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AMLO Is Bad News for Mexico and the United States

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AMLO Is Bad News for Mexico and the United States

July 2, 2018

Mexicans, hoping for change, have elected Andrés Manuel López Obrador (AMLO) as president for a six-year term.  López Obrador is a socialist who pledges to “adjust” the free market model and implement new social programs. His election poses a risk to the resolution of the Venezuelan crisis and to trade with the United States.

López Obrador’s election is part of a global populist wave that has shaken the world but runs counter to the sweep of center-right victories across the Americas.

The president-elect is not new to Mexican politics. He ran for president twice before, in 2006 and 2012, losing in both occasions and blaming fraud for his defeat. López Obrador will not only have the largest popular support in Mexico’s history, but also a comfortable majority in both chambers of Congress and most governorships.

 

Source: Preliminary election results according to the Mexican National Electoral Institute.

Murders, drugs, poverty, and corruption are immense problems for Mexico, but López Obrador has no specific proposals to tackle them except promises. Among his proposals are higher energy subsidies, increasing the minimum wage, “tackling insecurity,” free education at all levels, fatter pensions, and guaranteed jobs for young people. These programs will be paid through the proceeds of diminished corruption, according to López Obrador, removing the need to raise taxes or debt.

Worse, López Obrador does not plan to continue recent energy and labor reforms that allowed for private investment in the oil sector and liberalized the workplace. The only proposal he has to cut spending and pay for his proposed programs is halving his salary. Since the Mexican president’s salary is not hundreds of billions of dollars, this will not be enough.

López Obrador is a protectionist and claims that no deal to renew NAFTA is better than a bad deal. López Obrador and Trump could doom NAFTA and have profound negative consequences for both Mexicans and Americans.

Although Colombia and Venezuela are the source of most drugs that travel through Mexico to the United States, López Obrador has vowed not to intervene in Venezuela’s affairs. He wants friendly relations with the narco-socialist regime that sponsors international drug trade. His statements praising the deceased Cuban dictator Fidel Castro as “a true social fighter who gave Cuba real independence” only increase reasonable people’s distrust. Former U.S. ambassador to the OAS Roger Noriega warned more than a year ago that “Venezuela and Cuba will try to destabilize Mexico” as a consequence of Mexico’s lead in sanctioning Venezuela.

The outgoing president is Enrique Peña Nieto, of the PRI, a big-tent political party that ruled Mexico continuously between 1929 and 2000. The hegemonic power of the PRI ended in the year 2000 with the election of Vicente Fox, part of the right-leaning PAN party. The PAN consolidated power when Felipe Calderon was elected in 2006. However, the PRI returned to power in 2012 under Peña Nieto’s lead.

Peña Nieto, with PAN’s support in Congress, opened the oil sector and continued to liberalize the economy. However, he failed to solve Mexico’s chronic unsafety, tightly linked to the drug cartels. Moreover, scandals involving his wife, and the discovery of a clandestine pit with hundreds of dead students, led to widespread disappointment and fury.

Corruption, crime, and the lack of basic economic freedoms have all contributed to inhibit Mexico’s economic development. Mexico ranks 135 out of 180 in corruption according to Transparency International’s Corruption Perceptions Index. The drug cartels that transport drugs such as cocaine and methamphetamines from Colombia and Venezuela to the United States are an important contributor to corruption.

Additionally, rigid labor laws and an unproductive nationalized oil sector have produced a large shadow economy and slow economic growth. Even though Peña Nieto reformed the oil sector to allow private investment and improve the state-owned oil company PEMEX, it is unlikely these reforms will be sufficient. Profit-sharing taxes are 65 percent of the oil price for private oil companies, and PEMEX refineries cannot process more crude oil, forcing investors to ship oil to the United States, then import it back to Mexico. This is good for the United States but Mexicans would prefer to refine the oil themselves.  Despite the reforms in 2014, Mexico’s oil production has  decreased from 2.4 million barrels per day in 2014 to 1.9 million barrels per day this year.

In 2017, 20 percent of Mexico’s population did not earn enough income to acquire basic necessities, and 44 percent were classified as poor. While poverty has diminished, progress has been slow for a population that is tired of seeing politicians and drug cartels corrupt their way to wealth.

Mirroring the current situation in Mexico, Venezuelans in 1998 were tired of established politicians. Instead of electing someone who would change the country for the better, they elected Hugo Chavez, a socialist dictator. Despite López Obrador’s promises to guarantee private property and respect the rule of law, his promises mirror those of Hugo Chavez the first time he ran for president.

If history has taught us anything, it is that the influence of the radical left cannot be underestimated. People should be vigilant and prevent socialists from rising to power or risk the same fate of all other socialist regimes.

Daniel Di Martino is a contributor to Economics 21. Follow him on Twitter @DanielDiMartino

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