In this edition:
AMLO faces economic, trade and migration crises
Vizcarra forces Congress to approve anti-corruption measures
Venezuela Update
Paying subscribers received an update on the recent protests in Honduras and the challenges President Hernandez is facing.
AMLO faces economic, trade and migration crises
As expected, Morena won the governor elections in Puebla and Baja California. That was the only good news for AMLO this week.
President Lopez Obrador faces major foreign policy and economic challenges as the Trump administration threatens to impose tariffs on goods from Mexico over perceived inaction about immigration. Mexican officials swiftly flew to DC to avoid the tariffs or at least negotiate a delay so the taxes don’t take effect next week. The AMLO administration’s concern is that the Trump administration is not operating as a rational actor that understands the economic damage the tariffs will cause both countries. They believe correctly that Trump is prioritizing immigration theater over the real, immediate, and increasing economic effects the tariffs will have. The tariff dispute has almost certainly placed the USMCA approval on hold in both the US and Mexican Congresses.
The Mexican government is reportedly negotiating a deal with the Trump administration that would use the new National Guard to do immigration enforcement in the country. This move could be a strong signal that pushes the Trump administration to delay the tariffs, but would be poor policy from an immigraiton standpoint and would undermine the National Guard’s proposed role in improving domestic security from its very outset.
Bloomberg has a smart article looking at the lessons Mexico can take from China’s trade/tariff negotiations with the Trump administration.
A poll from El Financiero suggests Mexican citizens are united in their opposition to Trump’s tariffs, but divided over the correct response.
37% believe AMLO’s response has been appropriately firm while 35% believe it has been too weak.
54% believe Mexico should shut its borders to Central American migrants looking to enter the US while 45% believe they should be allowed safe passage. That number is a significant shift from a 72/25 split just one month ago, suggesting Trump’s threats have backfired and made Mexican citizens more willing to allow Central American migrants the right to pass through.
57% believe AMLO should impose retaliatory tariffs on US goods.
59% agree with the statement that Mexico should turn to China as its new preferred trade partner.
The poll also shows AMLO retains a 72% approval rating against a 25% disapproval rating, a slight improvement over the past month.
A combination of the new trade war and financial concerns about government spending and Pemex led two ratings agencies to change their outlook on Mexico. Fitch cut Mexico’s sovereign debt rating and Moody’s announced it has a negative outlook on Mexico. Fitch also downgraded Pemex’s rating to junk status, which will significantly impact the types of funds that are allowed to invest in the national oil company. Two weeks ago I wrote the potential ratings cut of Pemex to junk status would lead AMLO to actively lash out at the ratings agencies. If AMLO can’t convince Trump to revoke the tariffs, the ratings agencies may prove to be a tempting target for his anger.
The trade fight and ratings changes hit Mexico’s currency. In spite of a relatively weak economy, the peso remained quite strong during AMLO’s first six months in office. It now risks hitting 20 to the dollar Trump’s tariffs go in place.
Vizcarra forces Peruvian Congress to approve anti-corruption measures
Anti-corruption reforms passed through the Peruvian Congress by a wide margin (77-44) thanks to a well timed threat by the president to hold new elections. Even with that vote, there are additional challenges the anti-corruption agenda will face before the reforms become law.
President Vizcarra threatened to use his constitutional authority to make the vote a “no confidence motion” that would have allowed him to dissolve the Congress and call new elections if the Congress rejected the reforms.
This was a win-win threat for Vizcarra. At the moment, the president remains quite popular for his anti-corruption crackdown while his leading opponents in Congress are among the least popular politicians in the country. Holding new elections would potentially give Vizcarra a strong mandate (having ascended to the presidency from the vice presidency) and a more supportive Congress that can assist with his initiatives. Congress would have been committing political suicide if they had allowed Vizcarra to call new elections by portraying himself as an anti-corruption warrior.
This is a threat that Vizcarra can only use on a limited basis. His high approval ratings have bucked the trend of Peruvian presidents quickly losing popularity during their terms. Peru faces the same weak global economy and low commodity price threats of its neighbors, meaning tougher economic times are likely ahead. Congress may call Vizcarra’s bluff if he attempts this again in another few months.
Venezuela update
Brazil appeared to waver on its acceptance of Guaido’s choice for ambassador before finally accepting the ambassador in a last minute decision by President Bolsonaro to overrule the military wing of his cabinet. While this appears to be largely a story of dysfunction and internal feuds within the Bolsonaro government, any slippage of international support for Guaido is potentially damaging to his legitimacy, particularly when it comes from a key South American neighbor.
The WSJ reported that Russia’s top defense contractor Rostec has removed most of its personnel from Venezuela. Maduro is unable to pay for additional weaponry or services and top officials at the contractor (and potentially in the Russian government) do not believe that he will remain in power much longer. Following the story and some reactions from the US, Russia denied it was reducing its support for Maduro.
The US Department of Treasury issued a new statement about licenses related to Venezuela sanctions “to clarify these general licenses do not authorize transactions or dealings related to the exportation or reexportation of diluents, directly or indirectly, to Venezuela.” The related FAQ includes a comment that “non-U.S. persons could be subject to designation” if they engage in dealings with PDVSA. This suggests secondary sanctions related to Venezuela are coming in the near future, something that would allow the US to punish any company or government paying for Venezuelan oil including those in Russia, India or China..
One common question I’ve received in recent weeks has been whether Maduro can use the money from drugs, crime and corruption to replace lost oil revenues. While the illicit money going to Maduro and the corrupt military and civilian officials around him is substantial (see this recent IBI report for more), the amount of money is several orders of magnitude smaller than the oil revenue that Venezuela received prior to 2019. The amounts are neither enough nor is the money’s administration centralized in a way that criminal profits can be expected to feed the security forces and colectivos, much less the entire population.
On the other hand, crime money has helped Maduro’s stability in the short term by padding the bank accounts of top officials Maduro needs to survive. It’s a small benefit but comes nowhere near the levels needed to make up for lost oil revenue.
Corruption Corner
Guatemala - In a podcast with AS/COA, Marielos Chang says that corruption remains voters’ top concern in the election coming up later this month. However, with the shakeup in candidates and no candidate supporting the CICIG, voters are unsure how to vote to maximize their disapproval of the current government and the corruption within the political system. Reports of candidates linked to corruption or drug trafficking continue to emerge as the election approaches.
Haiti - Haiti’s President Jovenel Moïse was among those who received millions of dollars in fraudulent contract payments during the prior Martelly administration. The accusation comes in a new report by the Superior Court of Auditors and Administrative Disputes researching the corruption connected with Venezuela’s Petrocaribe program. Jake Johnston highlights how the corruption extends beyond Haiti and Venezuela’s Petrocaribe.
Reading List
Jon Lee Anderson, New Yorker - Venezuela’s Two Presidents Collide
Fernando Cutz, NYT - One Way to Bring Down Maduro and His Cronies: Indictments
Bloomberg - Now in Power, Mexico’s Leftist Icon Adopts Conservative Playbook
Noel Maurer - Stating the obvious about the tariffs on Mexico
Benjamin Gedan and Nicolas Saldias, Washington Post - Canada’s strong ties with Cuba could be the key to solving the crisis in Venezuela
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