Mexico’s Balancing Act

Andrés Manuel López Obrador greeting supporters in 2012.

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Mexico’s Balancing Act

Andrés Manuel Lopez Obrador (AMLO) will soon become the most legitimate president in the history of Mexico after winning the presidential election by more than doubling the runner up’s votes. Although he ran with an anti-establishment agenda, AMLO moderated his rhetoric in comparison to the previous occasions he ran for president in 2006 and 2012. This strategy demonstrated Obrador’s political expertise is indisputable, since it became a bullet-proof against his fiercest critics who have compared him to Venezuela’s dictators for years. Nevertheless, his ability to successfully guide the fifteenth largest economy in the world remains an unknown.

While Mr. Obrador is not president yet (he will take office on December 1st), he made his first controversial decision in late October when he announced the cancellation of Mexico’s new Norman Foster-designed $13 billion airport. The project is supported by dozens of technical studies and a construction progress of more than thirty percent. AMLO backed his decision with the results of a quasi-unconstitutional referendum, organized by his own party in less than a month and with a participation of less than two percent of registered voters. Several pundits argue that AMLO held the referendum to send a strong signal of who’s in charge to financial markets and businessmen who lobbied for keeping the airport.

AMLO’s quick decision to cancel the airport in face of these interests is based on his interpretation of Mexican history. In the past, Mexico’s President Elect has declared that just as Benito Juarez (his personal hero in Mexican history) separated religion from politics, he’ll separate political power from economic power. To make this point clear, AMLO tweeted a picture of himself next to a book titled “Who’s In Charge Here?” just one day after confirming the cancellation of the airport. AMLO is right to advocate the separation of political from economic power in Mexico, a country that ranks sixth in The Economist’s crony capitalism index.

But is cancelling a much-needed infrastructure project the best way to achieve this separation? Is a demonstration of power needed when nobody doubts he’ll be the most powerful Mexican president in at least thirty years? This decision seems ideologically charged, a striking contrast to the pragmatic approach he showed during his term as the mayor of Mexico City.

While AMLO has no doubt showed considerable success in the political front, he must also remember that the rules of the global economy are different from those of politics. Markets play by their own rules, and they reacted negatively after the referendum’s result indicated that the airport located in Texcoco would be cancelled. The Mexican peso lost five percent against the U.S. dollar, the domestic stock market fell four percent and Mexican bond yields, an indicator of a country’s market risk, increased by one percent. Mexicans should not be surprised if financial instability (rating downgrades, a steep depreciation of the Mexican peso and increases in interest rates) follows if similar decisions become a norm.

To be fair some critics are disproportionate when they mention the referendum opened the door to AMLO’s reelection six years from now, something forbidden in the Constitution and a taboo in a Mexican society haunted by its authoritarian past. In fact, financial markets may have started to forget the airport episode since they partially reversed the referendum-related losses after his first-class economic team announced a balanced budget for 2019. These mixed reactions portray how difficult Mr. Obrador’s mission is.

The challenge ahead involves a delicate balancing act, where it’s imperative to distinguish between fighting crony capitalism and affecting financial stability. Even if the latter is not AMLO’s priority, a simple review of twentieth century Mexican economic history is a reminder of the importance of keeping stable financial markets for people’s welfare, especially for the poorest. Focusing on strengthening the rule of law, instead of demonstrating personal authority, may hold the key to succeed in his long sought power separation.

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2 thoughts on “Mexico’s Balancing Act

  1. Fernando Herrero Sin says:

    This is a very incomplete interpretation of the situation in Mexico. Painted this way, it seems that AMLO´s agenda is aligned with many hopes from the progressive movement worldwide and that his mandate is challenged by the volatility of markets. The international left tends to project its ideals onto populist leaders across developing countries such as AMLO. I believe the author is wrong in falling into that group.

    First, the author says “AMLO is right to advocate the separation of political from economic power in Mexico, a country that ranks sixth in The Economist’s crony capitalism index.” Yet, after three months in government, AMLO has already proven that this cited argument was only part of his populist narrative as a candidate because his government has granted millions of dollars in contracts without exercising the required by law public contests for government procurement. Between the first months of 2019, almost half (46%) of government contracts, amounting to more than $150 million usd, where awarded without public and transparent contests. Some of these have been offered to ‘clubs’ of undisclosed private companies.
    The argument about canceling the airport because of ideology also sounds naive. Stating that a show of power is some sort of ideology is incorrect. It is actually the opposite: it is a pragmatic and proven way to consolidate power. It is a tool in Real Politik: he does it because he can. If anything, canceling the airport, in spite of all its political and economic costs, was the result of a political calculation made by AMLO, something he can sell as the fulfillment of a campaign promise. Nevermind that such promise was not asked by the people, but it was rather an easy campaign slogan masterminded by AMLO that drew a lot of media attention -not unlike Trump´s Wall.
    The author is confused by the referendums organized by AMLO. The referendum about the airport´s cancellation had no direct relationship to AMLO´s reelection ambitions, but an indirect relationship because 1) it was organized outside the law by people closely related -if not belonging- to AMLO-s party; 2) because it did not follow international standards (e.g. it polled less than 2% of population); and 3) because legitimizing a fixed referendum opens the door to many more fixed referendums, among them reelection. This is a tool tainted by Real Politik and belongs to the Fascist Rulebook. Critics have not been unfair into calling it a proxy for reelection because History tells us that exactly when you look at other populist, authoritarian and fascist governments worldwide, particularly in Latin America. If Mexico is haunted by an authoritarian past, Mexicans should be able to recognize the signs. Critics are doing their job.
    The reason markets are having a hard time reading his word and actions is not because AMLO`s missions is difficult. It is rather simple: AMLO sends mixed signals, sometimes to gain political leverage and other times because he simply changes his mind -something that shows either ignorance about market dynamics and/or carelessness.
    What this author gets correctly is the fact that a modest budget that included no rise in taxes was a well-received surprise by markets. This happened only because financial analysts and investors expected as anyone would the exact opposite of a leftist government. That should send some pause to the progressive liberals observing AMLO.
    Other issues that should question AMLO´s true allegiance to the left include his authoritarian instincts related to transparency, freedom of information, accountability and more alarmingly: his hostile attitude towards non-government and not-for-profit organizations.
    Anyone interested in Mexico studying the relationship between financial markets and the political economy could start by looking at the political and economic development in Mexico in the 1970s in order to understand the environment to which AMLO´s nostalgic narrative and actions point. That is where many of the clues to understand AMLO lie.

  2. Christian Marin says:

    Thanks for your comment, I appreciate it although I disagree in many ways.

    You say I describe AMLO as a politician of the “international progressive left” and that’s not true because I never mention his position on redistribution or crucial progressive liberties. How can you affirm I claim that he’s progressive leftist if the central topics of that movement are not even mentioned in the article (neither directly or indirectly)? That’s your first mistake.

    You criticize that I claim that “AMLO is right to advocate for the separation of political and economic power” because so far he has not done it. Although I agree that he has not done it, that doesn’t mean that AMLO is wrong to advocate for that. You’re talking about actions not being aligned with speech, which is a complete different topic. That’s your second mistake.

    You also say the argument of “ideology for cancelling the airport” is naive. Maybe you did not notice, but you also made that argument indirectly when you mention “proven way to consolidate power”. That decision precisely shows that he puts politics before economics, the state over markets: rejects neoliberalism and embraces statism, that’s ideology. That’s your last mistake.

    Finally, I have long studied economic history of Mexico and I agree he has many similarities with populists in the 1970s.

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