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Mexico’s new president Andres Manuel Lopez Obrador at his daily press conference on March 1, 2019. (Photo: Mexican President's Office)
Thursday, March 7, 2019
Commentary

Mexico: AMLO’s First 100 Days

 

Mexico’s new president offers ideological dogmatism and incompetence.

LATINVEX EDITORIAL

As international ratings agencies cut their ratings and economists cut their predictions of economic growth, Mexico’s new president Andres Manuel Lopez Obrador announced that he was pleased with his first 100 days.

A clear majority of Mexicans agree, with a new poll showing a whopping 78 percent approval rating.

Another poll shows him at 67 percent. That survey shows AMLO, as the president is popularly known, getting points for cutting government expenditure through salary cuts for public servants and eliminating pensions for ex-presidents as well as getting rid of presidential guards, selling the presidential plane and opening up the presidential palace to the public.

However, the same poll showed that the public did not agree with AMLO’s decision to scrap a $13 billion international airport in Mexico City that was already a third finished. While 49.5 percent disagreed, only 29.6 percent agreed.

Meanwhile, AMLO’s plan to build a so called Mayan Train splits Mexicans, with 46.3 percent in favor and 44.8 percent opposed. And AMLO’s decision to lay off thousands of public employees was opposed by more (43.1 percent) than in favor (41.6 percent).

Yet, behind the public style and pledges, lays a darker reality. Mexico’s new president is showing clear signs of a dangerous combination of ideological dogmatism and sheer incompetence that does not bode well for his six-year term.

Apart from the cancellation of the airport – which spooked investors and hit both the peso and local stocks – AMLO has committed a series of mistakes since assuming office on December 1.

He has closed down the foreign offices of ProMexico (which promotes international trade and business) and those of CPTM that promoted tourism – despite repeated calls not to do so by Mexico’s private sector and tourism industry.

Then, to make matters worse, his government recently released a video that supposedly was aimed at promoting Mexico, but instead looked more like a propaganda piece against capitalism. After a huge back clash, the video was withdrawn – not because of its content per se, but because it included a scene that showed the logo of AMLO’s Morena party.

AMLO has also attacked independent entities such as CRE -- the entity in charge of regulating in a transparent, impartial and efficient way the gas industries, the refined oil products and electricity – which he claimed had permitted "looting" and facilitated theft, El Financiero reports.

In a style reminiscent of the weekly broadcast by Venezuela’s late strongman Hugo Chavez, AMLO holds a morning press conference which has become a source of nervous anticipation among local and foreign investors.

In one conference – held on February 11, AMLO claimed private suppliers of CFE were violating their contracts and causing the state company massive losses.  He pledged to renegotiate the contracts with IEnova (a unit of US-based Sempra), TransCanada and Carso, sending their shares down.

AMLO also pledged to prohibit Mexican officials who leave the government from holding any private sector job in their field during a transitional period of ten years – basically killing the value of many ex-officials for private companies and showing how little the Mexican president understands how the private sector actually works.

During the same press conference, AMLO said Mexico no longer would be a place to “conquer” for foreign companies.

On January 29, AMLO attacked Grupo Modelo – the brewer behind the hugely popular Corona beer, claiming erroneously that the country's Supreme Court had rejected a bid by the company for a value-added tax rebate worth billions of pesos. In fact, that bid came from a group of former shareholders, not Modelo, the company said in a statement later that day, according to Reuters.

Meanwhile, the decision to cancel the airport is still reverberating. The airline sector remains skeptical about AMLO’s plans to use three airports as an alternative and warn against safety problems.

Running three airports will be “very, very, very challenging” given Mexico City’s altitude, temperature and surrounding mountains, Alexandre de Juniac, head of the International Air Transport Association, said at an airline conference in the Mexican capital, according to Bloomberg.

Then there’s AMLO’s reaction to recent cuts by ratings agencies Fitch and Standard & Poor's (S&P). The latter slashed the credit rating for Mexico's national oil company Pemex on March 4 over growing concern that financial support pledged by the government to shore up the firm and its slowing production will not be enough. It also cut Pemex’s outlook to negative from stable while keeping its global investment grade rating at ‘BBB+’, in line with the Mexican government, Reuters reported. That came after Fitch in late January downgraded its rating of Pemex.

However, instead of concern about the cuts, AMLO is blaming others and assuming no responsibility.

This week he said ratings agencies are punishing Mexico for the neo-liberal policies during the last 36 years, Milenio reports.

He also criticized the ratings agencies for past ratings of Pemex and CFE despite the “looting” taking place.

"The country is being punished for the neoliberal policy that was applied in the last 36 years, which was a resounding failure (...) but we have to pay for the broken dishes ... The only thing that I can reproach, fraternally, respectfully, to the rating agencies, is that during all this time that corruption prevailed in Pemex and CFE remained silent, they qualified with 10, with excellence," AMLO said.

AMLO’s finance minister Carlos Urzua is also – mistakenly – downplaying the significance of the ratings cuts.

Thus, AMLO and his team completely ignore the message from ratings agencies - in a move that does not auger well for a possible sovereign downgrade.

“The president is right: he inherited many broken dishes from previous governments,” political analyst Denise Dresser wrote on Twitter. “But what the ratings agencies/ Standard and Poors are saying is that your plans to correct / change course are not viable, will scare away investment and reduce economic growth.”

This when local and foreign investors clearly see the dangers of further cuts and even a loss of investment grade.

In a recent survey by Bank of America, 70 percent of respondents believe Mexico will lose its investment grade within the next two years, up from 41 percent the previous month, El Economista reports.

Jonathan Heath, the well-respected Mexican economist who AMLO named to the board of the country’s central bank, believes Mexico is a long way from losing its investment grade  credit rating, but the growing doubts are leading to nervousness among foreign investors.

Alexander Wehr, president and CEO of BMW Group Mexico, Latin America and the Caribbean, told Reuters that the German carmaker was keeping a close watch on Mexico's sovereign rating.

AMLOs first 100 days have been rocky and all signs indicate more is to come.


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