Mexico: What to Expect from AMLO
Mexico’s July 1st presidential election took place in a context of high polarization marked by the general rejection of the policies of the traditional parties PRI and PAN. Corruption at all levels of the federal, state and municipal government, together with the high figures of violence (political, by the cartels), made citizens choose the change of course proposed by Andrés Manuel López Obrador, known as AMLO.
It is not the first time that a leftist government governs Mexico: the PRI that headed the executive for 70 years has socialist ideological bases, but that in the last six years it has positioned itself more towards social democracy on the political spectrum and liberal in the economic sphere. The Plan for Mexico that opened the oil industry to foreign investment was the most significant observable change.
This driver of economic growth, industrialization and exports, as well as Mexico’s participation in two important trade agreements (NAFTA and the Pacific Alliance), consolidates an economic model that is difficult to modify, as it generates the tax revenues and jobs that the country demands.
The financial expectations prior to the election kept the peso fluctuating against the dollar in the international markets without any jolts, stabilizing further in the days just prior to the election. The low volatility indicates not only that the markets had priced in the risks associated with an AMLO win — which had seemed inevitable for nearly two months — but in fact demonstrates the confidence of investors and risk arbitrageurs in the country’s economic direction, even with an AMLO victory at the polls.
The foreign policy of Mexico had taken a historic turn with the administration of Peña Nieto, abandoning the traditional neutrality derived from the Estrada Doctrine. Mexico’s participation in the Lima Group and in the Venezuela case at the OAS, were prime examples of this strategic change, as part of a more active role in the different international organizations of which the country is a part.
The MORENA party, together with a coalition of parties called ‘Together We Will Make History,’ which brings together the left, the PRD, religious right and others, won not only the Presidency of the Republic but also:
- Government of Mexico City: Claudia Sheinbaum Pardo.
- Government of the State of Chiapas: Rutilio Cruz Escandón Cadenas.
- State Government of Morelos: Rodrigo Gayosso Cepeda.
- Government of the State of Tabasco: Adán Augusto López Hernández.
- Government of the state of Veracruz: Cuitlahuac García Jiménez.
The other four governorships (Guanajuato, Jalisco, Puebla and Yucatán) were left to the PAN, the MC and the coalitions. The PRI lost in all states.
MORENA and the coalition have a majority in the Senate and the Chamber of Deputies.
The new President assumes his 6-year term without re-election on December 1, 2018. He has 6 months to outline what his administration will be on the topics identified in his government program. Among the reforms proposed by AMLO to the constitution there is no mention of changes in the presidential period; its focus is the fight against corruption. To wit, the night of his election he affirmed: “eradicating corruption and impunity will be the main mission of the new government ( …) on notice there is no deception. Whoever he is, he will be punished. I include partners in this fight, officials, friends and family members. I will not fail them.”
- Foreign Policy: The opinion matrix places AMLO in the same line of governments grouped in the ALBA / XXI Century Socialism and there will be rapprochements with Cuba and the albistas, but not unconditional support. It will result in a return to the Estrada doctrine of neutrality and will be evident in the OAS, when it does not accompany the votes but abstains. Regarding AMLO’s likely relationship with the US: Trump is pragmatic and needs an ally, not an enemy in Mexico. We will not see anti-imperialist rhetoric from AMLO, but we do expect to see exercises of sovereignty and disputes over migrants. The active participation of Mexico in NORAD and other fora of North American military cooperation prevents its isolation from its partners to the north. It will strengthen links with Central America more than with South America. A positive: there will be an increase in Mexican investments in Cuba, which translates into new business and growth.
- Fiscal Policy: The AMLO administration will have the support of the Congress to undertake tax reform that on the one hand increases revenues from a greater taxable base by reducing evasion and, on the other, it will create incentives for development projects and the special economic zones of the north. Companies will have to adapt to the new tax demands both to comply and to participate in the new benefits that are generated. The money that could be saved by reducing corruption plus the income from a more efficient tax collection will be allocated to social programs, not the oil industry, which will continue to demand private investments for its growth. There is no possibility of fiscal changes (tariffs) in integration agreements such as the Pacific Alliance, but they are likely in relation to NAFTA 2.0.
- Economic Policy: The changes point to an economic model with greater controls by the state couched in a rhetorical pivot towards self-sufficiency models, which we consider an anachronism in an era of globalized value chains. However, there is no evidence of exclusion from the private sector in development plans. The economy is diversified and revenue does not come from a single sector controlled by the state; rather, it is distributed across large industries and maquilas, which produce exports and import both raw materials and finished products. PEMEX is one more source of revenue, not the main one. The return to a centralizing statism of the oil and energy industry is not credible in a highly competitive market whose growing investments prevent states from financing them. Hence, we predict the open investment scheme will be maintained. Mexico will remain within the reformed NAFTA and in the Pacific Alliance (with Chile, Peru, and Colombia), where it contributes more than 50% of the intra-group trade.
- Security: The armed force of Mexico (Navy, Army and Air Force) is not a political actor. The highly public exposure (especially of the special forces) in recent years to combat the cartels, far from improving their image, has deteriorated it. The military commanders support the Citizen Security Law that would allow them to withdraw their forces from the streets and reorient their to the essentials: the defense of sovereignty. In his program, AMLO proposes the necessary reforms to address the problem of violence that will continue to be present for a long time.
We consider that despite the parliamentary majority obtained by MORENA and the coalition that will support the program of reforms proposed by López Obrador (AMLO), there is negligible risk of a transformation of the state in the direction of a greater centralization power in the Presidency that would enable it to ignore or discount other institutions, such as Congress and the judiciary, despite the coalition’s publicly avowed admiration for the Cuban model and particularly for Fidel Castro. The economic, financial and institutional reality of Mexico would serve as a counterweight should they decide to embark on a more centralizing and statist direction. The geographical proximity with the United States is a determining factor of both foreign and economic policy and this will mark the administration AMLO-TRUMP 2018-2020 and perhaps even TRUMP-AMLO 2020-2024.
By Maria Teresa Belandria, Asymmetrica’s senior LatAm security analyst and Fulbright Scholar at National Defense University’s William J. Perry Center for Hemispheric Defense Studies.
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