Economics: Myopic view of debt portfolios
The cumulative flow of financial and economic data points to an extension of the negative impacts that accompanied the novel coronavirus pandemic, an effect that could be further exacerbated next year in some sectors. The authorities have been blindly flailing with the policies they have applied to the financial sector. Their minimal palliative approach at best promises to keep the worst effects from becoming visible until sometime next year.
The possible risks and threats posed to the strength of the Mexican financial system and its relationship with productive units in the light of government support policies include the obvious inadequacies of its supposed debtor relief programs. So far their main effect has been to keep the non performing credit portfolios of lending institutions from reflecting the extent to which pandemic effects and the economic crisis are making it much harder for people to avoid falling behind in servicing their existing debts. But despite that optical illusion, sooner or later the impact will become obvious in the financial system’s solvency indicators.
Part of the problem resides in the degree to which the authorities have failed to recognize both the impact of pandemic-related factors and the extended period of time they are likely to endure. Both of these have already proven to be significantly greater than they had anticipated. But the problem is much broader, as official economic policy has not been up to the task of mitigating the crisis effects. Moreover, we can expect President López Obrador and his officials will continue to undermine the confidence of potential investors far beyond its extensive record of reaching agreements with distinct economic actors, embracing the measures and reforms they propose only to later, without any warning, reinterpret or abandon outright those initiatives. Such erratic behavior and lack of respect for their own official commitments will have additional adverse effects on employment, economic growth, confidence and the certainty needed to promote private investment.
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