By David Luhnow and José de Córdoba
During a recent visit to a coal-fired power plant run by
Mexico's state electricity utility, President Andrés Manuel López
Obrador recalled with nostalgia that only a few decades ago, the
state produced all of the country's electricity. Now, he lamented,
it generated only half, thanks to free-market policies over the
past three decades that had hurt ordinary Mexicans. "In that period
they tried to destroy Pemex and the Federal Electricity Commission
with reforms to take market share away from them to give it to
private companies, especially foreign ones, " he said, referring to
Mexico's former state oil and electricity monopolies.
The silver-haired populist is trying to reverse course. It is
part of what critics see as a drive to recreate the Mexico of his
youth in the 1960s and 1970s, when the country was a one-party
state with an all-powerful president, a compliant congress and
courts, and an economy powered by state-run firms, especially in
energy. It was a time before the country embraced globalization in
the mid-1980s and democracy in the late 1990s.
"It's the return of the Tlatoani," says political analyst Denise
Dresser, referring to ancient Aztec kings that began a long
tradition in Mexico of powerful rulers, including Spanish viceroys
and Mexican presidents so dominant that a 1970s joke had the
president asking what time it was only to be told "whatever time
you say it is, Mr. President."
What is different about the 67-year-old Mr. López Obrador --
widely known by his initials, AMLO -- is how he has managed to
dominate the political and economic life of this country of 126
million not by defying its democratic system but by exploiting it.
Elected by a landslide in 2018, he is by far the most authentically
popular politician this country has seen in a generation, boasting
60% approval ratings despite a weak economy and a pandemic that hit
Mexico particularly hard.
Now, many in business and growing numbers of middle-class
Mexicans fear that he will use that power to subvert the very
democracy that elevated him. Even presidents from Mexico's former
ruling Institutional Revolutionary Party (PRI) -- described by the
Peruvian novelist Mario Vargas Llosa as the "perfect dictatorship"
-- dutifully obeyed the Mexican constitution by retiring after a
single six-year term. Mr. López Obrador, by contrast, is hollowing
out a number of the institutions that limit presidential power, and
many worry that he will try to stay in office beyond 2024, or at
least hold sway over a handpicked successor.
A crucial test comes this Sunday, when Mexicans vote in midterm
elections for the entire lower house and half of the country's
governorships. At stake is whether the president's Morena party,
which is expected to win, can gain a big enough majority to change
the constitution and speed up his agenda for change. No matter the
outcome, most analysts expect the president to step up his attempts
to concentrate power.
Mr. López Obrador's party is already proposing to end the
autonomy of independent agencies designed to check presidential
power, ranging from antitrust regulators to a body responsible for
public transparency. Mexico's congress funds these agencies and
names their members, and the president believes they should be
folded into the executive. In April, a ruling-party senator paraded
a coffin emblazoned on the side with the name of the electoral
agency's top official. Mr. López Obrador also said recently that he
planned to replace the head of Mexico's independent central bank
with someone possessing a greater sense of the "social" or "moral"
economy.
"The next three years will be marked by increasing uncertainty.
At risk are the election agency, the autonomous institutions, the
judiciary, the central bank, the energy reform, public finances and
the constitution itself," said Carlos Ramírez, head of the
political risk firm Integralia.
Populist autocrats have become a familiar phenomenon in key
emerging markets, including Brazil, India, Turkey, Russia and the
Philippines, according to Larry Diamond, a professor at Stanford
University who studies global political development. Such
charismatic leaders cast themselves, he says, as saviors of a good
and honest people laid low by a corrupt traditional establishment,
represented by institutions ranging from the courts to the media.
"Where does this lead? Cronyism, crony capitalism, massive
corruption and almost invariably a gradual restriction of political
rights and rule of law, subjugation of the judiciary, media, and
the downward slope of an autocrat," Prof. Diamond says. "López
Obrador has mastered the course."
Whatever their similarities, none of those other countries
shares a 2,000-mile border with the U.S., which counts on Mexico as
its second-largest trading partner. If Mr. López Obrador creates a
political or economic crisis, the spillover effect could be
profound, affecting everything from migration to trade to antidrug
cooperation. "There are not enough people in the U.S., either in
Washington or on Wall Street, that understand what López Obrador
means for Mexico," says Duncan Wood, senior adviser to the Mexico
Institute at the Woodrow Wilson Center in Washington, D.C.
As Mr. López Obrador approaches the midway point in his six-year
term, the Mexican economy is faltering. Even before the pandemic,
Mexico was in recession thanks to measures by the president that
spooked business investment, such as canceling a partially built
new airport for Mexico City and scrapping a nearly complete $1.4
billion brewery built by the U.S. maker of Corona beer over
water-use concerns. Mexico hasn't had a single initial public stock
offering in four years.
Mexico's economy contracted 8.5% during his first two years in
office and lost at least 850,000 jobs, most of them during the
pandemic. An estimated 400,000 businesses have also closed in the
past year, according to government figures. For the past year, the
biggest group of immigrants caught crossing the U.S. border
illegally are Mexican adult males looking for work.
The president's economic vision for Mexico is clearest in the
energy sector. In February, he pushed through a law forcing the
national electric grid to buy power produced by the inefficient
state utility first, even though it costs more and generates more
pollution than power from private firms and renewable energy
producers, which have been relegated to the end of the line despite
having invested tens of billions of dollars in recent years.
Economists say that the move will push up electricity prices,
reduce reliability and make Mexico's trade-dependent economy less
competitive.
Within weeks of the new law, Mr. López Obrador also ordered a
halt to all new mining concessions, threatened to yank the
operating license of a Canadian mining company, passed another law
giving the government power to cancel the operating licenses of
privately run filling stations and to hand them to the state oil
giant, and floated the idea of nationalizing the country's lithium
reserves. "We are going backwards," says José Antonio Crespo, a
political analyst at the CIDE university in Mexico City. "We are
losing what we gained in the last 30 years."
The uncertainty and the ensuing pandemic have dramatically
slowed business investment. Gross fixed investment from both the
government and business fell 4.6% during 2019, Mr. López Obrador's
first full year in power, and then another 18.2% in 2020, according
to figures from the national statistics institute. Foreign direct
investment for the past two years has been down about $5 billion a
year to $30 billion.
Mr. López Obrador's office did not respond to repeated requests
for comment on the issues raised in this article. Historian Lorenzo
Meyer, who counts himself as one of the president's supporters,
said that fears of his authoritarianism are overblown: "There's not
a single political leader who is in jail, the army hasn't acted
against political opponents, the intelligence service has been
dismantled, no newspaper has been shut down."
Finance Minister Arturo Herrera has said Mexico is set for
strong growth in coming years, emerging from the pandemic with
stable public finances and the new USMCA trade deal with the U.S.
and Canada, completed in November 2019, just ahead of the pandemic.
"In recent months, investors are starting to reconsider their
supply chains and taking advantage of the trade deal," he said in a
written response to questions.
Few expect Mexico to turn into another Venezuela, which has
suffered an economic collapse under its Socialist regime. Unlike
many Latin American populists who bankrupted their countries with
spending sprees, the Mexican leader, the son of shopkeepers, is
cautious with the public checkbook. He has eliminated thousands of
government jobs and slashed salaries, directing some $26 billion in
savings to public works and expanding cash handouts to the
poor.
That fiscal restraint, and Mexico's deep ties to the U.S.
economy, may prevent Mr. López Obrador from steering the economy
into a major crisis. Mexico's courts, too, could prove more robust
than those in Venezuela. Federal judges in Mexico have temporarily
suspended dozens of the president's initiatives to expand state
control of the economy, including the new electricity law, saying
the actions might violate the constitution. The president vows to
press ahead.
Economists predict a rebound for the country this year and next,
driven by a strong U.S. economy lifting demand for Mexican exports,
by far the strongest part of Mexico's economy but also the one that
analysts say interests the president the least. Growth this year
could hit 6%, according to estimates by investment bank J.P.
Morgan. But after that, most economists expect sluggish growth
unless the government changes course.
Mr. López Obrador comes from a generation of PRI leaders who
left the party in the late 1980s after they were passed over for
key jobs in favor of a new wave of Ivy League-educated technocrats.
He joined a left-wing party and became mayor of Mexico City in
2000.
After losing the 2006 presidential election by a hair, he
claimed that the vote was stolen, refused to concede and held a
mock swearing-in ceremony declaring himself the "legitimate
president." He spent the next 12 years on a pilgrimage that took
him to every municipality in the country, railing against what he
called a corrupt establishment. The political tide turned his way
during the 2012-18 term of President Enrique Peña Nieto, who was
dogged by corruption scandals. Mr. López Obrador won easily on his
third presidential try in 2018.
For the U.S., the populist president is a sharp break from the
type of politicians who have led Mexico since the mid-1980s: Most
studied in the U.S., appointed cabinet ministers with diplomas from
the world's top universities, embraced globalization, ceded
authority to Mexican states and allowed, if at times grudgingly, an
independent judiciary and media. They also drew Mexico far closer
to the U.S., ending a period of "distant neighbors," as the late
Mexico correspondent Alan Riding called it.
Mexico went from being one of the world's most closed economies
to one of its most open, at one point signing more free-trade
agreements than any other country. It became the world's
fourth-biggest exporter of automobiles, just behind the U.S. During
that time, Mexico created a world-class central bank and finance
ministry, prompting an Argentine economist to wonder: "Can you
imagine what Argentina would be with Mexican macroeconomic
management?" From 1995 to 2015, poverty and inequality fell
modestly and the middle class grew.
But the country also failed to curb rampant corruption, create
enough opportunities for the poor or prevent drug gangs from
terrorizing the population. As in Russia, the privatization of
state firms by politically connected elites created powerful
oligarchs who thwarted competition and gouged consumers. Even as
Mexico produced its first billionaires, the minimum wage fell
behind inflation.
In the same way that Donald Trump connected with many
working-class Americans who felt left behind by globalization, Mr.
López Obrador has created a bond with the poor in Mexico who felt
democracy and free trade had failed to improve their lives. "He got
the diagnosis exactly right: Mexico is too corrupt, too
structurally unequal, and it's too difficult for smart and honest
entrepreneurial persons to get ahead if you don't have the right
last name or...right school," says Shannon O'Neill, a fellow at the
Council on Foreign Relations in New York. "But so many of his
policies are going to make all this worse."
Though Mr. López Obrador has cut funding to much of Mexico's
bureaucracy, he is pouring money into the state oil giant Petróleos
Mexicanos, or Pemex, which he says will power the country's growth.
He has halted all new bidding by private oil firms for exploration
rights, leaving Mexico's future production in the hands of Pemex,
which has piled on $115 billion in debt but has failed to stem
declining output.
While much of the world is focused on how to get to a
carbon-free future, the Mexican leader is building a new oil
refinery in his home state, the first in Mexico since the late
1970s, even though the country can import gasoline from the U.S.
Gulf Coast more cheaply than it can make its own, say analysts. His
administration has also stopped Mexico's fast-growing market for
renewable energy, halting all new auctions for private companies to
build wind and solar power, despite the fact that their electricity
production costs are less than half that of the state utility.
Latin America's biggest Coke bottler, Femsa, converted 10,000 of
its 20,000 Oxxo retail shops to run entirely on wind power, cutting
its light bill by about a quarter, company executives say. But Mr.
López Obrador has repeatedly complained that firms like Oxxo now
pay less for their light than an average Mexican household, which
must still purchase power from the state utility CFE.
Rather than allow more private power to lower costs further, his
solution has been to restrict privately produced power. Since 2019,
not a single new large electricity plant has been started by the
private sector, say industry executives, raising the possibility of
electricity shortages down the road.
One of the president's favorite targets in the private sector is
the Spanish electricity firm Iberdrola SA, which he accuses of
using corrupt, backroom deals to "loot" Mexico and freeload off the
state utility's network. The government has sharply hiked
transmission prices. Iberdrola, which has invested about $10
billion in Mexico, said it has suspended plans to invest another $5
billion in coming years.
"If they say they don't want foreign investment, then we won't
invest," Iberdrola CEO Ignacio Sánchez Galán told analysts last
year. Mr. López Obrador retorted that he wasn't interested in
private companies: "To put it less bluntly, the only businesses
that merit our attention are state businesses, because we are
public servants. The government is not a committee to service
private businesses, corporations, banks, companies."
Allies of the president say that he does not dislike either the
private sector or free trade, which he recognizes as an engine of
Mexican economic growth. "I don't think he wants a return to a
closed economy," said a high-ranking member of Mexico's central
bank.
Even before taking power, the incoming president signaled what
was in store by vowing to cancel a new $15 billion Mexico City
airport being built by Mexico's largest construction firms.
Although an estimated $5 billion had already been spent, once in
office he stopped the project and instead launched his own airport
in another part of the city.
That airport, however, is being built not by the private sector
but by Mexico's army, which will also operate it in coming years.
Under Mr. López Obrador, the army has become one of Mexico's
biggest contractors. It is also the one institution other than the
presidency that is getting noticeably stronger.
In recent weeks, the president said that the navy will have
partial ownership of a massive land canal consisting of a new
railroad linking ports on both of Mexico's coasts to be built in
the country's south. The military's ownership of the projects is
meant to foil any future attempt to privatize them, he said.
According to Leonardo Curzio, a journalist who has covered Mr.
López Obrador for three decades, the president sees himself as the
savior of a people oppressed by a historical cavalcade of villains,
starting with Spanish conquistadors and followed by inquisitorial
priests, conservative landowners and top-hatted capitalists. The
president has demanded, for instance, that the King of Spain
apologize to Mexico for the Spanish conquest 500 years ago. The
Spanish government has refused.
To right these historical wrongs, Mr. López Obrador has vowed to
carry out what he calls a "Fourth Transformation" of Mexico, on a
par with the country's independence from Spain, reforms to separate
church and state in the 1860s, and the 1910-17 Mexican revolution.
His aim, he says, is to create a more equal country where ordinary
Mexicans, at last, come out on top.
Many analysts say that Mr. López Obrador's political views are
based on a romantic vision of his youth in bucolic Tabasco, a
southern rural state. It was a time when Mexico had a closed
economy and had emerged from several decades of strong growth
driven by urbanization and industrialization. "He looks at what
Mexico was like in the 1970s and says, 'that works.' He wants a
simple, largely agrarian, natural resource-based economy overseen
by the state, which of course doesn't exist anymore because the
world has changed," says Mr. Wood at the Woodrow Wilson Center.
Although Mr. López Obrador tours some part of the country every
weekend, he avoids visiting modern manufacturing facilities. In
2019, he turned down an invitation to be at the inauguration of a
$1 billion state-of-the-art BMW plant in San Luis Potosí. He favors
much more modest projects. He has praised roads laboriously built
by hand by indigenous communities in Oaxaca and, in one well-known
episode, waxed poetic over a primitive one-mule circular press
crushing sugar cane to extract the juice. "This is the authentic
people's economy," he said in a video.
Like many Latin American populists, the Mexican leader
romanticizes poverty, said Paco Calderón, one of Mexico's most
prominent cartoonists. "Trump's brand was 'I'm the best because I'm
rich,' but López Obrador's brand is 'I'm the best because I'm
poor,' " he said.
The Mexican leader is an old-fashioned leftist who dismisses
issues of the modern left like feminism and the environment. In a
deeply Catholic country, he has cast his politics in religious
symbolism. His party Morena is a reference to Mexico's dark-skinned
national patron, the Virgin of Guadalupe, and was founded on her
Feast Day. The president has compared himself to Jesus for his
persecution and named his youngest son Jesús Ernesto -- for the
Christian savior and the Argentine revolutionary Ernesto "Che"
Guevara.
The president has an almost Franciscan frugality that resonates
with ordinary Mexicans. Although he lives in Mexico's grand
National Palace, once the seat of Spanish viceroys, he has no bank
account, no credit card, flies economy on commercial airlines and
eats tacos on the side of the road. "He believes in the dignity of
poverty," says Mr. Wood. "If you aren't happy to be poor, there's
something wrong with you. If you want to make money, then you are
by definition corrupt."
"It seems to me that López Obrador knows what poor people are
experiencing, the needs of the people," says María del Carmen Chan,
a 39-year-old homemaker in southern Campeche state, who welcomes
the president's cash handouts as a godsend. "Before he came to
power, you felt like they gave you leftovers."
(END) Dow Jones Newswires
June 04, 2021 11:15 ET (15:15 GMT)
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