Will Mexico make progress under AMLO, its controversial president?

published 7 December 2019

Independence Day celebration, Mexico City, Mexico - 15 Sep 2019 — AMLO: a pragmatic populist?

Andrs Manuel Lpez Obrador (AMLO), Mexico's controversial president, has been in power for a year. Can he solve the country's chronic problems and help foster faster growth? Simon Wilson reports.

Who is AMLO?

To understand AMLO's appeal, outsiders need first to understand the extent to which Mexico's politics has been wholly dominated for the past century by the Institutional Revolutionary Party (PRI), founded by leaders of the Mexican Revolution.

Though it began as a leftist party, the PRI morphed over the decades into a politically fluid national party that allowed the country's elites to thrash things out among themselves before deigning to bother the people at election time. It was also brutally authoritarian when its interests were threatened.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

For most of its recent history, Mexico was in effect a one-party PRI state and a textbook study in cronyism and corruption.

Then what happened?

AMLO later led that party, the PRD, and served as mayor of Mexico City, before becoming disillusioned with the continuing corruption of Mexican politics after narrowly losing the 2012 presidential election to the PRI candidate.

AMLO's solution was to start his own Morena party (the "Movement for National Regeneration") that would end 36 years of "neo-liberal" economic governance and defeat the corrupt "power mafias" once and for all.

So AMLO is a populist?

What do sceptics say?

As president, with a strong grip on the legislature and beholden to no party chieftains, AMLO wields considerable power and critics worry he is "threatening some of Mexico's hard-won democratic gains", reckons Mary Beth Sheridan in The Washington Post. Critics say he is "weakening federal and civil institutions that safeguard human rights and clean elections".

He is also steering cash grants to the poor and vulnerable, and circumventing the normal bureaucratic channels in the interests of limiting corruption. In short, say detractors, AMLO is using public money to build up a massive base of client-loyalists, like many Latin American leftwing populists before him.

How's his presidency going?

Instead, the economy has fallen into recession, with negative growth in the first two quarters and the likelihood of zero growth in 2019 overall. Meanwhile, Mexico's well-documented problems with violence from drug cartels have not abated.

What's going wrong?

In a nutshell, AMLO is making a huge bet on additional government investment into the state oil company, Pemex plus infrastructure projects targeted on the poorer states to boost the Mexican economy rather than fostering the private sector.

Supporters would argue that he has already doubled old-age pensions, boosted the minimum wage, provided direct cash transfers to students and apprentices and implemented programmes to revive the rural economy in depressed southern states all the while keeping the currency reasonably stable and not putting up taxes.

Sceptics say that even cunningly targeted largesse is obviously not sustainable in an economy with such entrenched problems.

What are they?

What's more, the informal sector is vast, notes Eric Martin in Bloomberg Businessweek. Workers on the taco carts or shoe-shine stands that proliferate in any main boulevard in Mexico City "don't pay taxes, foregoing the benefits of a social safety net". Mexico collects only 16% of GDP in taxes, skewed towards corporate taxes.

But AMLO has ruled out a major tax overhaul aimed at widening the tax base. Meanwhile, corruption remains endemic. "Mexico is basically a dual economy," says Alberto Ramos, chief Latin America economist at Goldman Sachs. "Some enclaves are globally integrated.

And then there's the countryside, with [poor]education... where productivity growth has been zero for 50 years." It remains to be seen whether AMLO has the ability to ameliorate all this, or whether Mexico is edging towards even greater economic and social turmoil.

Simon Wilson’s first career was in book publishing, as an economics editor at Routledge, and as a publisher of non-fiction at Random House, specialising in popular business and management books. While there, he published Customers.com, a bestselling classic of the early days of e-commerce, and The Money or Your Life: Reuniting Work and Joy, an inspirational book that helped inspire its publisher towards a post-corporate, portfolio life.

Since 2001, he has been a writer for MoneyWeek, a financial copywriter, and a long-time contributing editor at The Week. Simon also works as an actor and corporate trainer; current and past clients include investment banks, the Bank of England, the UK government, several Magic Circle law firms and all of the Big Four accountancy firms. He has a degree in languages (German and Spanish) and social and political sciences from the University of Cambridge.