There are to pivotal legacies of Mexico’s neoliberal era with which president Andrés Manuel López Obrador (AMLO) has to live with. First, the 1994 NAFTA trade deal, the great neoliberal legacy of former president Carlos Salinas de Gortari. Without trade integration with the US and Canada, the López Obrador administration could not achieve a GDP growth of 6 percent or more this year. The second key legacy is the Mexican central bank’s independence and its flexible exchange rate regime. The latter is the consequence of the mismanagement of the Salinas de Gortari administration which led to the devaluation of the Mexican peso in December 1994. When he arrived in office in December 2018, AMLO understood that he could not abandon economic integration with North America or play with the independence of Mexico’s central bank.
To build the fairer society that he claims to seek, AMLO must live under these two inheritances. Both are the key elements that give Mexico an advantage over the rest of Latin America. Foreign investment currently arriving in Mexico is mostly tied to the USMCA deal, the NAFTA successor that went into force in 2020. The Mexican states where formal employment is recovering the most are those linked to export-oriented manufacturing activity and foreign tourism.
Under the new USMCA labor rules, Mexican workers’ right to elect their union leaders must be guaranteed. This could help increase wages in Mexico. Yet, it could only happen if the country is able to attract investment, create formal jobs and thus sustainable, higher salaries.
AMLO does not promote investment in Mexico. He drives it away. In the energy sector, his administration has one single goal that overshadows any other: guaranteeing the dominance of CFE and PEMEX, Mexico’s state-owned electricity and oil firms. In AMLO’s mind, it does not matter how many rules or laws he has to change to achieve this goal. He does not care about the cost this has for generating certainty in the country’s energy sector.
One example of this is the recent decision by the AMLO administration to give Pemex the operatorship of the Zama field in the Gulf of Mexico, the largest oil find in decades. Zama was discovered in 2017 by a private consortium led by Houston-based Talos Energy which won of the tenders organized by the previous administration. The decision to give PEMEX the operatorship of Zama is arbitrary and will lead to all kinds of legal conflicts. Even if the potential dispute is solved soon, PEMEX will take much longer to develop Zama than the Talos-led consortium. The whole situation also plays against revenues for the Mexican treasury. Talos Energy has said that the Zama project could generate around US $28 billion of fiscal revenue for Mexico, without counting PEMEX’s share. The most important thing for Mexico should be who can guarantee the development of Zama sooner and optimally. It’s important to remember that PEMEX was not even able to drill an appraisal well.
If done without political favoritism or corruption, a pro-investment government policy is not at odds with the search for social justice. On the contrary, more economic growth leads to the virtuous circle of more formal employment and also to higher fiscal revenues and more monetary resources for the tasks that only the Mexican government can and should do.
Despite lambasting Mexico’s neoliberal governments, the paradox is that AMLO has been able to afford making all kinds of mistakes as president thanks to two pivotal legacies of the neoliberal era. Mexico’s flexible exchange rate and its independent central bank have made it possible to absorb exogenous shocks, such as the collapse in the price of crude oil in March of last year, along with endogenous shocks, such as when AMLO cancelled the construction of what was then Mexico’s most important infrastructure work in recent history, Mexico City’s new international airport. If Mexico still had a fixed exchange rate regime (like the country use to have in AMLO’s dream era of the 1960s) and in the absence of the USMCA trade deal (which provides investors with some certainty), the decision of canceling the airport would have led to a catastrophic devaluation of the Mexican peso and a subsequent economic crisis. AMLO does not take full advantage of neoliberal heritage he received. But the strength of these legacies allow him to avoid paying the costs of policies based on his own whims.
* 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