by Miguel Toro Last week was dominated by the citizen referendum on the construction of the new Mexico City airport. During 4 days, people had the opportunity to vote in everything-but-trustworthy voting booths, where they could decide if they wanted to keep building the new Mexico City airport in Texcoco (already around 35% of it was finished by the day of the vote) or turn the military base in Santa Lucia into a second small airport for Mexico City and continue using the current one. As it was obvious, due to the strong push done by President Elect Andres Manuel Lopez Obrador and Communications and Transportation Secretary, Javier Jimenez Espriu, the Santa Lucia option won with about 70% of the vote.
In a citizen referendum that had only about 1 million votes (in Mexico there are registered to vote more than 70 million people), that the National Electoral Institute did not organize, but rather was organized by the Morena (AMLO’s) party –consequently having voting booths that did not use special paper (or even serialized), where the ink used to cover the thumbs of people that voted was not permanent, where there were no controls regarding how many times people could vote, that were located in strange places in a selected sample of municipalities in what seemed like gerrymandering –those that “voted” opted to cancel the construction of the currently being built new Mexico City airport and substitute it with an unfeasible project of turning the Santa Lucia military base into a second small airport for Mexico City. Lopez Obrador had promised to cancel the new Mexico City airport during his presidential campaign, as the Texcoco project was full of accusations of corrupt activities and favoring specific investors by the current Peña Nieto government. However, as with many of his proposals, he was very wishy-washy in terms of the details and swung back and forth on what to do with the airport: he talked about cancelling it; about licensing it to billionaire Carlos Slim (who was the main constructor of the new airport); about reviewing all the contracts and punishing the corrupt ones but staying on course with its construction; about putting it to a vote so the people could decide what to do with it. In the end, this last course of action was what he did and the decision affected the markets. Mexico had a poor showing on international markets on Monday October 29th when the peso lost its greatest amount since the Donald Trump election in November 2016, returning to the 20 pesos per US dollar level and where Mexican stocks lost $17.5 billion US dollars in value (1.25 times the total worth of the new Mexico City airport project). Additionally, JP Morgan Chase & Co analysts slashed Mexico’s growth forecast from 2.4% to 1.9% citing the airport decision as one that would force the Central Bank to raise interest rates to reduce the risk of capital flight and decreasing growth potential. Furthermore, AMLO’s decision showed a glimpse of how he may govern, using citizen referendum that just validate his policies and with that excuse, backtrack on previously contracted government decisions. It evidenced that the more market-oriented advisors he has, Office of the President Chief of Staff, businessman Alfonso Romo and Secretary of Finance, Carlos Urzua, hold little convincing power over the left-wing President Elect. In a nutshell, the cancellation of the new Mexico City airport being built in Texcoco resurfaced investors’ worst fears on AMLO of being a populist that cares little for the market or even for institutions.
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The third week of October was dominated by three main topics: the announcement of where the citizen survey on the new Mexico City airport would take place; the fact that rating agencies like Moody’s and Fitch (who actually downgraded State-owned enterprise Pemex’s credit future perspective to negative); and the migrant crisis on the Mexico – Guatemala border. Each of these three events presents important challenges for the upcoming government who is starting to feel the heat of what may come.
On Monday October 15th, the President Elect’s Press Secretary, Jesús Ramirez announced further details regarding the citizen survey that will decide the fate of the new Mexico City airport. He said that the survey would take place on 538 municipalities (out of almost 2,500) between October 25th and October 28th, having voting booths on the plazas outside the Municipal Palace of each of those municipalities. He also indicated, that even though the survey is not done according to the laws guiding referendums (must be concurrent to a Federal level election, organized by the National Electoral Institute and more than 40% of the entire Mexican voter base must participate in order for it to be legal), the result would be binding. Throughout the week it was questioned by many different pundits because the incoming government left many details unclear. First of all, the overall selection of the 538 municipalities has been questioned by many political analysts and pollsters who can’t understand why those particular municipalities where chosen and why not others. Furthermore, in order to not present a cost to taxpayers, the survey would be paid by pooling resources of the Morena party Congresspeople, situation that did not fare well with them as hours later Speaker of the Chamber Deputies, Deputy Porfirio Muñoz Ledo (Morena) and Morena party leader in the Senate, Senator Ricardo Monreal, said they would not be paying that survey from their income. A week later, it is still unclear how the survey is going to be paid. Additionally, the possibility that the Santa Lucía military base option –to replace the construction of the new Mexico City airport –wins the survey has started to make uneasy several investors. It must be noted that around 35% of the construction of the new Mexico City airport has already been completed and abandoning the project would cost around $120 billion pesos (~$6.3 billion dollars) in different sunk costs and legal problems from investors who would sue. The week continued in not the best of terms regarding the markets’ trust on AMLO’s administration as both Moody’s and Fitch rating agencies warned the upcoming administration about their new policies with State-owned oil firm Pemex. On Thursday October 18th, Moody’s warned that placing the financial burden on Pemex of building a new refinery (a flagship policy from AMLO) could be devastating to its debt and would potentially imply a reduction to a negative grade that could affect Mexico’s overall credit rating as the government has said it would be the lender of last resort for Pemex. On Friday October 19th, Fitch downgraded Pemex’s future credit perspective to negative precisely because of this issue. These warnings were undermined by future Secretary of Energy, Rocío Nahle, and even President Elect, Andrés Manuel López Obrador, who said Mexico has nothing to worry about and that what Fitch did was absurd as they don’t understand what data they have. But the most relevant issue of the week was the migrant crisis happening on the Mexico – Guatemala border, as thousands of Central American migrants clashed with Mexican federal police forces who tried to prevent them from entering illegally into the country. A couple thousand Central American citizens have made another migrant caravan walking from Honduras all the way to the Mexico – Guatemala border where they are attempting to get across and get all the way to the United States fleeing from the never-ending violence and poverty situations that plague their home countries. They are seeking asylum in the United States as political refugees, something that has been denied by the U.S. government and has infuriated President Trump who is pressuring Mexico with this issue. The Mexican government has been caught between the dire needs of Central Americans who need a human response to the crisis and the respect of the legal processes through which one can enter other countries, particularly in times where this issue is salient and there is open hostility towards them within the United States and also Mexico. The Mexican government asked the Office of the United Nations High Commissioner for Refugees (UNHCR) for help dealing with the situation in order to process their requests for political asylum, and has been granting some of them the possibility to enter the country and stay in Hidalgo City, Chiapas while their applications are processed. Nevertheless, the Mexican government officials are overwhelmed by the number of applications and the process is going very slowly. Meanwhile, after the current Mexican government faced social media backlash (particularly from liberal voters) for its response to the crisis, the President Elect flew to Chiapas and said that Mexico would try to help the Central American citizens looking for asylum. With him, Mexico would grant work visas to everyone who wanted to work, while his administration would continue to cooperate with the United States seeking to further social development policies and economic aid for the Central American region to truly address the migration causes. It must be noted that on Friday, U.S. Secretary of State, Mike Pompeo, met with upcoming Secretary of Foreign Relations, Marcelo Ebrard, where it was said that the United States government offered 20 million dollars to its Mexican counterpart to massively deport Central American citizens from Mexico that would be sent over from the United States border, but the future Mexican government refused. by Miguel Toro During the second week of October, the President Elect, Andrés Manuel López Obrador continued his thank you tour meeting with citizens all over the country talking about how his policies will help their lives. Part of the week he traveled through the southern states where he met once again with the governors of those states to discuss the project of the Mayan train. It was there that he continued to discuss the potential benefits but dismissed criticisms that people that question the project have raised regarding to the fact that the new Mexico City’s airport project (which is 30% already built) will have to be approved by a citizen referendum while this one will not. In a move very similar to the current administration, he complained about how people complain too much about his policies when he has not even taken office.
On the Mexico City airport matter, part of his cabinet members released a report showcasing the potential benefits of the Santa Lucía military base option that has been presented as an alternative to the new one being built in Texcoco. They indicated that on Monday October 15th, the information about the citizen referendum and its question would be revealed. Meanwhile, during the other part of the week, AMLO exposed several ideas that sparked debate among political pundits in news analysis programs and op-eds. First of all, he said that it is more important to transform the country than to simulate fighting corruption by pursuing corrupt political figures. He indicated that his spending-cuts policies and furthering an honest way of managing the government will do more to fight corruption than the former option. This made opposing figures question the authenticity of his fight against corruption and the promises he did during his campaign (and since many years ago). Second of all, the President Elect said that starting with his administration no wage increase would be able to be below the official inflation levels for the year. This would be done through a new law that would prohibit employers from raising their worker’s salaries below inflation levels, raising eyebrows among the more orthodox economic pundits that believe this could potentially increase inflation. It must be noted that despite some controversy that may originate around abnormal behavior by members of Congress (i.e. last week a Federal Deputy from the Morena party was involved in a late night crash and an explosion that killed the taxi driver with which the Congressman crashed into), matters in Congress have little importance in Mexican politics unless directed by the Executive power. In Mexico, most policies and new bills are presented by the Executive power (introduced through some member of Congress from the President’s party) and rarely are initiated by members of Congress, specially opposition party members. The huge attention that the President centers ‘distracts’ Congress from being more proactive in setting the political agenda, despite the number of bills that can be presented in Congress. So even though the Chamber of Deputies is discussing AMLO’s first budget bill, this rarely makes headlines or sparks debates in op-eds. Nevertheless, the contents of this bill will be very relevant to see what kind of government AMLO may have and the things he wants to pursue during his first year in office. The first part of the first week of the month of October centered around the signing of the new trade agreement between Mexico, the United States and Canada known as the United States-Mexico-Canada Agreement (USMCA). The three countries were able to strike a deal in time (auto-imposed deadline of September 30th) in order to have President Peña Nieto sign the agreement before his departure November 30th. On behalf of the new Mexican government, future Foreign Relations Secretary, Marcelo Ebrard, released a statement in which he said that the new administration was happy with the outcome as it would allow the Mexican economy to face much less uncertainty. Later that week, President Elect Andres Manuel Lopez Obrador indicated that he especially liked that the USMCA had mechanisms that would allow Mexican workers salaries to grow in the manufacturing sector, especially in the automobile industry where the U.S. and Canada had made an important point to produce 40% of vehicles where wages were $16 USD/hour. Additionally, he said that the new agreement did not interfere with Mexico’s sovereignty and rights to determine what to do with its natural resources (i.e. oil and gas) thanks to what his chief negotiator, Jesus Seade, had negotiated with the other countries. In reality, this is much more of a talking point to appease his electoral base as there was never an intention from Mexico’s northern neighbors to limit the country’s right to do so. But since the 2013 Energy Reform opened the sector to private investment, there are many Mexicans that thought that the USMCA would strip Mexico of its resources or make it easier for U.S. and Canadian firms to secure our oil fields thanks to the rhetoric spread by some left-wing politicians during the election process.
Continuing with the topic of oil and gas, during a visit to the state of Guanajuato, AMLO announced an investment of $4 billion pesos (~$210 million USD) to rehabilitate the Salamanca refinery located within the state. This is part of a broader strategy his government plans to implement regarding Mexican refineries. During his campaign, the President Elect criticized the amount of fuel that Mexico imports from U.S. refineries located in Texas and Louisiana as it has driven fuel prices in Mexico upwards due to the rise in the exchange rate since Trump became a candidate (the Mexican peso – U.S. dollar exchange rate passed from about 15.5 pesos/dollar to around 19 pesos/dollar with a high of 22 pesos/dollar just before Trump took office). One of his proposals was to rehabilitate and build new refineries in the country to avoid importing fuel –a proposal battered by critics saying that building new refineries is very costly and with their low margins, they require very efficient operations, something Pemex and its labor union have never been good at. Furthermore, in a visit to the state of San Luis Potosi, he said that his government would not allow new fracking activities to protect the environment. On another topic, celebrating the 50th anniversary of the Tlatelolco Square massacre from October 2nd, 1968 (where the President ordered the military and police forces to open fire on students protesting the Mexican government’s lack of democratic processes right before the 1968 Mexico City Olympic Games), President Elect Lopez Obrador swore he would never use law-enforcement officials to hurt civilians as well as promising that all people in jail for political reasons would be liberated the first day of his government. However, the topic that created more controversy during the week came in the later days when the future head of the Science and Technology National Council (CONACYT for its initials in Spanish), Maria Elena Alvarez, ordered the current government officials to halt any new scholarships and grants that would be given to people in 2019, as the cuts in government spending ordered by the new administration demanded so. She sent a letter to the current head Enrique Cabrero saying so that got leaked to the press resulting in a social media backlash. Many of the Mexican students abroad (doing graduate programs) and the non-profit organizations that research science related topics could be left without funding if what Mrs. Alvarez ordered was true, so the future Mexican government faced an outcry that was fueled by opposition figures that found it easy to pile on the bad idea of cutting spending on science and technology. In a statement released later by Mrs. Alvarez, she explained that her letter only meant for the cutting of funds for scholarships or grants not previously assigned, but the hostile tone of it did not help her cause as the damage was done. The month of October has arrived with a new North America Free Trade Agreement deal being agreed to by Mexico, the United States and Canada that will be henceforth known as the United States-Mexico-Canada Agreement (USMCA). Both the current and upcoming governments in Mexico wanted to strike a deal with its northern neighbors because the elimination of NAFTA would have been a catastrophic outcome for the Mexican economy. The details of the agreement have just been released so more information will be included in next week’s transition recap. Meanwhile, in domestic affairs, the week revolved around the announcement of who would chair each of the different committees in both houses of Congress. Social media outcry appeared once it was announced that legislators from the disappeared[1] ultra-conservative Social Encounter Party (PES) would preside over particular committees like health, education, culture and sports. To many liberals, having Evangelists control these committees was outrageous and to many of Lopez Obrador’s critics, it was just another example of how incongruent his government could be. This situation, forced the governing coalition to shift who received these committees, putting Morena legislators as the chairs of them replacing the PES legislators. This in turn, made people like former telenovela star and stripper Deputy Sergio Mayer (Morena) the head of the culture committee, situation he announced in a misspelled tweet. Regarding AMLO’s agenda, he continues visiting different cities on his “thank you tour”, stopping by the state of Tlaxcala and indicating that the first department to relocate will be the Culture Department. During the election campaign, AMLO promised he would aid Mexican decentralization by moving the different departments that compose the Executive branch to other states rather than all of them being in Mexico City. This is one of his most criticized proposals as it implies a ton of hidden costs that his team seems to not be considering, to the point that criticisms had made the future government silent on the issue for several weeks, but reigniting debate once he announced in Tlaxcala that the Culture Department would be the first to move in 2019. During the week, AMLO promised to parents of the disappeared student-teachers from Ayotzinapa that his government would create a special committee to get to the truth of what happened four years ago with them. On the anniversary of their abduction, President Elect Andres Manuel Lopez Obrador, said that institutions must be strengthened to prevent this situation from happening again and suggested that he would invite international human rights organizations to aid in the clarification of the disappearance of those 43 student-teachers. He promised that from now on, the Government Department (of the Interior) would be an institution tasked with governance and furthering human rights and not spying on people as it happened during Peña Nieto’s administration (according to the New York Times). On other stops of his tour, AMLO reiterated his proposal to give scholarships to young people without a job as part of training programs while also emphasizing the role that sports could play in receiving those grants while visiting the Mexican Olympic Committee. He said his government would allocate 5 billion pesos (~263 million USD) to give 2.6 million sports related scholarships. Later on, when visiting the state of Hidalgo, he spoke once again about reinvigorating Mexico’s energy sector (mainly speaking about Pemex rather than the entire energy sector) by investing 70 billion pesos (~3.7 billion USD) in the reconfiguration of the Tula refinery in that state. [1] Note: The Social Encounter Party lost its ability to compete in federal level elections last July 1st as it did not reach the 3% of the vote threshold so legislators that won single member plurality districts have a seat in Congress but are independent. However, as the PES was part of AMLO’s coalition, those legislators are acting in tandem with Morena and its allies in the different legislative negotiations.
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December 2018
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