Latin America Risk Report, 4 December 2018

Dismissing the AMLO hype; Argentina and China win the G20

AMLO the Average

The inauguration of President Andres Manuel Lopez Obrador led to numerous articles analyzing his upcoming administration. Nearly all of that commentary falls into two categories:

  1. AMLO is providing much needed reform to a corrupt system

  2. AMLO is a threat to Mexico’s economy and/or democracy

Whether positive or negative about the new president, there is a widespread agreement that he’s going to do something big. It feels as if everyone has fallen for the “Fourth Transformation” rhetoric that AMLO has delivered. Everyone believes AMLO will get his way and be one of the most influential presidents in all of Mexican history. They only disagree as to how positive or negative that change will be.

Here is a third option: Mexico won’t change much under AMLO. He is going to be an average president.

AMLO will struggle to balance his promises with the budget. The new president has promised massive social spending and a new National Guard program to combat criminal groups. As of this week, his administration is also promising to reimburse bond investors on the new airport. His team has also promised to maintain Mexico’s macroeconomic stability.

Asked how it will all be funded, AMLO has generally pointed to his plans for government austerity. Cutting government salaries will save some money, but it already faces legal challenges, will certainly face protests and may lead to a less effective government in the medium term. AMLO’s commitment to flying commercial, reducing presidential security measures and living in the National Palace are amazing symbolism (and very well received by the Mexican public according to some recent polling), but won’t cover even 1% of the cost of his programs.

Major security improvements take time. Mexico needs police, judicial and penitentiary reform, all of which will take longer than a single sexenio. The numerous criminal groups around the country are not going to quickly pack up and go legal because AMLO has taken office. Unless he negotiates an unexpected truce with the Sinaloa Cartel and CJNG, Mexico’s violence statistics aren’t moving more than 10% any time soon.

The most likely scenario is that homicides will remain approximately around the levels they have been for Calderon and Peña Nieto administrations.

AMLO is a normal politician having a good moment that will end. The current hype around AMLO is understandable. Lopez Obrador won a majority and has relatively high approval ratings as he takes office. His party controls the Congress. He is trying to centralize control over state spending. In the most extreme of analyses, there has been talk of his political movement trying to create a new multi-decade dominance of Mexico’s political system.

However, AMLO’s own history suggests he’s a normal politician facing the same public opinion and institutional constraints as every other politician in Mexico. He had his ups and downs as mayor of Mexico City. He faced negative approval ratings for multiple election cycles prior to the most recent.

Over the coming six years, AMLO’s popularity will move with the economy and with security. AMLO’s positive approval ratings are likely to remain higher than Peña Nieto’s for some time, but if his attempts to reshape Mexican institutions cause a major economic or security crisis, the public will turn on him. The country’s institutions including the court system and the National Election Institute are not going to easily bend to his will. The media and business community should provide a check on the new president from outside the formal government institutions.

Outside of AMLO, this sort of hype has happened often in Mexico and led to disappointment. Consider the excitement around Fox’s election in 2000 or the Time Magazine cover claiming Peña Nieto was “saving Mexico” in 2014. Both Fox and EPN engaged in some significant reforms, but both left Mexican citizens feeling disappointment compared to the expectations.

AMLO’s rhetoric about a “fourth transformation” is likely to last about as long as his effort to be called the “legitimate president” after his narrow 2006 election loss. He’s using the rhetoric of revolution to grab attention and political capital today. We are unlikely to be talking about it in six years.

POLL NUMBERS!!! Mexico’s new president

Analysts and journalists, myself included, thought AMLO’s transition period was rocky and that he may have burned through some of his good will with the public. Recent opinion polls suggest a more positive view for the new president.

Additionally, various initiatives including the National Guard force and the use of popular consultative referendums also have over 50% approval in various polls. As I wrote above, AMLO’s high popularity is unlikely to last if he can’t grow the economy or improve security. But analyses suggesting his transition made him less popular appear to be incorrect.

In contrast, Enrique Peña Nieto’s final approval rating is in the 20’s in most polls including 28% in Reforma with 65% disapproval. While low poll numbers like these are fairly typical in Latin America, they are rare for Mexican presidents. Even former President Calderon had an approval rating above 50% upon leaving office.

AMLO’s high approval rating likely comes in part because he is still being compared to EPN. As Peña Nieto fades from the immediate political scene, AMLO will be judged on other issues.

G20 Winner: Argentina

A year ago, hosting the G20 was supposed to be an opportunity for Argentina to showcase itself. In 2018, as Argentina has faced a crashing peso and a stumbling economy, there were fears that the G20 would simply highlight Argentina’s recent disfunction.

In the end, Argentina came out looking pretty normal in comparison to everything else going on in the world. France had riots. The UK has a big Brexit vote. The US has Trump. Mexico and Brazil have populists taking over as president. Saudi Arabia’s crown prince killed a journalist in a consulate and then high-fived Putin.

With all that, Argentina’s honest efforts to navigate its recent tough economic struggles made it an appropriate leader for an organization filled with countries each facing their own brand of chaos and crisis. In spite of the global controversies, the G20 reached a joint statement and the US and China reached a truce in their trade war. Argentina gets credit for organizing the meeting where that occurred.

Additionally, Argentina successfully managed the bilateral relations dance with many of the individual players. President Macri met with the UK and discussed the Falklands/Malvinas. He met with Putin and signed an energy and agriculture deal. Argentina and China signed agreements worth about $3.5 billion as well as an addition to their ongoing currency swap deal that could help stabilize the peso.

Macri comes out of the G20 meeting strengthened. He is already building on his win. calling Congress back for an emergency session to deal with critical issues before the end of the year and next year’s election campaign.

G20 Winner: China’s influence in Latin America

If there is a contest for influence between China and the US in this hemisphere, there is little doubt that China won the past week. China appeared pro-active, engaging and respectful of Latin American countries at the G20. Chinese President Xi Jinping had a successful trip to Argentina, signing billions in investments around a state dinner and successfully negotiating a truce to its trade war with the US. He moved on to Panama this week for another state visit and more investment announcements.

The US had an awkward moment at the G20 in which Donald Trump walked off stage and said “get me outta here” on a live microphone, leaving Argentina’s President Macri looking stunned and confused. Earlier, as three North American leaders signed the USMCA that is supposed to replace NAFTA, Trump signed on the wrong line. Not forgotten, Trump cancelled his previously planned trip to Colombia this week. It was a trip symbolic of the problems that have emerged between the US and its hemispheric allies under the current administration.

China is talking about its programs in Latin America. The US, when it isn’t scoring own-goals, is also spending a lot of time talking about China in Latin America.

The Trump administration’s limited agenda in Latin America has led to US officials complaining about Chinese activity in the region. On a recent trip to Panama, Vice President Pence warned Latin American governments away from doing business with China. The criticisms of China including its lack of human rights concerns and its use of debt to trap countries are valid, but they aren’t effective without offering some other path.

A better response would be for the US to offer its own positive vision for the region. The Monroe Doctrine is over and no country will be forced to do business with the US over a European or Asian competitor. Latin America can manage multiple relationships with the US and China and others. Countries don’t have to choose one best friend and stick with them. The Trump administration’s failure this past week is an opening for China and others. They are certainly going to try to take advantage.

Corruption Corner

Venezuela - I outline some of the implications of Venezuela potentially being placed on the state sponsors of terrorism list in this interview with RANE. You can download the PDF of their report here.

Ecuador - President Lenin Moreno suspended Vice President Maria Alejandra Vicuña due to a corruption investigation over alleged kickback payments. Vicuña had replaced Jorge Glas, who is in prison while facing corruption charges. Ecuador’s new, new vice president is Jose Briones, one of Moreno’s top aides.

Brazil - Brazilian authorities arrested Rio de Janeiro Governor Luiz Fernando Pezão and charged him with taking approximately US$5 million in bribes while he was deputy to former Governor Sergio Cabral, also in jail on corruption charges. Details are still emerging in local media including the fact Pezão traveled with business executives to Paris in 2011.

Reading List

Duncan Wood, Americas Quarterly - What We Learned from the AMLO Transition

Shannon O’Neil, Bloomberg - Lopez Obrador Spells Trouble for Mexico

Alejandro Hope, El Universal - El país que heredan

Dallas Morning News - Grenade attack on U.S. Consulate may be an ominous warning for Mexico’s new president

Roberta Jacobson and Dan Restrepo, NYT - Send Judges to the Border, Not Troops

Blog: The lessons of Honduras for Venezuela's next steps

Bloomberg - Fugitive Venezuela Colonel Looks for Foreign Help to Oust Maduro

InSight Crime - Colombia’s Criminal Evolution 25 Years After Pablo Escobar’s Death

Atlantic Council - Latin America – China Trade and Investment Amid Global Tensions

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