelled prices for specific CPI components higher.
Last week, President Enrique Peña Nieto nominated political favorites to preside over two crucial posts: that of the Attorney General and the Ministry of Public Service, which is to serve as one of the four institutional cogs underpinning in the entire National Anticorruption System. Owing to their close ties to the president and the governing party, his nominees, who were immediately confirmed by the Senate, were not ideal choices for such posts. These institutions must establish a clear degree of autonomy if they are to achieve the necessary credibility and effectiveness.
The government of President Peña Nieto has been dealing with issues of corruption in a totally schizophrenic manner for quite some time, seemingly turning a blind eye to rampant evidence of graft and conflicts of interest, then pressuring its party to vote for National Anticorruption System legislation, but ultimately sending Congress a 2017 budget proposal that fails to allocate a single centavo to the bodies that are to comprise that system.
The president's long refusal to move against Javier Duarte during his time as governor of Veracruz, despite mounting evidence pointing to corruption on a massive scale, eventually gave way to the announcement of a belated investigation by his Attorney General, followed immediately thereafter by PRI state legislators in Veracruz granting Duarte the leave of office he apparently needed to flee from justice.
A recount of the administration’s political zigzags in maters of corruption makes it impossible to seriously judge whether the new appointees could be capable of acting impartially and in strict compliance with the law or instead will act in a biased manner to protect the interests of the president and other officials in his government.
By confirming both appointees within less than 24 hours the Senate failed in its responsibility to subject them to a serious vetting process, an especially lackadaisical approach considering that under current legislation the new attorney general is guaranteed more than a decade in office, extending through three presidential administrations. There is an urgent to need to establish a clear system of checks and balances on all decision-making. A docile opposition is failing in its job to act as a true counterweight to the presidency.
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