From: Miguel Angel Ayala Barajas
On March 27, the International Monetary Fund (IMF) announced the availability of resources for emerging and developed economies that provided it, as estimates of global economic growth for 2020 are -6.0% due to the COVID-19’s impact on the global economy; that is, countries and their citizens are experiencing a global economic recession, in which the value of Gross Domestic Product (GDP) will be around -6.0% of the end of the year and the IMF has money on loan so that we can get out of it.
It should be noted that a negative value of GDP over several quarters (such as in the 2020 quarters in the world) is considered a feature of the recession stage within the economic cycle; cycle that, by the way, consists of at least 3 more stages: crisis, expansion and boom. Readers will remember, for Mexico’s case, the information it circulated at the beginning of the year when it was confirmed that Mexico’s GDP was -0.1% in 2019 and the debate over whether the Mexican economy was in recession or not.
Eating the greens and the ripe ones
The economic cycles, in addition to knowing their stages and the fact of understanding that they are repetitive (hence their cycle name); invite us, through a broader analysis, to think about the economic policy to be implemented by the National States; that is, the fiscal and monetary measures to be implemented to over-carry them. The global economic recession caused by COVID-19 is the best example of a stage of the economic cycle.
Government policy during the economic cycle can be explained by the phrase «eating the greens and the mature ones», since the Government can reduce public spending and increase taxes, without borrowing during the expansion-boom stage: «eat the mature»; however, it will have to «eat the greens» during a recession-crisis, as it will have to increase public spending, maintain or reduce tax collection and thus borrow. As can be seen, the policy aims to make the Government an expanding abundance and economic boom; similarly, stimulate economic activity, in the context of scarcity, in the stages of recession and crisis.
Focusing public spending
As can be seen, in order to counteract the recession-crisis stage of Mexico’s economic cycle, taxes are expected, while not reduced, if they are maintained for the coming months and years, so is an expansion of public spending, which must be financed with public debt. Of course, the application of public money must be rational for it to meet the goal of overcoming the recession and moving as quickly as possible to the stages of expansion and boom.
It is therefore the opportunity of the Federal Government to maintain a focused use of resources, in which the final recipient of the resources is the entrepreneur who sees his sales affected at this time, the professional who lost his job due to the dismissals resulting from the recession, the entrepreneur who sees his capital reduced by the zero income of the contingency, the head of household who has had no income with the informal business that boosted due to the lack of people demanding his product or service, and so , the many Mexicans who have really felt and are feeling the effects of the economic recession we are experiencing.
Finally, it is the Federal Government’s opportunity not to «overlap» the dubious financial management of state or municipal governments in Mexico, who deftly see opportunism in countercyclical measures, believing that, from the expansion of the federal public spending, will bring you more resources under the assumption of meeting the needs of their governed. The opportunity, or the challenge of the Federal Government, is that, through the system of fiscal federalism, the exercise of public spending, it does not stay in local bureaucratic structures and run for those who really need it: the entrepreneur, the professionalist, the entrepreneur, head of household, etc.
*The author is An Economist, Master in Administration and currently holds a PhD in Administrative Sciences. In addition, he has published scientific articles and has been a speaker at international events on issues related to public finances and applied economics.
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