Mexico’s Central Bankers Raise Alarm Over Surge in Violence

(Bloomberg) -- Some of Mexico's central bankers are increasingly concerned that the shock of the coronavirus outbreak adds to the headwinds facing the economy due to “the deterioration of the rule of law” and policy decisions that are discouraging investment.

Two of the five members of Mexico's central bank board expressed their concern in minutes from their emergency April 21 policy meeting in one of their strongest rebukes yet to policy decisions by the administration of President Andres Manuel Lopez Obrador.

In support of such concerns over violence, one member pointed out that homicides nationwide last month rose to an 18-month high, climbing 5.1% from the same month last year to 3,000, even as the country started to shut down as part of containment efforts.

“There is no productive apparatus that can withstand insecurity conditions of such magnitude. It is an imperative agenda that must be addressed in order to reactivate the economy,” the board member said.

The other board member was concerned that the lack of fiscal stimulus by the government was further undermining “the environment for private investment and have increased doubts regarding the country's growth potential over the next years.”

Challenges Ahead

Mexico's economy had contracted slightly in 2019, hurt by a drop in business investment that was blamed on uncertainty inspired by the president's economic policies. The country's gross domestic product in the first quarter shrank by the most in a decade and the downturn is set to deepen dramatically.

Lopez Obrador has refused to fund significant stimulus to support large companies amid the government-ordered shutdown of non-essential activities and economists expect the economy will contract 7.3% this year, according to the average of a central bank poll published on Monday.

Since taking office, Lopez Obrador rejected the militarized approach to fighting organized crime gangs that had been embraced by his predecessors and has said he wants to focus on rooting out the poverty that pushes people into crime.

Tensions have been rising between the central bank and Lopez Obrador. Last month he sought to tap an expected central bank surplus early and then criticized policy makers for providing liquidity to companies, among emergency measures announced after the April 21 meeting.