from Latin America Studies Program

Lopez Obrador Spells Trouble for Mexico

Mexico's President Andres Manuel Lopez Obrador takes part in an indigenous ceremony during the AMLO Fest at Zocalo square in Mexico City, Mexico. REUTERS/Edgard Garrido

His personalistic presidency threatens years of hard-won institutional gains.

Originally published at Bloomberg

November 30, 2018

Mexico's President Andres Manuel Lopez Obrador takes part in an indigenous ceremony during the AMLO Fest at Zocalo square in Mexico City, Mexico. REUTERS/Edgard Garrido
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Current political and economic issues succinctly explained.

On December 1 Andres Manuel Lopez Obrador’s self-proclaimed Fourth Transformation begins. Yet instead of kicking off a positive transformational change, the new president’s personalistic mission looks to end years of hard-fought institutional gains.

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Over the last three decades Mexico has changed. What was once a closed commodity-driven economy is now open, globally competitive and dominated by manufacturing. A nation once known for its few haves and many have-nots has seen extreme poverty fall to 2.5 percent, infant mortality cut to a third, average lifespans rise by a decade, and the number of years children stay in school grow by half. Politically, decades of one-party rule ended in competitive if at times messy democracy.

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This slow-moving transformation also embodies a bigger achievement: a shift away from informal, personalistic, and centralized power through the strengthening of institutions. Pushed by opposition politicians, civil society organizations, investigative journalists, entrepreneurs and the decisions of millions of business owners, workers, and voters, Mexico has become a place with a diverse and increasingly independent private sector, with greater transparency and access to information and incipient but growing political checks and balances.

Mexico’s transformation hasn’t been all good, and the good parts have been uneven. Crime, violence, and corruption (or at least public awareness of it) have surged, affecting everyday life for too many. Economic growth, access to healthcare, quality education, and jobs with benefits diverge dramatically between the north and the south: In Nuevo Leon, home to Mexico’s industrial center, fewer than 2 in 10 citizens live in poverty, similar to their nearby Texan counterparts; in the South, nearly 8 in 10 face this daily economic hardship.

And the transformation remains incomplete. NAFTA helped open up Mexico to international markets, but it did little to take on the monopolies and oligopolies that drove up prices at home and made it hard for the less-connected to get ahead.  Recent structural reforms are beginning to chip away at these barriers: Financial reform has increased access to credit, telecom reform has lowered prices, energy reform has brought new finds and more stable supplies, anti-trust crusaders have taken on unfair business practices, and education reform is just beginning to better prepare Mexico’s youth for 21st century jobs.

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Political institutions also have a ways to go. Power still matters too much. And rule of law in particular remains weak.

Yet the Fourth Transformation doesn’t look to build on this base, making the benefits, such as they are, more inclusive and widespread. Instead, it looks to roll back the institutional gains so important to Mexico’s transformation, as Lopez Obrador -- a leader obsessed with his place in history -- pushes a return to the more personalistic approach of the past.

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These political power plays have already begun through legally dubious binding referendums. Justifying his decisions by polling a small percentage of the population with leading questions on infrastructure projects, social programs and even whether to prosecute former presidents, Lopez Obrador is sweeping away years of legal precedents and norms and diminishing the stature and role of the legislative and judicial branches. By appointing loyal “delegates” to the states, displacing elected governors and mayors, he threatens federalism more broadly. By reviving patronage, starting with subsistence agricultural subsidies and stipends for the young and old, he is building a captive political base animated by a widening divide between the favored and the rest. And by continuing his criticism of the press and dismissing civil society, he seeks to undermine these democratic voices and backstops.

This power grab is set to make Mexico poorer. Cancelling the new Mexico City airport will slow the passage of not just millions of passengers but the tens of millions of tons of freight that hook Mexico into North American supply chains. Reasserting the state-run Pemex’s dominance in energy will diminish money, technology, know-how, and future production, dragging on public finances and economic growth. Undercutting the autonomous anti-trust and consumer protection agencies frees dominant players to muscle out competition and continue overcharging their customers. And rolling back the new public education system means only the wealthy’s children will be prepared for work’s more automated future.

More broadly, the return of an imperial presidency weakens Mexico’s promise, eroding the growing advantages of its institutions and checks and balances on power.

Mexico’s reputation for sound fiscal policies, built up over two decades, has given it a new edge over other emerging markets in terms of bond pricing, IMF credit lines, and external financing more generally, helping it weather rising global financial volatility.

Underpinned by NAFTA’s framework of rules and regulations and the ministries that enforce them, hundreds of billions in foreign direct investment have helped to diversify Mexico’s economy and provide hundreds of thousands of jobs. Though the new NAFTA weakens these guarantees, Mexico’s participation in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, the CTTPP, and its EU agreement provide firm ground rules for more investment.

And the deepening of democracy has forced politicians to at least begin addressing voter concerns: Indeed, Lopez Obrador’s electoral victory and his party’s congressional sweep validated this new and real power of the vote.

Yet these advantages aren’t fixed or permanent. Debt levels and interest rates are already rising. Investor sentiment is beginning to sour, sinking the peso and pulling out billions in portfolio flows. And the Mexican voters’ voice is weakening with each executive machination. Yes, the Fourth Transformation will bring change to Mexico, but tragically it looks to go in the wrong direction, making it less democratic, less inclusive and less safe, and holding back the day when all of Mexico’s people finally benefit from its manifold advantages.

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