AMERICAS QUARTERLY –
BY LUIS RUBIO | JULY 9, 2019

 Mexico

Carlos Urzúa’s unexpected decision to step down as treasury secretary was a warning – will AMLO listen?

MEXICO CITY – In all my decades observing Mexican politics, I have never seen a public resignation like this one.

On July 9, Carlos Urzúa announced in a letter that he was stepping down as Mexico’s treasury secretary. The letter was explicit, forceful, scathing, and above all revealing. Mexican officials usually resign for “health reasons.” Urzúa chose to send a warning: This administration isn’t working, and I don’t want to be stuck on a sinking ship.

Urzúa’s letter included four critiques of Andrés Manuel López Obrador’s government. First, that decisions are made without proper analysis or evidence. Second, that Urzúa was being forced to resign not as a matter of ideology, but over fundamental concerns about public finances. Third, that officials without the requisite knowledge have been tasked with managing essential government functions. And fourth, that there are patent conflicts of interest within the government’s team.

The trigger for Urzúa’s resignation was not immediately clear, but on those four points the letter leaves little room for speculation. It therefore offers a window into how this administration operates. Clearly, the problem revealed in Urzúa’s letter does not lie in alleged differences between left and right or so-called moderates and radicals, but in a lack of economic and financial rationality behind decisions that are being made.

Demonstrations of this dynamic abound. The National Development Plan, for example, was published in two parts: one an ideological exposition proffered directly by López Obrador, and the other a more traditional financial approach drafted by the office of the treasury. That López Obrador discounted the importance of the treasury’s version was, in hindsight, a sign of things to come.

In this sense, Urzúa’s letter is more about López Obrador specifically than about any possible conflict within the Cabinet. For López Obrador and the markets, this is strike two (whether he realizes it or not); the first was the cancellation of his predecessor’s airport project.

Naming Arturo Herrera, a deputy under Urzúa, as the new secretary was an obvious choice. Like Urzúa, Herrera knows the president well and has worked with him in the past. The two economists’ histories with López Obrador are nearly identical. But they differ in two important ways: First, Herrera has experience in the field of international financial organizations, having worked at the World Bank. Second, Herrera is more inclined to say what he thinks.

A few months ago, in an interview with the Financial Times, Herrera said that a new refinery project at Dos Bocas was not financially viable. He knew full well that López Obrador would offer a rebuke, but made the comments anyway – true to his responsibilities as the deputy secretary.

So what comes next? Urzúa’s letter is so directly aimed at López Obrador that the president cannot avoid seeing it as a warning: the risks that the administration is taking through its behavior could well lead to financial catastrophe. This is not about the growth rates, but essential financial stability.

In the first months of López Obrador’s administration, it is the financial markets that have maintained stability in the exchange rate. The question the markets will be asking themselves now is not whether Herrera is the right person for the job – but rather, if things go wrong, who might possibly replace him?

It’s possible that the immediate issue that led to Urzúa’s resignation was over Pemex, the state oil company. The administration is due to present a financial plan for the company in the coming weeks. It is now up to Herrera to convince financial markets that things will improve under his watch. Herrera’s stricken facial expression as he was announced as Urzúa’s replacement suggests he knows what lies ahead. But if he succeeds, it will mean López Obrador has understood the risks inherent to ill-conceived decisions. The proof will be in the pudding.

https://www.americasquarterly.org/content/amlos-wakeup-call

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.

Luis Rubio

All governments blame their predecessors for the woes that they find or for those with which they cannot deal. No novelty here: this is not my problem, but that of my predecessor. AMLO is an exception to this in not reproaching a government, but instead an entire generation –three decades of presidents and functionaries- for what he does not like. His problem today is that, after a prolonged campaign to destroy whatever existed, he is now the one and, however much he finds faulty with others, the responsibility is his.

Candidates are measured by their promises and intentions; presidents are responsible for the results. AMLO vowed to change the reality and now finds himself confronted with the dilemma inevitably present in everyday affairs: from insecurity to economic growth. His electoral victory was due to that he focused his campaign on things that bothered the electorate –such as the corruption, the incompetence, the violence and the unequal economic performance- all of these matters that plagued his antecessors and that, it is evident, they did not resolve. Now AMLO, who is government, has no excuse: the ball is in his court.

The era we live in adds an additional level of complexity because of the inexorable tension that exists between the decisions of the electorate and the instruments within reach of a government to act in the real world, particularly in economic issues.  The voters responded to the pledges of the candidate and hoped that he would comply with them, but complying in the globalization era is highly intricate because it requires the support of the population as a whole.

By nature, candidates guarantee the moon and the stars: some do this with strident rhetoric, others with irreducible oaths; still others attack their antecedents and make the electorate believe that it’s all is a matter of will and conviction. But, in the last analysis, they all end up facing the same challenge: in the digital era, no government controls all of the variables and the performance of the economy because the world is interconnected, technology advances at the speed of sound and   provides access to all of the population to information sources that exceed the capacity of the government to control.   Worse yet, as much as a government amasses sources of control, centralizes power and imposes itself because of the diverse interests and power factors in its society, nothing ensures the favorable economic outcomes that are the most immediate parameter for measuring success or failure for the citizenry.

The dilemma is real and is not limited to Mexico: how to render compatible the population’s legitimate claim to see the problems afflicting them, that is, the reasons for which they voted for a determined candidate to solve, before a globalized, integrated and interdependent world in which decisions do not respond to the logic of the internal politics. This latter results in the fact that investment is, in the words of the lawyers, fungible: one can go to any part of the world and it’s the same whether one decides to live in Morelia, Shanghai or New York.

There are presidents who manage the dilemma and adapt in order to advance as much as possible, while others stubbornly cling to their positions, at whatever cost. The greater the obstinacy, the worse the results because promising is easy, but achieving results and satisfying voters is difficult. This phenomenon is magnified when the president creates and multiplies the number of enemies each morning.

The AMLO style of governing is not conducive to improvement. The time for acting jarringly, generating conflict and confrontation, culminated July 1^st, 2018 for the simple reason that campaigns call for pettiness, but the exercise of the government demands acting equitably for all, in that only with the collaboration of everyone it is possible to go forward. However, AMLO is devoted to systematically increasing (and terrifying) those who appear on his black list of guilty parties and adversaries; discrediting members of his cabinet and ignoring his own advisors, in addition to exploiting resentments and frustrations, without building anything that could come to satisfy the population’s demands, protestations or necessities.

It is evident that only with actions likely to solve the existing problems would it be possible to respond to his base with results. He is not engaging in any of that.

What is important to the electorate –the same for his as for that of that he loathes as “conservative”- is the result of the daily operation of the government. As illustrated by the gradual diminution in the numbers of the President’s popularity, one thing is the election and another, very distinct, is the exercise of power. His quandary is whether to continue employing the pulpit to attack those branded as “adversaries” or to build with them to achieve results.

To win an election it is necessary to attack, but to exercise power generosity and competence is indispensable. In reference to Alan Greenspan, the central banker blamed for the 2008 crisis, a politician in his country summed up the dilemma bluntly, applicable at present to AMLO: “If you get credit for the sun, you can’t bitch when you get blamed for the rain.”

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@lrubiof

Luis Rubio

In her autobiography, African-American anthropologist Zora Neale Hurston writes that “it is no longer profitable, with few exceptions, to ask people what they think, for you will be told what they wish, instead.” That is how we are at present in Mexico: advancing preferences and desires instead of building opportunities and possibilities.

The matter is not one of preferences, but rather about the policies which could lead to much higher rates of economic growth and equitable development. Concentration of power is neither good nor bad in itself because it could as well lead to the creation of auspicious conditions for a more balanced development as to a new economic or political disaster.

To start with, growth depends on investment and it is not growing. The problem did not just begin but in 2016 when, in his campaign, today’s President Trump threatened the permanence of NAFTA. That threat was –and continues to be- much more serious than is generally recognized, because the key factor in attracting private investment to the country over the last three decades has been that agreement, on engendering a political, legal and regulatory framework for investment.

A government can be hard or soft in its conduct, but it cannot force the population to save, consume or invest. Those latter actions take place when individuals make voluntary decisions within the economic and political context in which they are found. This context determines the propensity of the citizen -as a saver, entrepreneur, investor or consumer- to contribute to development and that depends entirely on the factors that justify their confidence in the future. This is exactly the same for a family considering the acquisition of a refrigerator, for a worker pondering the purchase of a bicycle to get to work more rapidly or for an industrial megaproject. The reason that NAFTA was so important does not lie in its technical content, but in the political certainty that it provided.

A second component of investment is the public expenditure. Part of the reason that the Mexican economy grows so little, especially in the nation’s south, is the lack of public investment, above all in infrastructure. A business cannot be installed where there are no highways, railroads, or ports or services (such as electricity, water and drainage and, obviously, security), under adequate conditions. In addition to the political and union-related obstacles that plague the south of the country, an extremely old, inadequate and insufficient infrastructure is found. Successive governments have opted for ever increasing current spending, cutting back on investment expenditure, which has condemned the country to low growth rates. The present government follows the same strategy: although it is changing the expenditure rubrics (reducing salaries and programs to build clienteles), the absence of public investment remains the same. The result will not be distinct and could be worse.

Private investment might substitute public investment in many instances, but those possibilities have been truncated, as illustrated by the case of the Mexico City airport. That project promised to be a magnet of attraction for other investments and services, originating further sources of growth and employment. What is relevant is that its cancellation, in addition to the message conveyed, is going to be expensive in that the costs must be paid in exchange for nothing, while it simultaneously constitutes an exorbitant opportunity cost. It is equivalent to all of the infrastructure not constructed in the south of the country. Still worse will be dispensing billions of dollars on a refinery that is not required, which does not create wealth or jobs and that does not contribute to attracting private investment: it is a blunder of incalculable consequences. It is, above all, the worst use of scarce resources and, as the economists say, one without a multiplier effect.

At the start of the eighties the country found itself in a debt crisis that submitted the economy, and the society, to more than a decade of instability, inflation and uncertainty. The debt overwhelmed any project or opportunity because it impeded any action or investment. Everything was paralyzed and any circumstance exacerbated the panorama, as occurred with the 1985 Mexico City earthquake. In the end, the way out found was in the construction of institutions that became sources of trust and stability, such as autonomous entities –of competition, the National Electoral Institute (IFE), those of energy and telecommunications- until arriving at NAFTA.  Each of these elements –some more structured, others more costly, but all oriented in the same direction- they all ended up building political stability and providing a context prone for the attraction of private investment and, with this, economic growth in some regions of the country.

The privations are evident, but advancement cannot be executed ignoring the factors that make, or would make, growth possible. It is clear that many adjustments and corrections are required, for which the current government has earned exceptional legitimacy that, everything indicates, it is going to waste, one more time. Worse, destroying the factors that have favored stability and investment is self-destructive and, at the end of the day, suicidal.

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@lrubiof

Luis Rubio

Argentina began the twentieth century with the highest GDP per capita in Latin America, very similar to that of the United States at that time; a century later, the South American nation is in the 53rd place. As an Argentine friend says, “whoever says things cannot get any worse, does not know Argentina,” a nation that seems to have dedicated itself, in a systematic way, to undermining its possibilities of developing, decade after decade. There are many hypotheses about the causes of the decline, but one evident has been the polarization that, since the government of Juan Domingo Perón in the 1950’s, became the norm and, to a large extent, the essence of its permanent political confrontation. I wonder if Mexico does not run the risk of falling into a similar vicious circle.

Perón was a genius communicator, which he used as a means to incite the population to confront, express their resentments and seek enemies of the people. The existence of a unique truth that explained history and everyday reality allowed the South American caudillo to polarize society and build a deep and lasting base of support. However, the consequence of his strategy was the permanent polarization of his society and, economically, its systematic impoverishment. Argentina has everything to be one of the richest nations in the world -a European society transplanted to one of the regions with more natural resources in the world- but has had the misfortune of living in permanent conflict. Three-quarters of a century from Perón’s time, Argentina remains a nation of constant ups and downs.

The great risk of López Obrador’s strategy lies in its potential to turn Mexico into a permanent loser. I am certain that this is not his purpose or his vision; on the contrary, his point of departure is that Mexico missed the boat in recent decades and that it must correct the course in order to build a new and better future. In this, his vision could not be more different from the one Chávez followed; however, his strategy of confrontation, which is an essential part of his political vision, entails the risk of paralyzing the country and reversing the things that do work, a scheme more similar to the post-Peron Argentina than to anything that Chávez ever tried.

AMLO believes in confrontation as a strategy in an era radically different from that of Perón. Héctor Aguilar Camín describes him this way: “He does not negotiate, he fights, but to negotiate on his terms. He does not have aversion but is rather attracted to conflict, but in order to make a pact… He feeds on confrontation, to attract adherents and agreements. But he has his own, unmistakable, voice that creates political realities… He is, by nature, a politician of protest and confrontation…”

A similar strategy led Argentina to an era of crisis that has been going on for more than half a century, with the enormous difference that the economy of that nation in the middle of the 20th century was protected from the outside and there was nothing like the context of globalization that today characterizes the world. The protected Latin American economies of the middle of the last century, dedicated essentially to the substitution of imports, had both economic and political characteristics that gave their governments enormous latitude of action.

To begin with, these were economic schemes that sought to minimize trade with the rest of the world and, in general, rejected foreign investment or limited it to certain sectors. Second, there were no instant communications like the ones that are now prototypical. Entrepreneurs could produce expensive and shoddy goods and the consumers had no alternative to satisfy their needs. In this context, politicians could impose laws and regulations as they pleased, knowing that society had no options. The government was in charge and determined the well-being, if any, of the population.

The reality of today is exactly the opposite. Today the consumer has infinite options, the prices of the most essential goods have decreased in real terms, after inflation; companies have to compete with their peers in Mexico with those from the rest of the world; and the government, If it wants to achieve high growth rates, would have to dedicate itself to attracting investments from both inside and outside. A strategy of confrontation in this environment creates uncertainty and leads to the alienation of the investor and, therefore, to the recession of the economy.

The nodal characteristic of nations that grow and are successful is social cohesion and consensus, which makes it possible to attack the ills that afflict Mexico, such as poverty, economic stagnation and violence. Wherever one looks, what stands out in nations like Chile, Colombia, Spain, Taiwan or Singapore is a clear vision for the future. Their politicians go out of their way to project a successful nation and seek the broadest support of the citizenry.

The strategy of confrontation involves the enormous risk of leaving a legacy of resentment, polarization, restlessness and crisis, decades after the end of the current governmental period, a scenario that neither the president nor any Mexican could welcome.

www.cidac.org

@lrubiof

Luis Rubio

In one of the final episodes of The Simpsons, the soporific and befuddled octogenarian Abe is recruited to cross the picket line and break a strike at a nuclear plant. His tactic: to confuse, if not to lull, the strikers by telling them stories that make no sense at all so as to exhaust them and, finally, to beat them. This is what the PRI governors look like before AMLO: overwhelmed, lost and defeated.

If something is evident after observing the way politics and business work for long periods this is that the ones who survive are those that have a clear sense of direction, understand the context and do not get lost among the trees. Those who understand the forest have the opportunity to overcome even the most powerful or the most incompetent because the alternative, being carried away by the current, always leads to bankruptcy or disappearance.

What is so obvious seems to elude the PRI governors who go blindly to the gorge that the Pied Piper of Hamelin, now resident of the National Palace, has marked to them with such skill.

The PRI has been the most important quarry of politics and politicians in the country. There’s virtually no person of power in Mexico that has not emerged from their ranks or was formed in their school of politics. For decades, that party was the vehicle -quite successful at that- for the construction of the country in the post-revolutionary era and it did so with the instruments and methods of the time: loyalty and corruption were not only prototypical characteristics but inherent and foundational. Its success was also the source of its growing erosion because everything works until it runs out.

In 2000 the citizens opted for another party and the PRI found itself, for the first time in its history, an orphan. In the following twelve years the PRI members played a fundamental role as responsible opposition and, in fact, made it possible to preserve the stability of the country; however, they did not use that time to transform themselves. In 2012, they returned to power under the banner of a “new” PRI, which brought nothing new but flagrant -and very visible- corruption and the arrogance of power, all incompatible with the era of social networks. Difficult to understand such a backward transformation, towards its origins, instead of responding to the demands of the 21st century. The citizenry’s verdict of 2018 says it all.

Now PRI members have two very simple and clear options: try to rebuild or succumb to the song of the Lopez Obrador sirens. There is no other choice: they either accept the path (or the trap) that AMLO has laid before the governors (probably in exchange for budgetary allocations) to join the “great transformation” that the president hoists in the form of the “4T,” or go back to the arduous task of rebuilding with the hope (because there is not much else) of creating a new party, one compatible with, and visionary for the national and world realities of this so convoluted and complex era in which we live.

It is easy to understand why the presidential appeal is so attractive to the governors. First of all, because it is a comfortable way out: why build something new if you can live grandly in the short term. Secondly, the easy exit does not involve confrontation while it does solve the problem of daily operation. If the Elías Calles or the Cárdenas of their time had thought like these low-life politicians, Mexico would probably have ended up like the fragile economies and societies of many Latin American nations.

Instead of debating the institutional reconstruction of the country, to which a transformed PRI could contribute so much, the PRI members are mired in an endless and useless conundrum about the number of militants that the party has which, it appears, they cannot get certified by the INE, the electoral authority. Without such certification, they could end up mired in an endless post electoral squabble, which would turn them into the laughingstock of the citizenry, justifying the scorn and contempt enjoyed by the party among a good part of the electorate. That is why the method they choose to pick their next leader is so important.

The method matters for three reasons: first, because they must achieve at least one objective forcefully: that there is no dispute about the result. Today there is certainty that an election not certified by the INE would lead to a dispute, which could arise from either the probable manipulation of the votes or from the vulnerability of an unreliable voter registry, potentially sanctionable by the INE. Second, what the PRI -and Mexico- require is a party that builds new institutions and becomes a credible contender for the future. A party subordinated to the president would hardly fulfill that task but that is what the governors are advancing. Finally, an indisputable method would confer legitimacy on a party that, because of its history and capacity, could be a future ruler but that, should it continue the way it´s going, it will face its demise.

The election this past June 2 showed the PAN as the big winner (or the least bad loser) because it has been consistent in its posture, thus becoming the stronghold of the opposition. There’s a lot that PRI members could learn from what citizens are observing and how they are behaving. As Jimmy Dean would have it, they “cannot direct the wind but we can adjust the sails.”

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@lrubiof

Luis Rubio

The letter sent by President López Obrador to President Trump can have many readings, but one great certainty: it is a document designed from and for domestic political purposes and, in those terms, it has been a great success. In addition to the popular support behind the president, which has been massive from the beginning, he can now boast of having the sympathy, if not necessarily the recognition, of a large part of society -businessmen, opinion leaders and critics- who have not been close to him. The success is remarkable. Capturing the new tone, one commentator said that “Trump managed to turn AMLO from a leader into a statesman.” The support is undeniable. The question is whether that solves the problem.

The context is fundamental: in the ten months that AMLO has (de facto) governed, the central characteristic has been confrontation in a highly divided country. The attack strategy used by the president has paid off, but it has been sustainable only because the international financial markets, in contrast to other eras of the country’s politics and economy, have been indifferent to internal discussions. While exports keep flowing, the interest rate differential remains high and the rating agencies ignore their own admonitions regarding the Dos Bocas refinery and the Mayan train, portfolio investors see no reason to change their strategy, which has been very profitable to date. Trump’s recent actions might well change that equation, as the downgrade of Mexico’s debt illustrates.

In “One Hundred Years of Solitude,” Gabriel García Márquez, a bit like Plato, creates characters that inhabit parallel worlds that, although they are seen, never come close. The famous magical realism described by the Colombian authror does not seem very distant from the events of the last days. Trump, another character of an equally sorcerous realism, managed to combine two obsessions in a catastrophic way for Mexico. His prejudice that trade deficits are bad and harmful to the economy is well known, but now he combined it with the issue of migratory flows, perhaps the most transcendent element in his 2016 electoral strategy. It is clear that, for Trump, the latest threat is a perfect foundation to launch his campaign for re-election. Each side in its own magical realism.

Whatever the future of the tariffs or the campaign, the impact on Mexico could be enormous. The true asymmetry in the relationship does not lie in the power of each of the two governments, but in the disproportionate impact that any measure coming out of the US government has on Mexico: while a Mexican-government decision amounts to nothing more than a little whisper -a drop in the bucket- to the American economy, almost any action by the US government has inordinate consequences for Mexicans. The sheer threat of tariffs caused a devaluation of more than 3% in one day, a pattern that has been not only historical, but especially characteristic of Trump’s actions since his presidential campaign three years ago.

The problem with Trump’s most recent tactic for Mexico is that it attacks, at one blow, the three key elements of the country’s stability. First, his threat of imposing increasing tariffs, damages the export sector, Mexico’s foremost engine of growth; second, the instability of the exchange rate that the tariff threat has generated reduces the attractiveness of portfolio investing in pesos now with a reduced differential in the peso-dollar interest rate; and, thirdly, the pressure on the rating agencies can only increase, since two of the key vectors in their considerations -the infrastructure projects that they consider impossible to finance and the exports that guarantee the flow of dollars- now play in the opposite direction. And the worst thing is that there is not much that the Mexican government can do about it in the time allotted.

At the same time, all Mexicans know that their government has been promising actions and responses to the migratory flows for decades and has done nothing about it. Throughout that time, the promises flowed but the actions were non-existent; since there were never any consequences to inaction, Mexicans always pretended that this was nothing more than a game of mirrors. The extreme was the current government that not only did the same as its predecessors, but also granted work and transit visas to migrants, creating an incentive that led to a sudden and huge growth in those flows. At the worst moment: with Trump.

The moment is propitious for a re-channeling of internal politics. The president has managed to generate, largely thanks to Trump, a truce in domestic politics, which confirms his own saying, even if in reverse, that the best domestic policy is the best foreign policy, a frequent recourse of past Mexican governments in cases like Cuba. The opportunity in the president’s hands is extraordinary: he now has the upper hand and could use it to either persist in his divisive strategy, which would be certain to provoke the rating agencies, or he could use it to redefine his strategy as a leader of all Mexicans, making it possible for himself to become the transformative factor that the country needs and with which he has long dreamed. The opportunity is unique and extraordinary and, hopefully, it could help prevent the worst consequences that the conflagration of Trump’s actions and AMLO’s current government strategy would otherwise bring.

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 Luis Rubio

There is no more pressing problem in Mexico than the stalemate between the capacities of the government (federal, state and municipal) and the requirements imposed upon on it by the government itself than the urgency of procuring development. Thanks to the differences between the government’s real capacities (increasingly fewer) and the demand for security, services and answers, the country has been incapable of advancing at a perceivably greater rhythm. Mexicans have a government –in reality, a system of government- that is very incompetent and that does not serve for making the growth of the economy possible, that does not attract investment, and that does not solve the problems affecting the population and that discourages development in general.

The problem in not exclusively Mexican, despite the former having acquired exceptional dimensions. Technological change, the forces unleashed by economic liberalization, the brutal pressures and the power accompanying the narco and, in general, organized crime, are all factors that have contributed to deteriorating the governing capacity in innumerable nations. In Mexico, the problem become worse due to the way that the system of government was constituted from the end of the Revolution, that is, as an entity less devoted to attending to the needs of development than to preserving the peace and responding to the demands of the beneficiaries of the status quo arising from the latter. The collapse of the PRIist governments in 2000 did not coincide with the forging of a new governing structure for a country that had been transforming itself, albeit only partially. Authoritarianism took its leave but a better government did not make an appearance.

Many countries have gone through a complex process of transformation but few have ended up transformed, to a certain extent rendering those which have achieved the engendering of a profound change in their social, economic and governmental framework more remarkable. In our hemisphere, many countries have undergone a traumatic process of change,  but only Chile can say that it has transformed itself, although Colombia is catching up to it little by little.

On studying India, the extent to which it has advanced is noteworthy, as is the enormity of what remains for it to do. More than an elevated growth rate or the dozens of millions of Indian citizens emerging from poverty to integrate themselves into the modern world, the extraordinary thing about India is the (gradual) transformation of its capacities to govern, thanks in good measure to the use of technology. Instead of attempting to copy the way other nations have been able to accelerate their rate of economic growth, India has opted for a very distinct process, whose future has yet to be decided.

The use of technology has been an especially interesting element. Some years ago a biometric registry of the entire population was conducted, a process not at all simple in such a large nation, with a majority rural population and more than thirteen hundred million citizens in all. Once the census was formulated, the country was suddenly able to count on a mechanism that allowed for the identification of the totality of the population and localizing it geographically. From that there was the creation of the Unified Payment Interface (UPI) that entertained the virtue of permitting a person to pay another or a company with the use of a number emanating from the biometric base and its respective password. This apparently small detail has permitted the elimination of red tape and intermediaries (with their commissions), for facilitating a sole domestic market, something that seemed impossible only a decade ago.

This payment system has permitted the inclusion of the totality of the population in the financial system nearly with solely a punch of a button. In the same manner, it has made possible the provision of health and educational services (a process that has only just begun) in the most remote places. The wireless communications network (with more than one billion mobile phones registered) contributes to the modernization of the exchanges of goods and the introduction of a program dedicated to the improvement of all of the abilities of the adult population,  favoring the growth of productivity. The government has been improving to a great degree because the government has stopped simply sitting around in order to engage in creating conditions for economic growth.

Whoever has visited India knows well that it is an extremely poverty-ridden nation, with a per-capita income only a fraction of the Mexican one and enormous privations, in addition to the huge problems deriving from its own exceptional ethnic, religious, political and linguistic complexity. However, what is striking is the enthusiasm of the population in advancing, improving and entering into a new stage of development: the Indian population has imagined a successful future and has decided to erect it.  All of this has been possible in good measure due to the clarity of purpose of their recent governments, which have focused the existing resources on creating conditions for growth. Mere common sense.

India’s current problems are those that have produced a highly disruptive process of institutional and economic change, much the product of the accelerated growth throughout several decades. It’s the kind of problem Mexico should wish for.

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@lrubiof

WilsonCenter Mexico Institute
Luis Rubio

 There was a time when the United States understood that its foremost national interest lay in having a prosperous, successful neighbor. That stood in stark contrast with the traditional Mexican perspective, which saw the US as the country’s foremost foe. NAFTA made it possible to align both nations’ interests and helped transform Mexico’s economy into an export powerhouse, benefitting most Mexicans. Clearly, not everything in Mexico is good or even desirable, but there’s hardly a doubt that the country has undergone a dramatic transformation over the past four decades. NAFTA’s renegotiation is far from perfect, but it responds to both the changes the world and technology have brought about, a well as with the political realities of the United States today.

President Trump’s surprising announcement that he would impose tariffs on Mexico’s exports lest Mexico’s government controls immigration flows from third nations raises questions about whether the American policy community understands the consequences his policies might lead to at this particularly harrowing moment for Mexico. AMLO would rather take his country back into the era in which the government controlled society and the economy, a time characterized by far more poverty than anything that exists today.

Mr. Trump’s rationale may well fit into his own domestic political calculations, but it begs the question: does he understand what a radical shift in Mexican politics and political economy that results from his own provocations might mean for his own country and for the future?

https://www.wilsoncenter.org/article/response-to-trumps-announcement-tariffs-mexican-imports

Luis Rubio

Fears, interests, inertia and a great dose of myopia impeded the country from carrying out an integral transformation in the past four decades. Reforms of diverse sorts, some more profound than others, but always in partial fashion, were promoted: there were always limitations and powerful interests that biased the reform processes for the sake of safeguarding special interests, union, bureaucratic and political niches and opportunities for corruption. Notwithstanding this, there were many successful reforms in the economic ambit, but the political system was left practically intact, engendering a myriad of spaces in which the process of economic reform interacted -rather clashed with- the realities of power and of politicians.

Andrés Manuel López Obrador repeatedly affirms that during the last 36 years nothing advanced, that everything was defective. Those statements are factually in error, whenever the evidence is overwhelming in the opposite direction: whoever has driven through the Bajío in recent years can appreciate the spectacular transformation undergone by states such as Querétaro and Aguascalientes and, from there, the entire region to the north and a good part of the northwest of the country. If one observes export behavior, Mexico has become a true world power. In a word, the transformation is real, to which dozens of millions of Mexicans can testify.

But AMLO is absolutely correct in that the change and progress that has come about has been highly unequal on not benefitting in the same manner the whole of the population. Those who have visited the states of Oaxaca, Chiapas or Guerrero know well that there, progress has been much more limited, that the ways of life, the social control and the political control of yesteryear continue to prevail and that daily life for the majority of the population has not changed in decades if not in centuries. At the same time, AMLO should be content since, had things been different, he would never have been elected.

The point is very clear: Mexicans are paying the price of the reticence in terms of reforming the country integrally, so that the unabridged population, of all regions was to have the same opportunity of entering into the world of growth and productivity. That has been happening in nations like Chile and Colombia, not to mention various Asian and European nations, where the reforms were integral, without looking back, and without the inordinate desire to perpetuate spaces for depredation on the part of special interests through enterprises and opportunities for corruption.

In the ongoing, internal sparring of the PRI race for its leadership, one can observe this phenomenon keenly: two countercurrents, one looking toward the future, another longing to keep alive the stagnation of the past, because that benefits retrograde groups. What can be recognized in the PRI is nothing more than a microcosm of the country in its entirety: those who want to go forward vs. those who want to return to, preserve or recreate an idyllic past that did (almost) nothing good for the man in the street.

In addition to making possible the triumph of a reactionary and retrograde political project, the country is suffering through the consequences of reforming inaction in the most diverse ambits. First of all, in the poverty that persists despite so much reform, but that is explainable: one need do no more than watch the scarce infrastructure constructed over the last decades in the south of the country, an infrastructure without which it is inconceivable to attract productive investment, in addition to the educative involution of the region, which speaks for itself. Second, the enormous difficulties confronting persons and companies, above all small and medium enterprises, to raise their productivity, without which they could never prosper. And, third, and most transcendental in that it reveals the main scourge of the country, the universe of extortion that characterizes everything that is carried out, in all domains, and which constitutes a genuine modus vivendi for the bureaucracy, the police, the political parties, the judiciary and the governments (at all levels) and from which not even the greatest nor the most powerful enterprises are safe, even though they possess better means to face it.

These matters are not exceptional in the world and have been broadly studied from Montesquieu to the theorists of the modernization of the XX century. In order to prosper it is indispensable to have a system of government that creates conditions for progress and the transition from the old status quo to a new reality is always tough and complex, bequeathing innumerable malfunctional spaces along the way, as could be the violence of the present day.

To truly achieve integral and balanced growth, the country is required to complete the transformation that was cut short in the past decades. The president could persevere in his process of retraction toward the past (which augurs no good) or take advantage of his extraordinary circumstance –of legitimacy and political capacity- to construct and implant roots for a new open and democratic political structure in conjunction with a transformed system of government, compatible with the realities of the XXI century and susceptible to promoting prosperity in all the population. The question remains: forward or backward.

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Luis Rubio

The government is confronting unmistakable challenges in the most diverse ambits, for which it does not have reasonable or viable solutions. Insecurity, inequality, poverty and the lack of growth, to mention only a few, are nodal problems that the country has been up against for decades –if not centuries‑ and that are unlikely to desist with the strategies being adopted. However, there is a scenario concerning which the legacy of the previous government is particularly injurious because it restricts the capacity of action of President López Obrador, but, above all, because it constitutes a bona fide disgrace for a government that, in all of its arrogance, branded itself as orthodox: public finances.

The prior administration increased the public debt by nearly ten percentage points with respect to the Mexican GDP, despite having driven one of the most vigorous tax-collecting (and pernicious for growth) fiscal reforms in decades. Additionally, it saddled Pemex with a debt of more than 45 billion dollars, depositing the company in virtual bankruptcy. Not only that: the growth of the debt was essentially in foreign currency instruments, which increased the country’s vulnerability, and which in itself explains the extreme depreciation undergone by the peso during those years.

Although during the last third of that six-year government there was a dedicated effort to correct the excesses of debt and develop an acceptable financial program for the bondholders of “our” oil company PEMEX, the legacy for the current government was toxic.  Some examples of that are the financial crisis of the ISSSTE (the State workers social security system), which compromised its functioning, the high interest ratesand the costs of servicing the public debt and, most of all, the enormous risk that the Pemex’s finances represent for the government and for the nation in general.

This is not the first time that a government has inherited a precarious and even dangerous financial situation. It is enough to remember the situation in which President Echeverría left the country, the circumstance López Portillo left to Miguel de la Madrid or that Salinas left to Zedillo. The first two were the product of kindergarteners-at-play errors in economic leadership, motivated by ideological biases and political pretentions that implied abandoning the development criteria of the preceding decades, while the latter was due to the management of the debt at a moment of intense political volatility. The paradox of this is that the present government inherited a fragile financial panorama, but one that it appears decided to worsen.

The existing situation is hazardous because of the elevated status of the public debt, the virtual bankruptcy of Pemex, and the massive budgetary pressures that the government itself is generating. In contrast with the seventies and eighties, today the government basks in ample international reserves and the credibility that for decades was forged among financial market agents, permitting it to obtain foreign financing with relative ease, although that credibility has been eroding owing to the disorder that reigns in the government, as well as doubts about the projects driven by the president. The risk of loss of confidence in the international markets –due to internal matters or the relative uncertainty of the new NAFTA- are risks that cannot be avoided, in that its domestic impact would be devastating.

The more fundamental contrast with those administrations is much more transcendent: in 1976 as well as in 1982 and 1994, the heirs of those crises devoted themselves to modernizing the economy, focusing on promoting investment, attracting capital and resolving the financial as well as structural problems that the country was enduring. The present government clings to doing the contrary: return to megaprojects financed by public investment with uncertain rates of return (such as the Dos Bocas Refinery and the Tren Maya) and the growth of subsidies oriented toward financing political clienteles, instead of positioning bases for the growth of the economy in the long term. Nothing better symbolizes the contradictions of the current government than the cancellation of the project most likely to generate economic growth and improving competitiveness, the new Mexico City airport, in favor of two white elephants.

If to all of this one adds the exponential growth of the costs of pensions that the government will experience in the upcoming years (something known for decades, the product of the greater longevity of the population), and the similar growth of the clientele programs that the present government has designed, the fiscal problem could come to nothing more than exacerbation. In this regard we must add the project of fusing the diverse components of the health system, with the risk of reproducing, among physicians and the rest of the sector’s personnel, the union phenomenon that holds sway over the education sector.

In a word, the existing fiscal problem will become aggravated, anticipatingrisks that this administration will end up facing and that, while not being caused by the current government, are titanic in tenor and inordinately sensitive. The lousy budgetary management of the past administration has already rendered possible the electoral triumph of today’s President López Obrador and could wind up being an envenomed legacy.

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@lrubiof