Transition RECAP Monday December 3rd, 2018

by Miguel Toro

Last Saturday December 1st, Andres Manuel Lopez Obrador was finally sworn in as President of Mexico. After a very active 5 months of transition period, the left-wing politician became the 63rd person to hold Mexico’s highest political office in its history promising a radical transformation of the country. During his inaugural address at the Mexican Chamber of Deputies, Lopez Obrador reiterated that the policies implemented during the “neoliberal” period (1983 – 2018) were the causes of most of Mexico’s problems –from poverty and crime, to diabetes –and that his government would dedicate itself to restoring Mexico’s greatness by focusing on policies dedicated to improve people’s lives and not only make the elites better off.
Lopez Obrador starts his presidency with huge popular support as he won 53% of the vote in the presidential race but also obtained a majority in the Senate and a super majority in the Chamber of Deputies (after a negotiation with the criticized Green Party, in which he allowed former Chiapas Green Party governor Manuel Velasco who had been elected as a senator to return to finish his governor term without losing his senate position and returning to the upper house of Congress once his governorship ended this December, in exchange for a handful of deputies that resigned from the Green Party and joined the ranks of the Morena party), as well as a simple majority in 19 of the 32 state legislatures. Essentially, Lopez Obrador is just a handful of senators away from being able to modify the Constitution as he sees fit.
Understanding his strength, AMLO did not shy away from starting to “govern” since after his election, being the most active a President-Elect has been in recent history. His envoy, Ambassador Jesus Seade, participated in the last stages of the United States-Mexico-Canada Agreement, he cancelled the new Mexico City airport project after he organized a citizen referendum (that was not legally binding) in which the majority of the people rejected the project, despite how it affected markets and the way they see him, and decided to continue a punitive security strategy –after heavily criticizing it as an opposition figure and candidate –doubling down on the militarization of the country. He modified the bureaucratic structure of the government, having his congressmen and women pass a bill in which all government employees’ salaries were cut around 20% - 40%, also eliminating many undersecretaries and creating new ones. He has also promised to move most of the Federal Government Departments outside of Mexico City, relocating them to other areas hoping to decentralize the country and further development by moving government offices there. This last move, has not been finalized and has faced important opposition from government employees who would be greatly affected (even though the government has promised to compensate them for it). It is still unclear, if he will be able to pull it through.
With regards to the markets, investors have not been very happy with most of AMLO’s economic policies. As it was mentioned above, the cancellation of the Mexico City airport project had a significant impact on investor confidence, who believe AMLO will also derail other market-oriented reforms such as the 2013 Energy Reform that opened up investment in oil and gas and electricity and renewables to private firms. This last one is a little bit harder to topple, as it implies changing the Constitution, something he cannot do just with his coalition and would need support from some of the other political parties. However, it is not farfetched to believe he could get the support of left-wing party PRD in doing so. On a similar note, Morena Senate party leader, Ricardo Monreal’s bill to reduce bank fees and commissions, spooked most commercials banks, as they have been living off those types of fees and it would represent an important blow to their revenue streams. AMLO’s Finance Secretary, Carlos Urzua, has indicated that they are not in favor of that proposal but they are respectful of the independence of powers that exist between the Executive and Congress.
These things, along with other elements regarding other smaller economic policies, have had an effect on the exchange rate, as it has depreciated around 10% over the last two months and the Mexican Central Bank has had to raise its interest rate 25 basis points (a quarter of a percent). This does not bode well for the Mexican economy, as several international institutions have decreased their growth expectations for Mexico’s GDP in 2019 to be lower than 2%, something that would place AMLO’s first year in the same bag as the governments before, that he has so emphatically criticized for this same point.
With regards to the other two main issues that got him elected –and are major concerns for citizens –security and corruption, AMLO has been wishy-washy with his policies. On the one hand, he has said that corruption will end with his government, but he has not taken any steps to further institutional strength in order to hold politicians accountable for their actions. On the other hand, AMLO’s security and peace strategy does include many of the things he said would deter people from crime (i.e. addressing their social problems through scholarships for young people; trying to rehabilitate prisons to generate a greater number of prisoners that finishing their sentence can return to a normal life; legalize certain drugs like marihuana, etc.), but the main component is a continuation of the punitive strategy, but this time creating a militarized police under the supervision of the Mexican army. This proposal was outrageous to many of the human rights groups that had supported his party and also, a very similar law known as the Internal Security Law, had just been deemed unconstitutional by the Supreme Court just two days before AMLO released his strategy. To address these issues, his party indicated they will seek to modify the Constitution, but certainly shows a backtracking of a popular position while in campaign that is unfeasible while governing.
In the end, President Lopez Obrador has arrived with great support, beginning his period in office with a 69% approval rating and with a pulverized opposition that is still in the midst of rebuilding. He has the political legitimacy to confront many of the obstacles that have chained Mexico back, but it is unclear if he will fulfill his promises. Furthermore, he will be restrained by the markets and the capacity his Finance Secretary has of obtaining resources to fund his many projects and policies, but also by his own popularity. Governing is hard and it generates frictions with many interest groups that can get affected by his policies. The end result may differ significantly from what was promised. ​