Luis Rubio

The objective of Mexican President Andrés Manuel López Obrador with his referendum proposal is to eliminate the existing mechanisms of representation –the legislature- from the process of decision making.  In his vision, the “people” should ratify his decisions, which were previously taken, because in that way he would maintain, and elevate, his control over political life and the citizenry. “Revocation of mandate,” part of the same scheme, secures the vision: the objective is control, not citizen participation. The legislators, beginning with those of the president’s Morena party, should understand their role in this matter is that of representing the electorate and acting as a counterweight.

The issue is very simple: Who can believe that the citizens are going to vote in favor of raising their own taxes or against jailing the rapist of a girl in Ciudad Juárez? Both are decisions that correspond to the authority –legislative and judicial, respectively- when the circumstances demand it.  Submitting that type of decision to the “people” is nothing more than a cunning maneuver to avoid responsibility or, more frequently, to impose the preferences of the one who submits the decision to poll, knowing full well that the population is really evaluating the president because it does not have the capacity to nor the interest in analyzing the alternatives and implications of their decision.

The referendum is an instrument that is utilized with regularity in some nations and their experience is illustrative. In Switzerland, a nation with a feeble central government, every year an infinity of decisions is submitted to the popular vote. The citizens read the materials and engage in serious discussions. The issues are announced months beforehand and the postures in favor and against are made public and their proponents not only respect their contraries, but also assume these as advocates, not enemies.

The case of the state of California in the U.S. is very distinct. There, the referendum acquired popularity when a group of citizens proposed the establishment of property tax limits, which opened Pandora’s Box. A measure as popular as that was immediately accepted by the voters, which produced two consequences: on the one hand, it drastically reduced tax collecting, affecting the providing of municipal services; on the other hand, it initiated an avalanche of incidences of polling that, typically, are decided not by the substance of the issue but rather by the charisma of the proponent or by the interest of the media.

I have no objection at all to lowering taxes or to laws and decisions being revised; what seems dangerous to me is the procedure inherent in the referendum because it is a deception.  In the state of California, as well as in Mexico, the citizens lack the willingness of the Swiss to evaluate each decision at length and discuss it with knowledge of the facts. The experience of the European nation must be understood within its context: the national government is extraordinarily weak, presidential terms last two years and citizen participation is not only committed, but also transcendental. There the referendum is not utilized as a (biased) means to decide on the continued construction of an airport without contextual information that, in addition, is a construction already underway.

The experiences of Switzerland and California illustrate the kid-glove nature –and the danger- of implanting a decision-making mechanism such as the referendum. The British themselves have not yet emerged from their astonishment at the manner in which their leave-taking from Europe was decided. That referendum ended up a Russian roulette. More to the point, while there are always opposing opinions, what we Mexicans have been able to observe since the first of July is that the polling mechanism is understood as an instrument of manipulation and legitimization and not as a means of the development of the citizenry, the improvement of democracy or the promotion of higher living standards. Under these conditions, the referendum is in the last analysis a mechanism of control and not of participation. Worse, plebiscites are divisive and what Mexico needs is a coming together.

The idea of the plebiscite or referendum is good and healthy: it derives from the supposition that the citizens, as the beneficiaries of or the payee in the result of public decisions, should have greater participation in the decision-making process regarding things that could come to affect them.  The experience is very distinct: these mechanisms wind up in the hands of politicians and the media that possess an enormous capacity to manipulate public opinion in order to legitimatize previously made decisions. With that rationale, a referendum in Mexico would lead to the perpetuation of a president in the government, which is, at the end of the day, the idea of revoking the mandate: that it never be revoked.

Mexican democracy is young and precarious in the extreme, in addition to that, as a county, Mexicans have not broken with the old political system based on control and manipulation. On adopting the referendum as the official mechanism, would do nothing other than consolidate, through the rear door, the post-revolutionary authoritarian regime. The legislators must recognize that they themselves would be the first to lose in such legislation, in that they would disappear as a relevant power. It is not good for anyone for the power to be in the hands of a sole individual.

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Luis Rubio

The 2008 crisis was a watershed for China. Up to then, the great Asian nation underwent an accelerated transition from the socialism of Mao Tse-tung toward the liberalization headed by    Deng Xiaoping, which yielded more than thirty years of annual growth rates of more than 10%. The expectation for the West was that, sooner or later, China would converge with the rest of the world not only in economic development, but also in political opening. Independently of the internal political dynamics, what appears clear today is that in 2008 a new path was defined inside China, one much less opening-oriented economically, more authoritarian politically, and much more assertive in the international arena.

The direction that China is adopting goes hand in hand very well with the retraction of the U.S. on the international arena, which furnishes a scenario of enormous transcendence for Mexico. During past decades, China, emerging power that operates with absolute geopolitical determination, has avoided Mexico; while there have been some industrial installations (the majority assembly plants) and at least two infrastructure projects, both failed ones, the Chinese presence in Mexico is minimal, above all when compared with that in other countries in the South of the continent or in Africa. China has always recognized the geographic location and economic links that characterize Mexico, the reason for which it has maintained itself relatively to one side.

Two circumstances have altered this: on the one hand, the new U.S. tone under the Trump administration has re-opened discussion within Mexico concerning the elevated concentration of economic ties with the U.S.  In addition to this, there are protectionist undertakings such as that relative to steel but, in the main, the permanent threat to cancel NAFTA demands a review of Mexico’s national priorities. Although I have no doubt that the logic of industrial integration will continue to dominate entrepreneurial decisions and that this, in turn, will persist as the principal growth engine of the economy in general, we Mexicans should review the constellation of possibilities with a view toward the future.

On its part, the new Chinese assertiveness follows an implacable rationality: take advantage of the weakness of the U.S. in order to establish new geopolitical realities. If one observes the manner in which artificial islands have been constructed throughout the South China Sea, to the degree of formalizing them as a new province, China’s way of acting leaves no doubt with respect to the clarity of vision, and the continuity of same, which is reinforced with the new internal tonic of a new “permanent” unipersonal leadership. The decision of Xi Jinping to circumvent regular elections says everything about his objectives both political and international: while it entails the evident complexity of the succession (that tends to be the weak link because it exhibits a tendency to be unpredictable, like what happened to Mubarak in Egypt and now to Putin in Russia), it permits a continuity of command and of vision that no other country can achieve.

Mexico has had a long relationship with China: from the establishment of diplomatic ties in 1972, the political relationship has been profound, albeit not so the economic one. Certainly, Mexico imports merchandise in the dozens of billions of dollars from that nation (in addition to others via the contraband route), but it exports relatively little. The same is true of the capital balance:  several Mexican enterprises have a presence in the Asian giant and there are Chinese companies in Mexico but the aggregate is relatively modest.

Over the last year, Mexico has been reviewing its international relations, part by design and part due to the way things have come to pass. The greatest surprise comes not from China, but rather from Brazil, a nation that for decades has regarded Mexico with suspicion and as a competitor; however, in recent times, Brazil has sought to intensify its economic and political bonds.  While the two nations -Brazil and Mexico- have assumed radically distinct strategies over the past decades -Brazil entertains a strong protectionist bias, Mexico has embarked on a marked liberalizing approach- the rationality of carrying out more exchanges and developing greater cooperation in the political realm is evident.

The question is what is possible and desirable with China. On the one hand, Mexico is firmly anchored in the North American region –especially through the industrial supply chains, but also in strategic political logic- and that establishes an outright limit to any exchange, in addition to obligating a triangular conception –Mexico, the U.S. and China- in the relationship. On the other hand, within this framework, there are many opportunities to deepen the relationship and develop novel ways of interacting, in political as well as economic spheres.

What plainly makes no sense in terms of reality is the notion of there being a “Chinese playing card” in the relation with the U.S. China would never accept being a bargaining chip, but its thrust as a major world power obliges Mexico to define its own priorities and establish frameworks of possibility in the relationship with the U.S. as well as with China. There is no way out of this triangle, but there is one of progressively amplifying it.

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Luis Rubio

A few years ago, when Beijing was getting ready to receive the heads of government that make up APEC, the city government closed hundreds of factories and banned the circulation of millions of vehicles, all in the interest of reducing air pollution and trying to give it a less dirty facade to the city. Despite these efforts, a telephone app that published the pollution index of the big city showed scandalous numbers, far superior to those tolerable according to the World Health Organization. The government did not take long to solve the problem: it blocked the use of that application and with that it gave a holy sepulcher to the pollution.

This is how President López Obrador appears to act. Instead of solving the country’s problems, he is determined to destroy everything that already worked and, in many cases, worked extraordinarily well. The country was on the right track, even with huge shortcomings and unresolved issues, but significantly better than it was in the seventies and eighties. Now the objective seems to be to break the dishes, destroy everything that exists and pretend that the problems are solved by themselves.

The strategy of labeling everything as evil and corrupt already paid off in the form of increasing unemployment, an economy that is going down and a total absence of new investment, which only worsens the first two indicators. The president is not willing to acknowledge that his strategy is causing these phenomena and that, if it continues, it will not succeed but to plunge the country into a crisis of immeasurable dimensions. The signals sent by the financial markets regarding the reliability of the Mexican debt are not promising; rather, they anticipate risks that, if not addressed immediately, will cause just what the president says he wants to avoid.

The problem is not Pemex’s finances, even though that is a huge problem. The problem is the whole conception of the government, which wants to destroy what exists, when what the country requires are actions that resolve current and ancestral problems that nobody has wanted to face for a long time and for which the President has the legitimacy needed. The economic strategy of recent decades is the only one possible, although it would have to be carried out better: it is no coincidence that, literally, all the nations of the world have gone down a similar path. The exceptions are precisely the examples that we should not want to imitate, such as North Korea and Venezuela. Even Cuba has entered into the logic of globalization, albeit modestly.

The starting point for AMLO is that everything that was made after 1982 was wrong. That premise errs on two fronts: first, he does not recognize that the crisis of 1982 resulted from prolonging for too long -and, in fact, exacerbating- the strategy of stabilizing development, to the point of provoking a debt crisis that took decades to control. Secondly, he does not accept that the strategy of introspective, almost autarchic development ceased to be sustainable because it did not meet the needs of an increasingly demanding population, and because the world changed with communications, technology and the way of producing. The strategy adopted after 1982 has many shortcomings and errors, which need to be addressed, but it is the only one possible.

President López Obrador has the legitimacy and leadership to do what governments of past decades could not or would not do: eliminate the obstacles to development that were preserved and protected and which lie at the heart of the low rate of growth (in average) that the country has sustained for too long. The problems that the country faces have to do with stagnant political and social structures that favor what Luis de la Calle* calls the “extortion economy,” where authorities, unions, monopolies, bureaucracies and criminals extort money from citizens, businessmen, students, proprietors and merchants, thus preventing companies from growing and the country from developing. If the president really wants to trigger high growth and give opportunities to the most disadvantaged Mexicans, his strategy should be to break with this impunity.

What he is doing is exactly the opposite: he is strengthening fiefdoms, encouraging (and rewarding) trade unions that hinder everything and cultivating and captivating companies that impede competition. Causing union conflicts, attacking companies that generate energy and stoking a polarized environment will only achieve less growth, less investment and, if the destruction of everything existing persists, a crisis of the dimensions of 1995. Or worse.

Oaxaca does not progress because the social, political and union structures all interfere and create obstacles to development. One needs no more than to observe what drives successful places like Aguascalientes or Querétaro to see what a favorable political, social and business environment can create. The question is whether what President López Obrador wants is to convert the whole country into Oaxaca, the path he has adopted, or to confront the problems of Oaxaca and, in general, of the south of the country (although not exclusively) so that the whole country can join in the high rates of growth of the aforementioned states, the only way the most disadvantaged citizens may end up having the same opportunities and rights as the most successful. In a word: leveling the field from the bottom up or from the top down?

https://www.wilsoncenter.org/publication/extortionomics-and-ideas-to-leverage-the-digital-revolution

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@lrubiof

Wilson Center    Mexico Institute

                                                                                  by Luis Rubio
@lrubiof

 One hundred days to consolidate a power grab. That seems to be the rationale and, gradually, the reality. López Obrador arrived at the presidency with an agenda but not with a plan: the agenda is to backtrack on anything and everything that was built and created after 1982. The plan does not go further than centralizing power in order to recreate the old order and, maybe, to introduce reelection into the Constitution. This is no mere change of paradigm, it is the beginning of a new era, not necessarily for the good.

There is a clear vision behind López Obrador’s thrust, although it is somewhat of a caricature: the notion that the presidents of the 1960s were all-powerful and could get their way at no cost. He represents the revenge of the statists against the technocrats in the fight that began in the late 1960s and early 1970s over the direction Mexico should take when the economy began to falter. The economic side of the government argued for gradual liberalization; the political side, which won the day in 1970, argued for a greater role of the government in the economy. The strategy appeared to work, at least at the beginning; however, by 1982, the government had gone bankrupt and the country was burdened with an extremely heavy foreign debt. López Obrador has fond memories of that era, when the economy grew at close to 7 percent on average and there was no violence, but he dismisses the risk of leading to a similar financial crisis. Thus, he is plowing ahead at the fastest possible rate.

While the scheme is clear from the very beginning, the oddity of the moment is that he enjoys a level of popularity previously unknown in the country. He exerts an exceptional leadership, and people want to believe that things will get better; this combination has produced spectacular results. The flip side of the coin is that private investment is completely stalled, and the government is not trying to attract more. In fact, the president’s party is even threatening to limit foreign investment. Furthermore, by cancelling the construction of the Mexico City airport, new ventures in energy, and reneging on existing contracts, the damage being caused is exorbitant.

The financial situation at the start of 1982 was bad enough, but it took a turn for the worse, and became a full-fledged political crisis, when the government expropriated the private banks. It took Mexico at least two decades to recover from that blow, and it was only possible thanks to NAFTA, which created political and legal guarantees to overcome the fears among investors. López Obrador has not gone that far, but unless he corrects course, Mexico could end up in a similar position not too far down the road.

The views expressed here are those of the author.

https://www.wilsoncenter.org/article/the-vision-and-the-power-grab 

Luis Rubio

All the governments of the world, of all colors, want private investment, but none can get it by force. Nobody -big or small, national or foreign- assumes risks or commitments without feeling comfortable and welcome, and those feelings do not depend on political speeches or the will of the ruler, but on the existence of clear and reliable rules. It’s that easy and that hard.

The notion of an “obsession” for investment sounds enticing and attractive, but it is a chimera. No one obsesses about investing. Who should be obsessed is the politician who needs private investment to achieve his development objectives, poverty reduction, employment and, in general, a generalized improvement in the life of the population. But a political or discursive obsession is anathema to private investment: the key lies in the reliability of the rules.

1. Investing involves risk taking: she who puts her money into a project -be it in the form of savings through a purchase of shares in a company, or he who undertakes a certain productive objective- is betting that they can achieve attractive returns. Their bet represents the recognition of a risk that the project will be successful. Many restaurants open their doors with a bang, only to end up closing a few months later. A failed bet.

2. Investing is an act of faith and trust both in the specific project and in the context in which the investment is made. The franchises are successful because they reduce the risk of the project. The same is required for the environment in which the investment would take place.

3. Nobody invests without a reasonable chance that their project will be successful and success depends on two big circumstances: the first is that the project itself is viable; the second, that there is a reliable and stable regulatory framework. The latter is what should concentrate the obsessions of the ruler.

4. Despite this obviousness, most governments focus on changing laws, launching major initiatives, creating bureaucratic monsters, rewarding their favorites and developing clienteles, when what is required is to strengthen the environment (a better educated work force, better infrastructure and multiple sources of certainty), that is, something very simple, but very difficult to achieve: stability in the rules of the game. Simple because it’s obvious; difficult because it implies going against endless accumulated prejudices.

5. The virtue of the NAFTA, and its enormous success in attracting investment, was rooted in the normative framework that was its essence: clear, reliable and non-changing rules. More specifically, in the original NAFTA the key was not the thousands of pages of procedures, but its chapter 11, which gave certainty to the investor regarding the security of their investment. It is no coincidence that NAFTA has become, through exports, the main engine of the country’s economy. Instead of inventing the hot water, as the Mexican saying goes, what would be required would be to extend the rules inherent to NAFTA to the entire national territory. It would be the most expeditious way to create a regulatory environment conducive to investment, while solving the mess created by Trump in the matter: certainty generated within Mexico.

6. And this implies a great lesson for the Mexican government and its base: in the interconnected world of today there is no difference between national or foreign investors or savers. They all follow the same rationale, everyone wants clear and reliable rules. Many Mexican companies have invested in Mexico through the North American or European FTA precisely to enjoy the same certainty. When Morena’s contingent in Congress proposes to limit foreign investment, it is in fact threatening all investment, beginning with the domestic one.

7. The current government wants to subordinate economic decisions to its political preferences. It sounds good and it is logical in its perspective, but there is nothing more pernicious for private investment than political decisions. Investment goes where there are clear and reliable rules, not where politicians change the rules or subordinate them to their political preferences. That’s why the decision about the airport was so damaging.

8. Private investment does not respond to speeches or prodding: all it requires is certainty or what is known as “trust,” which is nothing other than the conviction that the rules of the game will be the same on the day the investment is made and when the project comes into fruition.

9. The government can beg, implore, demand or criticize, but it cannot force a person to risk their savings through an investment.

10. The only thing a government can do is to control its checkbook, develop strong institutions that confer certainty, and ensure, through leadership, that the entire country is dedicated to attracting investment and enhancing it. It’s that easy and that hard. The better the labor, educational and infrastructure environment, the lower the risk and the greater the investment. It’s not rocket science.

It is still time to obsess about creating conditions for the country to really focus on attracting investment, all  of which has not been done in the past decades.

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@lrubiof

Luis Rubio

The numbers do not lie, but they tell two very different stories. On the one hand, the president enjoys an unprecedented level of approval; a parallel indicator, that of consumer confidence, reaches figures not seen in almost two decades. The paradox is that these figures are not related to consumption, which has been diminishing both in automobiles and sales in general. The enthusiasm shown by the citizens is not the result of an improvement in their personal welfare, but in their perception of the president and the expectations that he has generated. On the other hand, INEGI’s index of business confidence entered negative territory in January, while 75% of investors consider that the country is in worse condition than a year ago. The big question is whether these two groups of people live in the same country.

Each one will have his explanation for the phenomenon of contradictory perceptions, but I do not have the slightest doubt that the nodal factor lies in the leadership exercised by the President, who has acquired almost mythical dimensions in certain segments of society. The combination of a longing for leadership with a hope that current and ancestral problems will be resolved turned out to be an exceptional combination that the President has been able to take advantage of brilliantly. Perhaps the key that separates the two cohorts -those who are full of hope and those who see the future with concern, if not fear- is the almost religious bond that exists between a part of the first group with the President, just as the second group attempts to explain to itself,  in a rational and analytical manner, something whose central characteristic is precisely that of not being based on rational considerations.

At the heart of the mismatch between the prosperity that has been experienced in the past three decades and the unease of half of the population that led to the election results of 2018 lies the inability and unwillingness of all governments of that period to explain and convince the population of the complexity inherent in a world of integrated economies, technological change, the digital dilemmas and, in general, the key in which productivity -and education-  have become as  a factors of progress. Faced with this absence, AMLO has managed to discredit all that era by calling everything “corrupt,” obviating the need to explain or propose an alternative program that is viable, capable of leading to high growth rates.

There will come a time when the discredit of the past will prove insufficient to preserve the legitimacy of the government, but nobody can deny the astuteness and excellence of the political and media management that AMLO has brought and how easy it has been precisely because of the vacuum of legitimacy that existed in the past decades, especially since the 1994 devaluation and the crisis that followed. In fact, what is shocking is that he did not have, nor is he having, any competition to the narrative that, since 2000, he has been advancing. This was accentuated after Ayotzinapa in which the current president took control of the narrative and never faced any response or push back from the then president or his government.

The two stories that characterize the country today are opposed, but inexorably they feed back: both end up depending on the progress of the country. Expectations can be manipulated for a long time, finding new scapegoats every time the car is stuck, but what counts, at the end of the day, is a sensitive improvement in living standards. Palliatives as the subsidies that the new government is scattering right and left diminish the urgency of delivering results but, in the long term, they will prove insufficient, simply because there is no money in the world to compensate for lack of delivery. However, as Fidel Castro showed, in the presence of plausible enemies it is possible to achieve a systematic impoverishment of an entire country for many decades.

For its part, the economy cannot prosper without investment and for that the willingness of companies and of new investors is required. In contrast to the era and geography of Fidel Castro, the Mexican is an open economy and the country is characterized by a huge border with the largest market in the world. The recipe for polarization has real limits.

The investment depends on very clear factors, such as the market, opportunities, the dynamism of Mexico against other economies, and how the US economy is doing, because, through exports, it is Mexico’s main engine of growth. No doubt, new infrastructure projects help, but they are not enough.

However, at the end of the day, the most important thing for investment is the confidence that the government generates towards national and foreign businessmen and this depends, almost in its entirety, on predictable and stable rules of the game. The latter is precisely what the President wants to alter: he wants to impose new rules of the game and subject them to changes determined by his political considerations. In this scenario, the investment will not materialize. Sooner or later, this factor will clash with the massive support that the president has today.

www.cidac.org
@lrubiof

Luis Rubio

Groucho Marx, a comedian of the last century, said it with absolute clarity: “Politics is the art of looking for trouble, finding it everywhere, diagnosing it incorrectly and applying the wrong remedies.” The government has great clarity about several of the problems afflicting the country but it is critical to ask ourselves: What happens if the diagnosis is wrong?

Of course, the government of López Obrador would not be the first to get the diagnosis wrong and later to apply an incorrect strategy, but what without doubt distinguishes it is its moral arrogance: not only is the President in possession of the absolute truth, but in addition all else is illegitimate, an interested party, or is conservative. His risk of being in the wrong is, therefore, greater.

In matters of security Mexicans have been taking stabs in the dark for decades. Some governments attempted to construct new police forces, others procured centralizing the command; some resorted to the Army, others vowed to return it to its barracks. Some tried to buy off members of organized crime, others tore down the police forces created by prior administrations. In a word, there has been a little bit of everything during the last thirty years, except for clarity about what was sought or continuity in policy. More quips than strategy.

The problem of security in the country entertains many dimensions, but were one to focus on a historical perspective, its character would be transparent, which simultaneously suggests the true essence of the challenge.  The matter of security arose in parallel with the deterioration that, little by little, was being experienced by the post-revolutionary regime, above all from the seventies, but expeditiously since the nineties. The order and respect for authority that had existed up to that time were due to the authoritarian nature of the regime, that is, to the fear the citizenry had of the police and of the government in general. Members of PRI governments spoke of the strength of the institutions, but, in retrospect, it is evident that there were no strong Institutions, but rather a very efficient and effective structure of control that, additionally, enjoyed enormous legitimacy during many decades.

The central government maintained strict control over all of the key factors of power and the functioning of the society, allowing it to hold sway over criminality efficaciously, subordinating the governors (and using them as instruments at its command) and dictating the rules of the game to the elements of organized crime who, during those years, were Colombians whose interest was limited to transferring their wares through the country to reach their target market, the United States. The Mexican government did not, as many imagine, negotiate with the narcos, but instead established the rules of the game that, according to the characteristics of the post revolutionary regime, implied payments to local or federal actors to expedite the process. Security was the product of the strength of the central regime and not of the existence of a professional, efficient and “modern” structure of the police or of the judiciary. It is that authoritarian system of control that Lopez Obrador aspires to recreate.

As that regime began to falter –because of the growth of the population, the needs of the global economy, the incipient political opening- its capacity for control kept diminishing. That is, there was never an explicit decision that would come to modify the regime: its deterioration was the product of its gradual depletion and of decisions in other ambits that exerted an impact on its power. And here we come upon the underlying problem: while the country has been changing in all of its spheres -political participation, freedom of expression, technological change, economic globalization- the government has remained bogged down in its own structures of yesteryear.

The security problem (and so many others) arises from the exhaustion of a system of government that has not transformed itself in the last fifty years and that is not on the same page as today’s reality. Involving the Army in security issues was a desperate decision to confront a real problem, but without recognition of the nature of the heart of the matter. In this context, the debate over the National Guard is utterly legitimate and meritorious: elevating the Army as a factotum in this matter is not a solution, it is solely another foolhardy measure.

The core problem is the inexistence of government –much more momentous in some latitudes than in others, as illustrated by Tamaulipas vs. Querétaro, to cite two prototypical cases- and not the drugs, the corruption or the violence in themselves.

The government of President López Obrador must focus on the correct problem to be able to resolve the matter besetting the entire population and that devours resources, spirits and lives like no other. Of course the Army will have to be part of the solution, but it cannot be the solution in itself: it is not trained for police functions nor does it respond to the citizenry. In the same manner, merely endeavoring to reconstruct the old all-powerful government of the sixties is absurd because it is not possible: the conditions that made the latter viable came to a halt when the society and developed and there is nothing that the government can do to recreate that schema, unless it aspires to emulate Pinochet.

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@lrubiof

 AMERICAS QUARTERLY – FEBRUARY 14, 2019

Mexico’s president has so far governed as if by fiat. If he doesn’t heed market warnings, he may be in for a rude awakening.

Andrés Manuel López Obrador has a vision, but not a plan. His long-term objective to recentralize power is clear, but the specifics of everyday decisions – on everything from social policy to infrastructure investment – remain obscure.

The danger of this improvisational form of government is not simply that the economy will fail to achieve higher rates of growth (that is almost already a given). It is that financial markets will react negatively to so much uncertainty. The recent downgrade of state oil firm Pemex could be the beginning.

Fitch downgraded Pemex last month because of what it called “continued deterioration” of its credit-profile and underinvestment in its production areas. López Obrador’s response, simply to attack the ratings agency as “hypocritical,” must be understood in a context in which the president is running things basically on his own. There are no public policy debates, only objectives and actions that López Obrador instructs his people to carry out.

The president clearly believes that by announcing his objectives or actions, things will simply happen. In fact, he’s campaigning on a permanent basis and rallying the crowds. That approach has worked so far: his approval ratings are over 80 percent. His popularity comes in part because, at least rhetorically, he is addressing people’s concerns.

Everybody knew about stolen gasoline, about how much corruption there is and how deep social divides are. By talking about these issues and, at least in some cases, acting upon them, the public see in the president someone who is finally doing something about the issues that brought him to the national palace. People have been willing to stand in line for hours to get gasoline not because the issue is being fixed, but because the president is facing it.

But what happens when it becomes clear that the president has failed to deliver change? At some point, the public will want answers in the form of prison sentences for the corrupt or better economic performance. But AMLO’s policies do not appear likely to take Mexico down that road. He has already expressly ruled out pursuing past corruption, and economic growth is unlikely to materialize in the absence of more investment, both public and private.

Fitch’s decision should have been a warning that things could easily get dicey down the road, and compelled López Obrador to change course. Instead, he attacked and kept going.

The result of all this is to put private investors, both domestic and foreign, on wait-and-see mode. The broader pressures on the economy won’t help in that regard. First, there’s uncertainty stemming from USMCA discussions in the U.S. Congress and the potential demise of NAFTA without having ratified the new agreement. Then there’s the situation with Mexico’s energy sector.

Secretary of Energy Rocío Nahle recently announced the launch of a new oil refinery in Dos Bocas, Tabasco, the president’s home state. Nahle indicated that it would be wholly owned by Pemex and that there would be a restricted tender, by invitation only. In other words, it will be financed by Pemex, whose financial accounts are, in fact, indistinguishable from those of the federal government.

Several months ago, both Fitch and Moody’s warned of the possibility of a rating downgrade should the government proceed with the Dos Bocas refinery. Assuming the two ratings agencies proceed with their earlier warning, the federal government’s accounts could be affected. That could easily trigger a market run.

López Obrador has opened his administration on an enormous number of fronts. He’s launched, or is supporting, a series of labor actions geared to undermining current union leadership; he has attacked former presidents (though, oddly, not his predecessor Enrique Peña Nieto, the man who made it possible for him to win); he’s fighting with several governors on budgetary matters; and he has abandoned the war against the drug cartels. Some of these actions may make sense, others are just shots in the dark. The common denominator is that there’s not a policy behind any of them that has been analyzed and is being adhered to. Each action is independent of the rest, except for the broader goal of concentrating power.

The president is running the government on his own. He shows up every morning for a 6 a.m. security meeting and then talks to the press for an hour or longer where he sets the agenda. The members of the Cabinet, usually looking sleepy, stand behind as part of the scenery but say nothing.

Should things not work out the way the president expects and assumes, the real issue is whether he’ll begin to blame others for the results or if he’ll change course. His reaction to the Fitch downgrade suggests it’ll be the former: Rather than realizing that it was nothing more than a warning, albeit a serious one, he decided to fight things out in the street. He assumes, and has said, that everybody would have to submit to the president’s priorities, including the financial markets; the problem is that that’s not the way the world works in the 21st century, least of all for an economy as open as Mexico’s

https://www.americasquarterly.org/content/pemex-downgrade-was-warning-amlo-listening

ABOUT THE AUTHOR

Luis 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 is A World of Opportunities, published by the Wilson Center.

Luis Rubio

Public security is a sine qua non condition for the development of the country and the issue that most concerns citizens. The problem is not new, but all attempts to confront it have proven insufficient, if not a failure. The three most recent administrations -each with its level of arrogance- has assumed the problem in its own way, but the results have all been pathetic; the only thing that is clear and unquestionable is that there are many myths around this issue*, but equally clear is that there is no single -or magical- solution to the problem: no silver bullet. If the López Obrador government does not recognize this point at the outset, its strategy, centered on the “national guard,” will end up in the same place.

The proposal to create a new structure in the form of a national guard, announced with great fanfare and little information, is not very different from the one that accompanied the announcement of the creation of the federal police two governments ago. In both cases, there was a big idea but not a plan for its integral development, much less a political consensus on the matter. The result was the expected: the insecurity did not yield. The causes can be many, but the winning prescription proved unsuccessful.

The creation of a national guard can be part of the solution or it can be another lost opportunity: everything depends on how it is constituted, what its objectives are, what strategy would be followed and, above all, what the project as a whole consists of. A misdiagnosis -which is what must be assumed because the plan presented lacks any logical coherence- entails a hazardous outcome. However, the danger lies not only in the fact that insecurity remains high, but that, unlike the previous attempts, this one comes fraught with an immeasurable risk in the form of the incorporation of the army in security tasks in an integral, permanent fashion and made permanent in the Constitution. That is, this is an extraordinarily hurried step, with unknown and, potentially, excessive and onerous consequences.

It is easy to understand why one administration after another has turned to the military: it is the most structured, respected and efficient corporation in the country. Given the vacuum, weakness -and corruption- that characterizes most of the federal, state and municipal police forces (and their counterparts on the side of law enforcement), the notion of resorting to the military is logical, even if it entailed a radical about face for the president. But the fact that there is such a fundamental challenge and such a competent institution does not imply that one thing can work to fix the other. The army has proven effective in showing the strength of the State whenever deployed, but not in creating conditions for public security beyond the time or place where it has had a temporary presence. The army is not a police corporation and should not be conceived as a long-term police response because it is useless for this and will never be different.

The army will undoubtedly be a central part of the solution to the security problem the country faces, but it cannot be the heart of the strategy. Unless the army is transformed into a police corporation -and everything that this implies in terms of conception and training- something that could be proposed as a strategy over a period of two or three decades, the military is trained to face formal enemies, not to be the guarantor of the security of the daily life of a community.

More important, the key question is not about recourse to the army for the purpose of protecting the citizenry, but about the creation of a new political and legal reality in the way the national guard has been proposed. Resorting to the army is necessary, but not in a permanent fashion, without a clear mandate or legal protection. It would be infinitely better to create a formal framework for the operation of the army in civilian security tasks than to elevate it as the heart of an unfinished security strategy in which there are no certainties for the citizens, the government or the soldiers themselves.

I wonder, why not bring the presence of the army through the national guard -or in security tasks in general- as a case of exception and, therefore, temporary? That is, what if, instead of encumbering the army in the Constitution to combat insecurity, the Congress legislates in a precise way how that corporation would act in an emergency and only for the time the emergency lasts. If what exists is a situation of exception, what is appropriate is to contemplate an equally exceptional response in the form of a regime of exception such as that contemplated in Article 29 of the Constitution.

What has been proposed is a desperate, ill-considered and inadequate response to build security, protect the citizenry, give legal certainty to the army and solve the problem that the government has raised. Instead of a single action aimed at trying to solve a complex problem once and for all, it would be far better to develop a multifactorial strategy in which the participation of the army is temporary, limited and exceptional.

*see a good summary of this: http://www.consejomexicano.org/index.php?s=contenido&id=2475

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a quick-translation of this article can be found at www.cidac.org