In early April, a series of earthquakes struck Venezuela, causing buildings to collapse in the coastal city of La Guaira, just miles from Caracas. Among the structures that failed were apartment blocks built under the government’s Misión Vivienda housing program, a project launched under Hugo Chávez. The quality of those buildings had long been questioned, though official data on costs and materials were never made public.
The disaster highlights a broader problem that goes beyond any single country. When governments lack healthy fiscal resources, they struggle to meet basic obligations — and that includes building things that don’t fall down. A strong, growing economy generates tax revenue and jobs, which in turn funds public services. But more and more governments are leaning on debt to cover current spending, effectively consuming future income and leaving the next generation to pay.
In Latin America, large segments of the economy operate in the informal sector or outright illegality. They not only avoid taxes but sometimes extract illegal resources from the state. The result is a steady decline in public services: security erodes, education quality drops, medical care suffers. Government salaries stagnate, leading to poor decision-making, and public investment — which is needed to encourage private investment — gets cut.
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Fiscal Imbalances and the Debt Cycle
When governments borrow to fund day-to-day expenses or unprofitable projects, they increase future spending on debt service without generating offsetting revenue. That creates a vicious cycle: more public spending financed by more debt, which raises spending further, requiring still more debt. Mexico already lived through that cycle, and the cost of escaping it was high. Now the country appears to be falling into the same trap.
The problem is not limited to developing nations. Most developed Western countries have seen their debt loads climb sharply in recent decades. Italy, with a population of about 60 million, carries public debt equal to 137% of its GDP, putting heavy pressure on its finances. The United States has doubled its public debt to 120% of GDP. As inflation rises and interest rates follow, fiscal deficits worsen, compounding the trouble.
Mexico’s earlier experience with debt-financed spending ended in a painful adjustment, one that took years to correct. The pattern now looks familiar: rising debt, stagnant growth, and cuts to public investment. Whether governments will break the cycle or simply repeat it remains an open question.
Governments Respond Differently to Fiscal Pressure
The recent uptick in medium- and long-term interest rates, driven partly by tensions between Iran and the United States, has pushed countries to react in different ways. The U.S. government is trying to raise revenue through tariffs on imports and by cutting financial support to international organizations, including the World Health Organization, and NATO. France attempted to postpone the retirement age to slow social spending. Other countries are reducing immigration. The United Kingdom, meanwhile, faces a deep political crisis and has not settled on a clear solution.
Mexico has responded by reducing spending on public services and, notably, on public investment. That has contributed to economic stagnation, according to the report. The link between fiscal discipline and the quality of infrastructure — from housing to hospitals — is not theoretical. In Venezuela, the collapsed Misión Vivienda buildings are a concrete reminder of what happens when that link breaks.
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