President Andrés Manuel López Obrador came to power in 2018 with the clear idea that the economic and government reforms economic that previous Mexican administrations enacted since 1983 had to be repealed. In his mind, Mexico’s problems began with those reforms, so repealing them was a must. Since the onset of his administration, López Obrador has nullified or dismantled those Mexican government institutions that he considered unnecessary or restrictive, has concentrated power, and has modified the regulatory framework to accommodate his priorities. This course of action -sometimes following law, sometimes not- has fostered a high degree of uncertainty. This uncertainty stems not so much from the Mexican president’s actions themselves from him being able to modify laws, regulations, practices, contracts, and institutions with no real check or balance.
The ease with which López Obrador is tearing Mexico’s institutional fabric reveals how superficially these institutions were entrenched and their lack of credibility given their lack of relevance for the average Mexican’s daily life. At the same time, however, it evidences the Mexican government’s enormous weakness, as no country can withstand so sudden, radical, and -in some cases- serious changes. Although Mexico is used to the traditional policy swings from one administration to the next -which are a feature of our political system-, the way president López Obrador acted has become a factor of uncertainty and –potentially- instability. This in an era in which the well-being of virtually all Mexicans depends on the deep-rooted supply chains that span the entire North America. The tension between the president’s goals and the requirements for progress is more than glaring.
President López Obrador clearly wants to attract private investment to Mexico, but he is not willing to accept that, in the 21st century, the only chance of doing so lies in creating conditions for investors to do it on their own free will. The possibility of government forcing people –well-off or needy- to save or invest ceased to exist decades ago. Private investment will flow only to the extent that the uncertainty emanating from the Mexican government itself disappears. And institutions are key to creating an environment of certainty. However, that will not transpire as long as the terms set by the government remain anachronistic.
There is one precedent: the nationalization of Mexican commercial banks in 1982 was a violation of an understanding between key actors in Mexican society. The government’s decision to nationalize the banks and more importantly the way in which it was carried out -to spark confrontation and social anger- led Mexico to years of uncertainty, lack of savings and investment, and an extremely precarious economic situation. It took more than a decade to rebuild political understandings that would restore peace between these key actors in Mexico. In the end, the North American Free Trade Agreement (NAFTA) was the institution that sealed those agreements among Mexicans. From the Mexico’s perspective, NAFTA’s true significance was that it tied the Mexican government’s hands, imposing very high prices on any attempted abuse, imposition or nationalization.
NAFTA became the most important institution that Mexico built. From the logic of an open Mexican economy consecrated in NAFTA, other reforms sprang out including those that created the regulatory entities to make them work. For over 20 years, this framework made it possible to give functionality to various markets and activities. Today we know, in hindsight, that the validity and significance of these institutions was due not to the legitimacy they enjoyed, but to the respect that later administrations granted them. The price of removing these institutions will end up being much higher than anyone could have imagined. The cesspool uncovered by president López Obrador isn’t new, but is much more consequential because it cancels Mexico’s future growth.
Beyond the transcendence of these institutions for the functioning of the present-day Mexican economy, there is another cost more significant in the long term. The erosion of Mexican regulatory institutions also affects citizens who are now realize the devastating capability of the Mexican executive branch for brandishing immense powers with nary a check or balance. The ensuing institutional destruction, which might seem insignificant, has eliminated key mechanisms that have helped in solidifying trust among Mexican society and investors. It turned out that the idea that Mexico had changed -geared to grow and eventually address inequality- was no more than a mirage. Clearly, the López Obrador has other plans, which are at odds with that idea.
The obvious question for Mexicans is how far president López Obrador can go. Will the elimination of the current independent regulatory agencies be followed by new ones with a better social foothold among Mexicans? Once unpunished institutional destruction is in gear, the inexorable question is, what is next?
(Excerpts from Luis Rubio’s newly published Spanish language book: “La nueva disputa sobre el futuro: Ideas viejas para un México moderno”, Editorial Grijalbo).
* Luis Rubio is chairman of México Evalúa-CIDAC and former chairman of the Mexican Council on Foreign Relations (COMEXI). A Spanish version of this Op-Ed appeared first in Reforma’s newspaper print edition. Twitter: @lrubio