The coronavirus is gutting economies around the world, but the damage is proving particularly damaging in Mexico, a country that was already in slump before the pandemic hit.
Analysts are now sounding the alarm over Mexico’s financial stability, with Fitch downgrading the country's sovereign debt to its lowest investment grade above junk bond status. The ratings agency cited both the coronavirus lockdown and the government's "ad hoc policy interventions" as contributing factors.
Moody's followed suit, downgrading Mexico's rating and citing lower growth potential, the administration's change in energy business model and policy decisions over the last year "dampening business sentiment and investment prospects."
President Andrés Manuel López Obrador’s management style has rattled investors since he took office in 2018, contributing to a stagnant economy even before the arrival of the deadly coronavirus forced the economy to shut down.
"Normally, what markets and analysts want — and in this case also credit rating agencies — is that a certain economic orthodoxy be followed, that you can have a certain stability in your fiscal and economic policy decisions," said Rodrigo Pérez-Alonso, a financial analyst and former member of Mexico's Congress.
But under the left-leaning López Obrador, he said, there has been a surprising reluctance to ramp up public spending to help weather the coronavirus storm.
López Obrador's refusal to suspend tax payments or provide private enterprise with a stimulus package — measures that the U.S. embraced last month — has furthered the growing rift between the government and the business community.
His administration was slow to respond to the coronavirus, leaving states to pick up the slack, but López Obrador has since acted on the recommendations of Hugo López-Gatell, the epidemiologist in charge of the government's public health response to the pandemic.
As of Friday, the country had about 6,300 coronavirus cases and nearly 490 deaths.
López Obrador has refused to take major actions to keep the economy afloat, while protecting the federal budget assigned to his pet projects.
Some of those projects include canceling a $13 billion Mexico City airport project that was 30 percent finished, only to announce construction of a new airport at a different location. He also nixed oil field auctions in favor of a new government-owned refinery in his home state of Tabasco.
Investors were particularly rattled last month when López Obrador unilaterally canceled a nearly finished billion-dollar brewery owned by Constellation Brands, which markets Corona beer in the United States.
And despite plummeting industrial exports, falling remittances and a frozen tourism industry, López Obrador has shunned proposals to inject cash into the economy.
The latest projection from the International Monetary Fund is for Mexico’s economy to contract 6.6 percent this year, outpacing the estimated 3 percent contraction for the global economy.
A downturn of that magnitude is likely to spur more migration to the U.S., where the economy has ground to a halt.
Manuel Suárez Mier, an economic consultant who is predicting a double-digit contraction in Mexico, said increased migration is inevitable.
"You will have a massive exit of people," he said, adding that the situation won’t be much better for those who stay.
"When Mexico loses its investment grade, all the pension funds and many corporations who have investments in [Mexican] public or private bonds will have to drop them, because regulations compel them to not buy junk bonds," he said.
But Mexico's financial institutions are stronger now, largely as a result of reforms undertaken after the cyclical economic downturns that plagued the country from the 1970s into the 1990s.
A major factor in those crises, according to Suárez Mier, was the weakness of the central bank, Banco de México, and the peso's controlled exchange rate, which put at risk the country's international reserves.
This time around, López Obrador can lean on an autonomous Banco de México, with international reserves of more than $180 billion, and standing lines of credit from international financial institutions like the IMF.
In response to Friday's credit rating cuts by Fitch and Moody's, Mexico's Finance Secretariat touted the country's still-ample lines of credit.
But just a day earlier, López Obrador met with Banco de México chief Alejandro Díaz de León Carrillo on Thursday, asking the central banker to accelerate central bank payments due to the federal treasury next year. Despite the unorthodox request, López Obrador said he remains committed to the bank's autonomy, adding that he wants to see the country through the crisis without increasing public debt.
That will prove nearly impossible, as ratings agencies and international financial institutions have predicted the recession will increase Mexico's sovereign debt by at least 2 percent of the country's gross domestic product (GDP), from the relatively healthy 53 percent where it stands now.
That's a debt-to-GDP ratio the United States hasn't seen since 2001, when public debt stood at 54.8 percent. The current U.S. debt ratio is 106.9 percent, and expected to grow due to coronavirus relief packages.
López Obrador has remained relatively upbeat and dismissive of external warnings.
On Thursday, he shrugged off concerns about his economic plan, saying critics were only trying to "discredit" Mexico and his administration.
"He has his own script," said Pérez-Alonso. "He's like an actor onstage with the theater burning, but he wants to follow his script."
"The issue is that he's starting to smell the fire, and realizing it isn't going to be so simple," Pérez-Alonso added.