Author Archives: Luis Rubio

Resentments

Luis Rubio

There is nothing older than resentment, above all of the poor toward the rich. Nor is it new to the politicians’ resource of exploiting and provoking grievances, real or imagined. Isocrates, one of the great Greek orators of the IV century A.C., accused hostility, but he recognized it as a typical emotion of democracy. What has changed, says Jeremy Engels,* is that while in a direct democracy citizens express themselves openly at the polis, today it is politicians who incite resentment as a governing  instrument. Such a strategy, writes Engels, has limits and can easily revert.

The Greeks saw democracy as a fraternity of citizens dedicated to curbing tyranny. Their results, however, did not impress the Federalists, those thinkers who gave life to the American political system: for them, it was fundamental to avoid the “tyranny of the majority” because a democracy should similarly protect the minorities. The Federalists’ concern was very specific: once the fury is unleashed, nothing can contain a bloodthirsty mob.

The underlying problem is, and always has been, that there are natural differences among citizens: wealth, abilities, origins, preferences, education. Social differences comprise an inexorable part of the history of humanity and democracy is one way of making decisions that permits all citizens to participate equitably, independently of those differences. It is the public policies that the democratically elected government adopts that should attenuate the differences and equalize the opportunities.

Resentment is a knee-jerk reaction to the contrast between the promise of equality inherent in democracy in the face of the flagrant inequities in the results of the political process or when disparities between poverty and wealth are major. The degree of disparity is providential material for politicians and special interests devoted to profiting from social differences and the privileges enjoyed by some as a means of advancing their causes: gaining popular backing and, more commonly, manipulating the population. The resentment that is inherent in human society ends up being an instrument of power to control the population: the quintessential strategy of demagogues like Perón, Chávez or Trump, the same as that of corporativism, of sad memory  in a good part of the Mexican XX century, and of the fascist system conceived of by Mussolini.

Confronting and agitating the population is the tactic that President López Obrador has employed to build up his base and solidify his project. The key question is whether this is a means to advance a constructive transformation that reduces inequity and that raises aloft the development to which the entire population can aspire, which is, at least in the rhetoric, what was proposed by the users of the same method of the old PRI; or whether it is a first step toward the destruction of the fragile social stability characterizing the country since the seventies. In the first case we would be speaking of a process of conformation of a regime of control to substitute for what characterized Mexico after the Revolution; in the second case, the beginning of a process of destruction of the frail Mexican democracy that has come to be built with penury, setbacks and reluctance in recent decades. In both cases, resentment as an instrument of power, not of the construction of a better future.

What there is not the least doubt about is that the President sees confrontation and animosity as instruments of governing. In this he is not differentiated to a great extent from other experiments throughout the world or in the South of the continent, all of which ended in failure, some due to the bankruptcy of their economies, others because they brought about violent responses. Chávez opted to invest in insurance against a tempestuous way out, on virtually transferring to Cuba the control of his country.** Whatever the method, none of those examples benefitted the citizenry or empowered their prosperity, but all impoverished the citizens and blemished their followers.

The problem is, once the anger is unleashed, returning to a world of concordance becomes nearly impossible. Venezuela, Argentina and Chile stand as examples where rancor has never perished.

The sole clear element is that the popularity of the President continues to be relatively high, not the result of his inexistent successes in economic matters, corruption or in social concord, but instead more probably the result of the hate that he has laid bare and that he might not be able to stifle. The evolution of perceptions among the citizenry of a leader who provokes but who does not get results is not obvious. Will another appear to capitalize on that very resentment?

When Lenin arrived at Petrograd after being expelled from Zurich, the Revolution had already begun but he had something unique in hand: a plan, which allowed him to take control and build a regime in his image and likeness. The Mexican reality is in such an agitated state that whoever arrives with a plan could become a new leader. The risk is that were the plan like that of Lenin, Chávez or Bolsonaro, Mexico would end collapsing, like so many other experiments in history.

*The Politics of Resentment;
**Maldonado, Diego G., La invasión consentida 

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@lrubiof

Shot in the Foot

Luis Rubio

Continuity is normal when a government changes, with natural adjustments for style and personality. The president changes, but the country continues along its course: the new government imprints its forms, preferences, and priorities, but in general perpetuates the essence of what the government is and its relationship with the society. On occasion, for endogenous reasons –such as the advent of a  transformative government- or on exogenous grounds –like the appearance of unpredictable factors such as a pandemic and its social and economic sequelae- the circumstances press for a break with the past or render one possible. Now and again, the changes improve the future, at others they amount to a shot in the foot.

The main gamble of President López Obrador is for his base, now his clientele, to be preserved intact despite economic infirmities and unemployment, and for the U.S. economy to be sufficiently strong to generate demand for domestic exports.  As the principal engine of Mexico’s economy, exports are key for any attempt at economic recovery, as Mexicans learned so well in 2009, when the U.S. recession nearly caused a depression in Mexico.

Another issue is for the presidential project to end up untouched, despite the changes taking place in both the internal as well as the external milieu. The only sure thing is that everything the president does -his visits around the country and the entire political operation- are oriented toward winning the midterm election in 2021 at any price.

In this perspective, there is no tediousness in the query of whether this government is driven by the search of a profound change (the demagogues of the so-called Fourth Transformation love to speak of an inexistent “change of regime”) or of continuity with modifications in the style of the presidential house. Beyond eliminating counterweights that have proven to be paper tigers, the government has accomplished nothing other than strive to recreate the old Mexican Presidency, but those efforts have come to entail unanticipated consequences. Perhaps the President has not realized that the greater the control, the greater the deterioration: in an open world, restrictions, cancellations, and impositions have an incremental cost.

The key question is whether everything the country and the world have undergone this year will allow it to return to the previous normality, as if nothing had happened.  Serious countries that led the public health process without competing agendas –such as Germany or Korea, to cite two successful cases- have achieved a return to some degree of normality and, along the way, their governments have earned the applause of the citizenry because the latter recognized in the government an ally that did nothing more than dedicate itself to combating the common enemy. In Mexico, the government encountered a multiplicity of adversaries, took the fight against the virus in jest and won the disapproval and, worse, procured the disappointment of a good part of the collective citizens, as surveys have conveyed. It may be that in terms of greatest importance for his sole objective, the 2021 elections, the President has done nothing, not even recognize that unemployment and recession entail consequences for persons and their families, especially the most vulnerable, many of whom voted for him. The ballot boxes will be the ultimate test of those perceptions.

Two circumstances make one doubt the viability of the governmental plan of action. The first of these is whether the blind obstinacy in “priority” projects (such as the refinery and the Tren Maya) is the best way of governing. The famous Prussian General von Moltke said that not even the best of plans survive the first contact with reality, and no one should have the least doubt that the reality changed radically over the last few months due to the recession, which had been looming since last year, as well as unemployment. The President has not been willing to alter his project even an iota, which obligates asking the question of whether lack of attention to the most affected population will exert political and/or electoral effects. It is inconceivable for it not to.

The second characteristic of the governmental approach is that it is, at its core, a fundamentally commercial transaction: while the President devotes himself to activating and nourishing his networks through his tours around the country, the lifeblood of his electoral strategy lies in the transfers of monies to older adults, to “young people building the future” and to other clienteles. Those individuals and families doubtlessly are grateful for the contribution, but that does not mean all of them are believers as a result: except for those who in effect entertain a quasi-religious bond with the President (there are many), the rest maintain a basically business relationship, which depend on the transfers continuing. Vote buying is an old tool in Mexican politics and the population engages in it as it is: a transaction. Will the relationship survive when public finances put a squeeze on, which will inexorably happen in the upcoming months?

Nothing is written for the 2021 elections, but it is clear that Mexico is already in full electoral season, and everything that the government and the opposition do is directed toward defining or redefining the correlation of forces that emerged in 2018. The problem for the government is that it does not possess a strategy for the development of the country and that is, at the end of the day, what makes a difference for the citizenry.

https://mexicotoday.com/2020/08/04/opinion-shot-in-the-foot/

www.mexicoevalua.org
@lrubiof

The New Vogue

Luis Rubio

From generalized and unpunished corruption Mexico has moved to centralized and purified corruption. What is left is the same corruption as always: only the adjectives changed.

The circus begins around the detention and extradition of the Pemex ex-CEO Emilio Lozoya but the corruption remains: a great hubbub, grand negotiations and a sole objective: distract the citizenry from the failures of the government, the terrible recession and the absence of action regarding the promise made by this President in his election campaign and that captivated the majority of the population: hope.

The preeminent promise of presidential candidate López Obrador was that he would end corruption.  The context was more than propitious not only because of the audacity that characterized corruption in Enrique Peña’s government, but also due to the population’s being fed up with what it perceived as the exploitation of natural resources for private advantage, permits and contracts granted to those close to those near the regime, and the privileges enjoyed by his cronies. As the information that Lozoya presumably has in his power suggests, corruption was not only an objective, but also a modus operandi: everything was fixed with money and no one or nothing was too marginal to be part of that perversity: member of congress, senators, journalists, governors, the opposition, entrepreneurs, the media. Peña comprised an extreme in the old practice and the very Mexican tradition of corruption due to lack of self-restraint: stealing was a divine right to be burnished in all its magnitude.

The history of President López Obrador is another: instead of fighting it, the new fashion is to centralize it. As in the good times of the PRI in the XX century, corruption is there to be administered from the presidency as an instrument to reward those nearby: relatives, close friends and favorites or to sanction the enemies. The novelty is that giving the presidential word is sufficient for cases of evident corruption to be purified: those who are close can never be corrupt because mere proximity disinfects them.

Corruption returns to be a trifling instrument of power: to generate loyalties and distract the citizenry: an old custom dating from the Colonial era, later refined in the XX century in form and substance, until reaching its current subtlety. What we are now observing is its ultimate perfecting in the manner of a media spectacle with vastly ambitious aims.

Rare was the government in PRIist times in which some functionary from the previous government was not apprehended to establish who was the new owner of the town. The practice was so frequent that the population knew the anticorruption laws as “the law of the letter carrier” because only lesser functionaries were prosecuted: all the rest were mere messages and personal retaliations. While the profile of those incarcerated from prior administrations escalated over time, it never achieved what is now presumed as possible: the prosecution of an ex-president.

The question is whether this a change of direction or a paltry strategy of distraction. Without doubt, the supposed evidence that Lozoya has in his possession entertains media and political value, but it is not obvious whether it could be employed as evidence in a judicial process that respects the rules of evidence and due process. The political usage of corruption is long-standing, and this government is preparing to take it to a new threshold.  But none of this implies that this would be combatting corruption or that it will sanction those proven to have incurred in that practice. The dilemma is whether to advance toward the eradication of corruption or merely give it new turn back to the usual: scapegoats instead of former functionaries properly prosecuted.

The matter is not a lesser one because neither is the circumstance. No government in the memory of anyone living today has undergone the size of the recession, the unemployment, and the violence, taken together, that characterizes today’s Mexico. The exceedingly strange moment that we are now living through, with a confinement that has frozen nearly everything -from the economy and political debate to social demands and personal conversations-, has created a political parenthesis that doubtlessly is the calm before the storm. Sooner or later these evils will explode and the government has not prepared itself to deal with its consequences. The economy will not recover soon, transfers to the president’s clienteles will be insufficient for addressing the needs, and the suffering will multiply irrepressibly. In contrast with other nations, the Mexican government appears to be petrified in place: in everything except the upcoming media circus and its unwavering concentration on the 2021 midterms.

The question is whether the attempt at distraction that the President is launching will be sufficient to release him from the responsibility of his poor decisions and incompetence in heading public affairs. In an environment where people are fed up with the status quo and as polarized, the natural cynicism of Mexicans will permit them to enjoy the comedy: nothing like seeing a president handcuffed, if the government achieves this-, but it will not change their opinion of a president whose principal vow was corruption, not chaos nor the circus. That is no mean difference.

https://mexicotoday.com/2020/07/28/opinion-the-new-vogue/

www.mexicoevalua.org
@lrubiof
a quick-translation of this article can be found at www.luisrubio.mx

A Government Besieged

Luis Rubio

 Like so many other things in life, organized crime functions in and adapts to the environment in which it operates: when it encounters resistance it retreats, when the lay of the land is auspicious it advances. Where there are rules and compliance to them is enforced, there is adherence to them. In the Mexico of today there are no rules and the terrain is more than propitious: it entices. It is only in this manner that one can explain the temerity of the assassination attempt executed against a government official. Where is the government left in all this?

 The most elemental definition of a Narco State applies when a government’s fundamental institutions have been infiltrated by organized crime. A similar, but not equivalent, term is “Failed State,” which implies the incapacity to satisfy the basic functions of a government, such as security and providing services. Neither of the two is applicable, strictly speaking, to Mexico, but there are clear elements of both in distinct parts of the national territory.

There are vast regions of the country that are narco areas, where the government exercises neither presence nor capacity of action. In the northern state of Tamaulipas, for example, the Mexican Army provides a custodial service for vehicles requiring transport from one city to another: convoys that are formally organized in order not to be intercepted by the dark overlords of the territory. Instead of resolving the problem, an alternative reality is created. Similar situations take place in states such as Michoacán and in parts of the Northeast, from Jalisco to the border. There are entire regions of the State of Mexico, Guerrero and Guanajuato that are the territory of organized crime. Without resistance, the reality is institutionalized.

To the latter one must hasten to add the impunity with which the mafias operate in the country. The attempt against the life of the Mexico City Minister of Public Security is illustrative: it was not only the size of the operation, but also the audacity of effecting out on the main avenue of Mexico City in broad daylight. That cannot happen without the complicity of some authorities.

Beyond the circumstances of the specific case, the fact itself denotes a truism: that it is possible to deploy an operation of this nature. The same is true whether it was an act of revenge, whether the government had taken sides in the so-called war on drugs or whether the interests of this particular mafia had been affected. The fact is what counts.

The larger accusation is that the Federal Government has aligned itself with a drug cartel, which would imply, in criminal logic, that it has become a legitimate target. There are videos showing the President conversing with the mother of the Sinaloa cartel leader, not in itself constituting evidence of a pact, but in politics, appearances are reality.  While this is not the first time that the Federal Government has allegedly engaged in negotiations with the Sinaloa cartel, what is new is that it was the President himself, in its territory and in public, speaking with a person so close to the heart of the cartel leadership. There are many ways of combating organized crime, but what the attempt reveals is that the strategy that the government has adopted, regardless of whether an agreement does in fact exist, is not bearing fruit.

Negotiating does not imply, in technical terms, that Mexico has become a “Narco State” but, were the presumed negotiations true, it would not be far from being one. And that is the problem. The government has acted without considering the implications and repercussions of its actions. Nor has there been an improvement in the security of the population, wherein lies the government’s principal responsibility.

What is clear it that there exists no strategy to fight against the mafias or that the one that there is, that is, bear hugs not bullets (abrazos no balazos), is inadequate. The question is whether the weakness of the government in this matter has rendered it possible for the criminal organizations to advance their positions, making it increasingly more difficult to change the status quo. The assassination attempt intimates that the balance of power shifts in favor of the mafias, whose objective appears not to be to govern but to operate their business without governmental interference. Every retreat by the government is capitalized on by some drug cartel but, to guarantee this, the cartel must liquidate its rivals, perpetuating the world of violence in which Mexicans live.

What is important is not the label –Failed State or Narco State- but rather that the government continues not to recognize and accept that security is its most basic responsibility. Its sights are focused on the only thing that matters to it, next year’s election, while its personnel, not to speak of the garden-variety Mexican, lives in the fear of an unexpected attack on their life.

When the attempt is against a figure of the relevance of the Chief of Police Chief of the capital of the country, the affront is evident and the symbolism impossible to hide.  The president’s nonresponse is an obvious response for those involved.

In the absence of the pandemic and the recession, it is possible that the policy of security of this government would have ended up as no worse than that of its predecessors. But the pandemic changes everything: highly sensitive times are in store for the security of the populace that do not refer to the narcos or to organized crime as such, but instead to the urgency of parents to resolve their immediate family needs, beginning with food. While the narco will be (is) there to capture local support, the government does not protect the citizenry. In place of engendering effective municipal police forces from the bottom up, it de facto promotes a response from the population that is nothing more than “Every man for himself.” This is not a serious way to govern.

https://mexicotoday.com/2020/07/21/opinion-a-government-besieged/

www.mexicoevalua.org
@lrubiof

Pitfalls

Luis Rubio

 Financial advisers often differentiate between low-risk, low-return investments, from higher-risk bets, albeit with higher potential returns. The President’s trip to Washington followed a different logic: high risk with low returns. Given what was involved, it was not a bad strategy, but victory can only be claimed once it becomes clear that the reverberations do not prove counterproductive.

 

The speeches of the two presidents could not have been more contrasting, because each had a different objective. For Trump, the goal was to end the dispute that he himself generated with Mexico to appease Hispanic voters. His speech was flat, predictable, and contradictory with everything he had said since his campaign in 2016, particularly regarding the border, migration, NAFTA and, in general, Mexicans. A sparse speech, designed to praise his guest and, at the same time, addressed to his potential voters.

 

The objective of President López Obrador, of which there was so much speculation, was transparent: to be recognized by the President of the United States. More than a national agenda, his was personal and electoral (and, maybe, rewarded with the arrest of César Duarte, a former governor of Chihuahua). His speech was not that of a president engages in sensitive negotiations, but of one who had reached the zenith of the mountain and wanted to turn it into a historical milestone for his base. Shouting “Long live Mexico” at the White House might seem a bit out of place, but it was the call of someone who had just been legitimized by a higher authority. And that is the problem of the speech: despite repeatedly demanding to be treated with respect and as an equal, the speech suggests that he does not feel he is.

 

The dinner hosted by President Trump offered the opportunity for American businessmen, strongly represented by large investors in Mexico, especially in the automotive, financial and energy sectors, to ask questions and make clear statements about their concerns regarding decisions that, from the cancellation of the Mexico City airport, have characterized the López Obrador government. A dinner chaired by the businessman in Trump, who clearly understands the importance of certainty and trust in investment decisions, was a perfect context for American entrepreneurs to express themselves “frankly,” as the diplomatic jargon would have it.

 

The list of guests from the Mexican side leaves no doubt about the way AMLO conceives of business; all of his guests represent activities dependent on the government: contractors, owners of concessions (like telecoms, radio, mining and television), and sellers of services to the government itself. The contrast with the Americans is palpable, which will not help to mitigate the concerns that the AMLO government raises every time it cancels an investment project, calls for a manipulated “consultation” or eliminates an autonomous regulatory body.

 

The Mexican government is pleased to have concluded the visit without major incidents, which is to be celebrated, but its sights were not high to begin with. There are three risk factors that were not addressed, two of them consciously: the Democrats and the Mexican communities in the United States. The date of the meeting was not a coincidence: if it had taken place a week earlier, with the Congress in session prior to its summer recess, the president would have had to visit, at the very least, Ms. Nancy Pelosi, speaker of the House and a key person in the approval of the USCMA; otherwise, it would have created a diplomatic incident. Pretending that there will be no repercussions from the Democrats or candidate Joseph Biden’s team is naive. For them, the visit constitutes an AMLO vote for Trump, so one ought to wait to assess the results of the visit. Better leave the celebration for later.

 

Regarding the communities of Mexicans, it is inexplicable that there was not even an informal meeting with the leaders of such militant organizations and which the current president cultivated for a long time. A meeting would have had a minimal cost; not having organized one will surely have a monumental cost. One wonders who decided something so absurd and at the same time so obvious.

 

The third risk factor is related to the protests that took place when the president stood guard at the monuments of Juárez and Lincoln. I was not there, but the screams did not sound like Mexican Spanish; rather, they appeared South American, perhaps Cuban or Venezuelan. It is known that there is some opposition along those lines brewing in the state of Florida, so it is not impossible that the president has opened a dangerous Pandora’s Box without even realizing it.

 

Two no less important unknowns remain: the first is what will happen when a journalist catches Trump off guard and he returns to his traditional anti-Mexican rhetoric or when, in the next few days, he acts on the DACA issue.

 

On the other hand, nothing in this visit altered the stumbling block on the Mexican side: the wind will take care of the words heard in the Rose Garden; what matters then is not speeches but the results. To be successful, the new trade agreement, the  avowed reason for the meeting, depends entirely on the certainty that the government of President López Obrador generates among investors, something not guaranteed. The visit was saved; Now the economy needs to be saved as well.

 

https://mexicotoday.com/2020/07/14/opinion-pitfalls/

www.mexicoevalua.org
@lrubiof

Panaceas

Luis Rubio

Divergent objectives that aim to solve a common problem. Perhaps in this way one could begin to appreciate the complexity inherent to the new North American trade agreement. Each of the governments involved had its priorities and the result is the new USMCA that was inaugurated this week. Like any instrument, it has its strengths and weaknesses, but it is not a panacea.

According to old Greek mythology, the panacea, named after the goddess of universal remedies, is a cure for all ills. The new trade agreement is certainly not a panacea in the Greek sense, but it is without a doubt the best deal that was possible given the political circumstances. And that is the relevant criterion: negotiations among nations, like all negotiations, reflect both the purposes of the parties involved as well as of the correlation of forces at the time.

For President Trump, the primary objective was to discourage the emigration of industrial plants from the United States to Mexico and the new treaty reflects that priority. There is no greater contrast between the NAFTA and its successor, the USMCA, than this one. In this change, the number one priority for which Mexico proposed the original negotiation back in the nineties vanished.

The context of that accord is key: the Mexican government proposed the negotiation of a trade and investment agreement as a means of conferring certainty on investors after the conflict-ridden decade of the eighties: in a word, the objective was to use the American government as lever to regain the trust that the Mexican government had lost in the expropriation of the banks. A means was sought to assure investors that the Mexican government would not act capriciously or arbitrarily in the conduct of economic affairs and that any disputes that might arise between the government and investors would be resolved in courts not dependent on the Mexican government.

The American government of that time saw in NAFTA the opportunity to support Mexico to achieve accelerated progress, a key objective of its own definition of its national interest. Behind it dwelt the premise and expectation that Mexico would carry out deep reforms to turn the treaty into a transformative lever that would allow achieving the hoped-for development, something that evidently did not happen.

Although the renegotiation began with the Peña administration, President López Obrador gave it its distinctive character, incorporating his own objectives in the new treaty, which are very different from those that motivated the NAFTA, especially in labor and social matters. Many of the USMCA’s ​​most controversial and potentially onerous provisions stem from this vision, in which, for very different reasons, the two governments converge. While for Trump the avowed objective is the protection of the American worker, for the Mexican the priority is to attack inequality and reduce poverty. Through the treaty, the Mexican government intends to promote the modernization of the productive plant with a rationality of social inclusion and protection of labor rights. These are not different objectives, but it is not obvious how they will work out in practice. When ambitious purposes are mixed with limited instruments, the result is not always as expected.

The strangest thing is the use (which will undoubtedly be biased and politicized) of American institutions to force a change in the way of operating of Mexican companies, especially in the organization of unions and the election of their leaderships. The Mexican government intends a triple somersault: to democratize labor relations, to co-opt the new leaders (or to impose them), and to create new electoral clienteles, all through an international treaty where the government of the country on which all this depends has political and protectionist objectives, which clearly have nothing to do with the political logic of the López Obrador government.

Throughout the last quarter century, NAFTA became the main engine of growth of the Mexican economy through exports. When these collapsed due to the 2009 US financial crisis, the Mexican economy fell dramatically, evidencing both the enormous importance of the export sector, as well as the lack of a strategy to accelerate the transformation of the domestic market, to turn it into another powerful engine of development in its own right. However, nothing was done to respond to that obviousness, and this is one thing the new treaty aims to achieve, at least in spirit.

What has not changed on the Mexican side is the need to provide certainty to investors, something that the new treaty no longer guarantees, except for some services. Certainty will now have to be provided by the Mexican government itself, which has not distinguished itself by its willingness or ability to secure it. Without private investment, the new treaty -and any other strategy- will be irrelevant. The real challenge is not Mr. Trump or the potential (probable) law suits coming from the US, but the lack of an internal compass regarding what makes it possible to attract investment.

https://mexicotoday.com/2020/07/07/opinion-panaceas/

www.mexicoevalua.org
@lrubiof

USMCA Becomes a Reality

 Wilson Center, June 29, 2020
Luis Rubio

Fellows and staff from the Wilson Center’s Canada and Mexico Institutes answer questions about the impact of the July 1 implementation of the United States-Mexico-Canada Agreement (USMCA).

Luis Rubio
Global Fellow & Advisory Board Member, Mexico Institute, Wilson Center; President, COMEXI
June 29, 2020, Mexico City, Mexico

NAFTA provided certainty for investors both through its specific investor protections and because it forced Mexican leaders to commit to stay the course on economic reforms. Can the USMCA provide similar certainty today?

The only true similarity between NAFTA and the new USMCA is the fact that both establish rules for trade and investment across the two North American borders. Beyond that, these are two quite distinct legal documents. NAFTA was meant to be a mechanism whereby the United States provided guarantees for investors in Mexico with the objective to accelerate Mexico’s development while deepening the economic ties across the three nations. The ulterior objective was to strengthen America’s border, which stemmed from the notion of Mexico as a primary national security interest. A prosperous Mexico, the then American president argued, is in the best interest of the United States. The primary objective of NAFTA was strategic and political. USMCA is above all a compromise on trade.

USMCA not only eliminates the guarantees for investors but creates disincentives for new capital to flow into Mexico through a series of mechanisms, including very tight rules of origin, severe penalties for labor practices, and (very high) minimum wages for a series of industrial processes. In addition, the agreement incorporates a sunset clause after every six years, a circumstance that hinders long-term projects from being contemplated. Clearly, the two documents pursue different objectives.

Most of the emphasis of the USMCA is placed on both updating the old agreement to incorporate the novelties of one of the fastest-changing periods in history, especially with the introduction of the Internet, online commerce, just-in-time delivery (as part of dynamic industrial supply chains that crisscross the region), and all things digital. On the other hand, the agreement incorporates a series of measures to introduce political change in Mexico, particularly as it attempts to dismantle the old labor-union structures that for decades were one of the staunchest support mechanisms of political stability. Whether the pretense of introducing democracy into the labor arena will deliver what the two governments want (which most likely is not the same thing) remains to be seen. What the López Obrador administration certainly wants is to replace the existing labor structures with his own, to then bring them over as social control systems within its own coalition.

To answer the question in one line, there is no way that the new USMCA will provide for long-term economic growth and political certainty because it is not meant to accomplish that. At best, it will protect, for a while, Mexico’s foremost engine of growth, namely exports of manufactured goods, and not even that is certain. Much ado about nothing wrote Shakespeare. Something similar may well be waiting for USMCA, albeit with much bigger, probably dire, consequences.

https://www.wilsoncenter.org/article/usmca-becomes-reality?emci=33dcecb6-0dbb-ea11-9b05-00155d039e74&emdi=e979ec8d-19bb-ea11-9b05-00155d039e74&ceid=49581

Costly Playthings

Luis Rubio

Oil could have been a blessing -or the curse that López Velarde, a 19th century poet. ordained for Mexicans- but PEMEX is the grand ballast that is sinking public finances and, with these, the country.  The distinction between these is key because it lies at the heart of the energy dispute the country is undergoing today: the State enterprise that monopolizes (increasingly moreso) oil exploitation is not the same as the resource itself. What is crucial is the resource and its clean and efficient exploitation for its transformation into wealth. PEMEX has become a great obstacle to the country’s development and is a burden for public finances that threatens economic stability.

The paradox is that it is the government of President López Obrador that has come most damaged from PEMEX. After all, it is he who anticipated converting the state-owned company into the principal source of economic growth, as in the seventies. Instead of being an endless source of cash, PEMEX is devouring all the monies in the federal budget, affecting health services, the normal operation of the government and even universities. It is imperative to ask whether the President knows that he confronts a bottomless barrel and before the risk of losing investment grade on its debt that is crucial for the stability of the government’s finances.

The picture is clear: PEMEX is the world’s oil company most deeply in debt; its production has been declining over the past decades; and its operation is highly inefficient. The debt is extremely high and has been wasted in subsidizing gasoline, transfers to the government, and bad investments, such as Chicontepec. This besides its endemic corruption.

In terms of production, according to what experts in the sector tell me, PEMEX’s great fall from grace, or bad luck, was to have come upon the Cantarell oil field, because that field was so productive that no one worried about developing other possibilities or about training personnel for a time of less abundant exploitation. While Cantatrell lasted and oil prices were high, no one cared about the company’s inefficiency: when the cost of producing a barrel was, for the sake of argument, twenty dollars, and  was sold at one hundred, at a nominal profit of eighty dollars per barrel, frittering away two or three dollars on bad practices or corruption seemed irrelevant.

Now, the government possesses no more fiscal space for defraying the costs of basic functions and financing its pet projects due to its elevated debt and high interest rates. This is not the case of 2009 in which the federal debt was less than 30% of the GNP and the hydrocarbon reserves were substantially superior to those of today. Nor is it the case of the seventies when the reserves grew like foam, driving the rest of the economy with unusual demand for steel, pipes, cement, highways, etc.

Among the detractors of the energy reform undertaken by the previous government there is a clear propensity to view it as an ideological obsession. Seen in retrospect, what in reality that administration intended was something very distinct given that it clearly recognized PEMEX’s grave situation. Its objective was to develop the industry beyond PEMEX in order to generate a greater cash flow toward the economy in general.  That is, its objective was identical to that of President López Obrador, except that they did not want to continue to depend on an inefficient company, without the most advanced technology and, above all, while running excessive risks in the development of new oil fields. The fact that PEMEX is a partner in practically all private projects arising from the reform indicates that it is not being marginalized but rather protected.

The crucial point lies in what is important to Mexico is that those resources be utilized in the most efficient and multiplier manner possible. What the country possesses is an enormous source of potential wealth, and nothing more. What matters is not who exploits the resource but that it is exploited to achieve the benefit. However, counter to AMLO’s objective and to what is established in the Mexican Constitution, the government is sacrificing programs and fundamental functions to maintain the state-owned enterprise afloat. What PEMEX needs is to clean up its operation, not having subsidized its inefficiency.

In an ideal world, the true rescue of PEMEX would involve reconfiguring the refineries, adjusting labor costs and renegotiating the financial and labor liabilities of the company in order for these to match the real cash flows of the entity. That is, instead of continuing to infuse thousands of millions of scarce dollars into PEMEX, the entity’s finances would have to adjust to its productive reality and, once that is done, its debt would have to be renegotiated with the banks and bond holders. And, without doubt, part of the renegotiation would inexorably require reconsidering the taxes, explicit and implicit, that the government charges the company.

The point is that PEMEX should become an entity devoted to exploiting oil resources and not to be a source, as before, of federal government subsidies and, currently, of liabilities. The true rescue of PEMEX consists of cleaning it up. The recession obligates reviewing these costs and, simultaneously, renders it possible. Failing that, the financial markets will surely show the way, at an indescribable cost.

https://mexicotoday.com/2020/06/30/opinion-costly-playthings/

www.mexicoevalua.org
@lrubiof

 

 

Can He Win?

Luis Rubio

In democracies with re-election, the advantages for the incumbent are more than evident. However, I daresay that, for now, many months distant, the U.S. presidential election is Biden’s to lose, provided he knows how to win it, which is certainly not obvious.

Joe Biden is the virtual winner of the Democratic Party nomination to a great extent because that party’s Establishment concluded that the only way of winning over today’s President Trump would be with a moderate candidate who could commandeer the political center. Biden has never run for office outside his (tiny) home state of Delaware and this is not the first time he has embarked upon the presidential candidacy: in the eighties he tried and failed in good measure due to his proclivity for being careless with his words, above all when responding to the press. In plain language, he tends to put his foot in his mouth. In the primaries, Bernie Sanders, the Independent senator from Vermont, was ahead, above all driven by the young and the more ideological vote of the party. Biden’s challenge now is to win over the Sanders base without threatening his standing with the political center. Not easy.

Elections have two components: the candidates and the context. President Trump has three great advantages and one enormous disadvantage. The first advantage is the very fact of his already being in the presidency, with all of the benefits that incumbency grants him, in addition to that he is well funded and nobody is contesting the nomination vs. a divided Democratic Party. The second advantage, a particularity of Trump’s, is his virtual control of the process of the primary election of representatives and senators through the hordes of believers he can manipulate. In the primaries, there is typically the participation of a very small number of party members, usually the most ideological of these, those who, in the case of the Republican Party, see in Trump their star (similar to the case of Sanders on the Democratic side). Finally, the third advantage is that the Republican Party is adrift at present, without ideas, a political project of no greater clarity than that of staying in power. The great disadvantage, unusual for an incumbent, lies in the moment at which the election falls: midway during the pandemic, the recession, the hugely damaging protests, and an uncommon level of unemployed, the latter a frequent indicator of the probability of re-election.

Biden also has advantages, but his disadvantages are equally pronounced. The first advantage, superlative in the entire “modern” or blue part of the country, is that he is not Trump. In reality, outside of his family, no one cares about Biden: everyone sees him as a means of defeating the President and nothing more. That confers on him massive popularity but turns him into an easy target just as well. The second advantage is that he has an energized party, decided on beating Trump but, at the same time, split between those desiring to accelerate the pace toward the Left, the political base of Sanders and Warren, and those who think the only way to win is moving toward the political Center to gain the vote of groups of independent electors. Perhaps the best example of this were the so-called “Reagan Democrats,” individuals who had normally cast their votes for Democrats but who, when that party shifted too much to the Left, voted Republican. Those “Independents” are unhappy with both candidates and might even stay home on Election Day rather than support a Biden who moves to the Left, leaving him in a bind: consolidate his Left flank (precisely those who stayed home and did not vote for Hillary in 2016) or move to the center of the spectrum, above all in the key battle ground states that gave the win to Trump in 2016 such as Michigan, Pennsylvania and  Wisconsin, as well as key groups of voters in those states, including  Hispanics and Afro-Americans. The positions that Biden adopts during these months as well as whom he nominates for Vice-President will define his strategy and, with that, his probability of winning.

Biden’s great disadvantage is Biden himself. His age, frequently politically incorrect reactions, and his apparent loss of focus in many of his responses render him overly vulnerable. He clearly counts on the protection of many in the media that, within such an ideologically polarized context, have often ignored his blunders, but it is not obvious whether that is sustainable. Thus, whoever is nominated for the Vice-Presidency will be key because it is not inconceivable that this individual will in the last analysis ascend to the Presidency. The Party powers have profiled a composite of who should occupy that position, essentially an Afro-American woman. There is no lack of potentially good candidates, but what is politically correct is not always electorally useful. Therefore, that nomination will be a defining element for the upcoming November election.

As concerns Mexico, what is important is the relationship with the United States, not who wins the election. People –of both sides of the border- change, but the relationship and the neighborhood are permanent. History demonstrates that what matters is not who, but the fact of not losing clarity of what is important. Every time that truism is mislaid the problems start.

https://mexicotoday.com/2020/06/23/opinion-can-he-win/

www.mexicoevalua.org
@lrubiof

Blame Politics for Mexico’s Recession, Not Just the Pandemic

Luis Rubio – Americas Quarterly – June 10, 2020

Mexico
Blame Politics for Mexico’s Recession, Not Just the Pandemic

The economy was shrinking long before the virus arrived.

MEXICO CITY – The president of Mexico, Andrés Manuel López Obrador, has argued that the coronavirus crisis “fits like a glove.” He never clarified what he meant by that, but the pandemic came at just the right time to provide yet another excuse for the failures of his administration. Only mirages do not last – much less when they involve millions of unemployed people with no source of income or support.

The easy part is blaming something rather as unfathomable as this virus for the deepening of a recession that started a year ago and for the ever-growing political rift provoked and accelerated. The question is what comes next. The more complicated part dwells in addressing the tough structural issues that lie at the core of the president’s presidential bid, like poverty, corruption and low rates of economic growth, all of which were the centerpiece of his campaign promises.

The current recession poses a peculiar challenge for a president with fixed and unchanging ideas and the inability to adjust to a radically altered scenario like a global pandemic. One of those is López Obrador’s conviction that Mexico cannot incur a fiscal deficit for fear of provoking a financial crisis. History supports that belief, for every time the country has spent beyond its means it ended in a major crisis. The problem today, though, is that Mexico is immersed in a deep crisis that nobody can blame on the administration, but for which the president has no answer other than to stay the course – a strategy that had already led to recession long before the virus struck.

López Obrador has a very clear vision of where he wants Mexico to be at the end of his term, but he lacks a plan to get there. His deeply held belief that Mexico erred its way when it began to liberalize and reform the economy in the 1980s is key. From his perspective, those reforms eliminated the factors that made it possible for the economy to grow at a high and steady pace and for society to be orderly and with no violence. The nostalgia for the 1960s and 1970s frames his view of the world and every action he has taken since assuming office has been oriented towards recreating the formidable presidency of that era.

Hence, he has swiftly proceeded to eliminate or neutralize checks on executive authority (like the entities charged with regulating energy), weakening the Supreme Court, subordinating economic decisions to political fiat, and strengthening the sources of wealth of that era, namely oil. His project is not ideologically driven: López Obrador means to recreate an era that may have worked well due to the circumstances, both domestic and international, decades ago but that have long ceased to be functional. And now, as the president tries to centralize and exert control over everything, he increasingly faces the opposite: the more he controls, the more things fall apart.

Complicating the picture is the nature of the coalition that López Obrador assembled to win the presidency, namely his Morena party, which includes groups from the extreme-left to the extreme-right. Morena incorporated former guerrillas, members of both PRI and PAN parties, dissident unions, the remnants of the communist party, Trotskyites, small businesses and youth organizations, plus iconic figures from all corners of the political spectrum. The result was a formidable coalition with no structure or organizing principle, whose only unifying principle is López Obrador himself. Morena’s supermajority allows the president to manipulate Congress at his pleasure. Many see Morena as a revolutionary movement that wants to undo the existing socio-economic foundation of Mexico, and they are certainly right, but in practice it functions more as a collection of agendas with disparate interests rather than an organized party.

Since 2016, with U.S. President Donald Trump’s systematic attacks on NAFTA, the key factor in Mexico’s relative economic success of the past three decades, new investment projects had already started to die down. And recovery is unlikely while economic decisions continue to be subordinated to political power, a point where AMLO has actually delivered: the cancellation of a new Mexico City airport, the annulment of a permit for a brewery already two-thirds built, coupled with permanent attacks on “the rich” and private investors. While Mexico is ideally placed to benefit from Trump’s trade war against China, it is unlikely it will harvest any benefits because of the uncertainty the administration keeps nurturing.

Mexicans are in for a ride. The most optimistic forecast for economic performance in 2020 show a contraction of 7%. The most optimistic forecasts for next year show growth of 2% – a two year net contraction of 5%. In the absence of new investment and of spending power from a battered population, the economy will not improve anytime soon.

That does not mean Mexicans are simply lying down. Governors are calling for a renegotiation of the “federal pact,” where the main feature is the way tax monies are distributed among states and the federal government. Civil society is also active: ever more civic organizations are developing solutions to everyday issues; large private sector organizations took the initiative to contract loans with the Inter-American Development Bank to support small firms badly affected by the recession. Social activism, though still far from ideal, is breaking with the historical mold. Anything could happen.

The government’s margin to maneuver is much more limited than the president seems to believe, and it is not obvious that society is ready to become the steadying force that Mexico’s future demands and requires, but the opportunity is exceptional. What is more certain is that four more years of institutional destruction like the one fostered by the president may bring Mexico back to the Stone Age.

 

ABOUT THE AUTHOR

Rubio is chairman of the Mexican Council on Foreign Relations. He writes a weekly column in newspaper Reforma, and is the author and editor of dozens of books. His most recent book, Unmasked: López Obrador and The End of Make-Believe, will be published on July 23rd by the Wilson Center.

@lrubiof

https://www.americasquarterly.org/article/blame-politics-for-mexicos-recession-not-just-pandemic/