A friend of mine has it very clear: the Mexican economy does not grow because entrepreneurs are not investing to harm President Andrés Manuel López Obrador. I asked my friend if he was taking advantage of the low interest rates to buy real estate, given that now is cheaper. He said he would not given today’s uncertainty.
It’s always easier to try to remove the speck in our neighbor’s eye than to take out the beam in our own eye or to imagine a conspiracy. But by not understanding how investors think, AMLO’s original promise to grow at an annual rate of 6% could only be achieved during his entire 6-year term.
AMLO is not using his daily news brief to send the economic signals investors need to hear. As John Maynard Keynes understood it: it does matter how investors feel about the government and the environment. Keynes rightly called these instincts (linked more to a sort of optimism not entirely rational) as “animal spirits”. If animal spirits die down, countries become more poor. An extreme case is Argentina.
Due to the uncertainty generated by AMLO’s policies, Mexico today has higher interest rates than those needed. The Mexican currency (MXN peso) is strong because these high rates are enough to keep hot money in the country. Today, we live in a paradox: Pemex (the highly indebted state-owned oil company) is able to issue an 11-year dollar bond with a 5.95 percent coupon and a regular Mexican citizen can get a 20-year home mortgage at an 8 percent financing rate. But few people are encouraged.
AMLO has great faith that its plans will work out well: the centralization of healthcare, his trains across the Yucatan Peninsula and Tehuantepec and his new oil refinery in Tabasco. However, he should be concerned about the consequences that his statements and deeds have on investors faith. The higher the perception of risk, the higher the expected profit. Reasonable earnings for the private sector (as AMLO has preached) are only possible alongside reasonable governments.
Can AMLO change? There are two possible answers to this question.
The first one: It is impossible for AMLO to reverse his 2018 decision to cancel the construction of Mexico City’s new international airport or any other of his past irrational economic decision because these policies were needed to maintain together its diverse political coalition. If this were true, we would be at a dead-end. I doubt this is the case: AMLO has proven to be able to impose his wishes upon his governing coalition, such as his decision to militarize Mexico’s borders after pressure from the Trump Administration.
I choose the second: AMLO could rectify if he wanted to. However, since he is so full of himself and is so afraid to show any kind of weakness it is very unlikely for AMLO to change course.
* Carlos Elizondo Mayer-Serra is professor at the School of Government and Public Transformation at Tec de Monterrey, in Mexico City. A Spanish version of this Op-Ed appeared first in Reforma’s newspaper print edition. Twitter: @carloselizondom