AMLO’s long-standing aversion to public spending undermines his popularity

In early July, as Mexico’s tally of Covid-19 cases hit daily records, Andres Manuel Lopez Obrador addressed a mostly empty wing of the National Palace, his cabinet sitting several seats apart in the colonnaded hall.

The socially distanced speech was a stark contrast to the events it marked of two years previously, when tens of thousands massed outside on the Zocalo, one of Latin America’s largest squares, to hail the landslide election victory of Mexico’s first leftist president in decades.

For Lopez Obrador, the circumstances were different but the message was the same: Nothing will divert him from his mission to transform Mexico.

The president is assailed on all fronts, yet if anything, adversity has reinforced the 66-year-old’s deeply entrenched ideas, from the absolute necessity of austerity to a visceral distrust of the “conservative” establishment and an unshakeable faith in the flagging national oil champion.

Voters Cast Ballots For The 58th President Of Mexico
Lopez Obrador waves to supporters at Zocalo square after winning the Mexican presidency on July 1, 2018.Photographer: Cesar Rodriguez/Bloomberg

In reality, so much has changed since Lopez Obrador took office in late 2018 that his goal to remake the country looks to his critics like a dangerous distraction when Mexico has the world’s fourth-highest toll of coronavirus dead and faces its biggest economic slump in almost a century. Murders are climbing from a record last year, while the public is unconvinced by his anti-corruption efforts, with graft allegations reaching all the way to the president’s brother.

But still the man everybody calls AMLO is not for turning.

One former senior government official likened the president to an aging rock & roll band that’s been playing the same 20 hits for decades — he refuses to add new material because people know and love the familiar refrains.

“Lopez Obrador is stubborn, closing in on bull-headed,” said Julio Hernandez Lopez, a writer and lawyer who’s met with AMLO over the years during a journalistic career that included helping found the left-leaning newspaper La Jornada.

With more than 75,000 virus fatalities and 10.7 million people predicted to fall into extreme poverty as a result of the economy’s difficulties, the question is how long that obduracy can last.

Covid-19 Related Deaths Reach 49,698 As Cases Rise
Musicians play as a family member mourns a relative who died from the coronavirus, at San Miguel Xico cemetery in Mexico City.Photographer: Alejandro Cegarra/Bloomberg

The president remains popular. Yet his approval rating has fallen in recent months, and he faces mid-term elections next year which he is framing as a referendum on himself. His decision to commit only minimal funds to fight the economic fallout of the virus is likely to shape that race.

While U.S. lawmakers deliberate how much stimulus to add to the $3 trillion already approved, in Mexico AMLO has flatly rejected taking on more debt, neither to rescue companies nor to significantly increase handouts to the poor and unemployed.

When he has agreed to spend, it’s been to splurge on Petroleos Mexicanos in a bid to return the state oil giant known as Pemex to its former glory. He’s opted for a modest program of loans for small businesses totaling about $1.2 billion to date while funding pet projects he argues will create jobs, including building 2,700 local branches of a state bank, a tourist railroad through the Mayan rainforest — and a new $8 billion oil refinery.

It’s a recipe for recovery that he presents, Trump-like, as worthy of universal acclaim.

“I expect that the Mexican case will in the end be an example,” he said Aug. 27.

Not everyone agrees. The Society for the Study of Economic Equality concluded in an August paper that expanded social assistance in countries including Brazil and Argentina will have a significant impact, yet Mexico’s efforts will do nothing to reduce poverty caused by the virus.

President Trump Hosts Mexican President Andres Manuel Lopez Obrador At White House
President Donald Trump and Lopez Obrador arrive for a signing ceremony in the Rose Garden of the White House on July 8.Photographer: Al Drago/Bloomberg

For some, Lopez Obrador’s reluctance to spend puts a question mark over his left-wing credentials. Yet it’s a part of his personal relationship with wealth; he’s shunned luxuries all his life and hasn’t ever possessed a credit card in his name.

His political philosophy was shaped by the disastrous debt default of 1982 that brought inflation to 115% and the Tequila Crisis of 1994, when a sudden devaluation of the peso sent investors fleeing Mexico, bringing a recession and fueling poverty.

These twin crises haunted Lopez Obrador in the early years of his career, and that’s key to understanding his frugality now, said Gerardo Esquivel, who began designing AMLO’s spending plan after the 2018 election before he joined the central bank board.

“It’s part of his truest self,” Esquivel said in an interview.

It’s that austere ideology which really sets AMLO apart: He’s trying to transform his country on the cheap. His cost cutting extends to doing away with top jobs in the administration like the mining undersecretary and “inviting” government officials to voluntarily donate part of their salaries to public coffers. He’s even attracted comparisons to Ronald Reagan and Margaret Thatcher for his eagerness to slash costs.

But for AMLO, it’s driven by an acute awareness that “debt has generated many problems in the country,” said Esquivel. “For him, debt is the symbol of what others got wrong.”

Lowest Mexico debt holding in almost four years

The son of fabric shop owners from a small village in the Gulf of Mexico state of Tabasco, AMLO got his start in politics as an activist for indigenous rights. He regularly talks of his admiration for Benito Juarez, the first president of indigenous origin who ruled Mexico during the turbulent second half of the 19th century.

In those early days, Lopez Obrador and his brothers walked the streets with a bullhorn to cajole people into marching with them, gathering five or 10 followers at a time, according to writer Hernandez Lopez, who is better known by his pen name, Julio Astillero. One of his first political conflicts ironically involved a budget. As a local leader of the Institutional Revolutionary Party, AMLO tried to oversee spending among mayors in Tabasco — and they pushed back.

Today, the president divides the world into “liberals,” reformers such as himself, and corrupt “conservatives,” who seek to thwart change. He can draw on personal experience: Upon losing his bid for governor of Tabasco in 1994, regulators found evidence of discrepancies at polling stations, so he led a caravan of protesters to Mexico City where they took over the Zocalo, helping force the resignation of Mexico’s then-interior minister.

AMLO “grows politically through conflict,” said Hernandez Lopez. “He likes to fight for his ideas.”

AMLO finally scored an electoral victory in 2000, when he became mayor of Mexico City. Six years later he contested the presidency, and claimed fraud when he lost to Felipe Calderon by less than one percentage point. To this day, the president maintains he was cheated.

Andres Manuel Lopez Obrador, Mexican pre
Then presidential candidate Lopez Obrador is greeted by supporters during a rally in El Salto, Jalisco state, in 2006. Photographer: Ivan Garcia/AFP via Getty Images

Lopez Obrador talks of taking Mexico back to the revolutionary promise of the late 19th century. A 21st century pandemic exposed the country’s frailties instead.

Despite detecting the threat early, the coronavirus shocked Mexico due to a mix of poor health infrastructure with decades of underfunding, inconsistent policies and the difficulty of implementing lockdowns when about half the population needs to work to eat each day.

Bed and equipment shortages concerned AMLO, especially after he saw hospitals overflowing in Italy and Spain, according to a public official who asked not be named discussing the government’s handling of the crisis. The main policy response was to equip hospitals, hiring more than 45,000 medical staff and scouring the globe for ventilators.

Health expenditure still dropped in the first half. Even now, virus deaths number in the hundreds each day, and official data may seriously undercount the toll. Mexico has the lowest per capita testing rate among OECD countries.

Inside the National Palace, which AMLO made his residency as conquistador Hernan Cortes did almost 500 years before him, the pandemic had a visible impact on the president. The inability during lockdown to criss-cross the country meeting everyday Mexicans as he had done for decades drove AMLO stir-crazy, according to people with knowledge of his activities. His refusal to use the presidential aircraft, a Boeing 787 Dreamliner that he’s been trying to sell from his first day in office, only added to his constraints.

As soon as he could, the president took a 1,600 mile road trip to meet with voters — while refusing to wear a mask. In fact, he was seen using a mask just once, when traveling to visit Donald Trump in Washington in July. He took a Delta Airlines flight that made a layover in Atlanta.

“It’s the bottom part of the pyramid that he is worried about and where he bases his power and his capacity to bring in votes,” Lorenzo Meyer, a historian and left-wing intellectual whose son is a minister in AMLO’s cabinet, said in an interview. “That Mexico, which didn’t change for a long time, explains in good part the fact that he doesn’t change his project much, despite the outside world moving up and down.”

Lopez Obrador can point to successes from his zeal in protecting public coffers. Pushing tax authorities to play hardball with big companies has yielded more than $1 billion in settlements with corporations like Wal-Mart de Mexico and Fomento Economico Mexicano SAB.

There’s a logic to his stance, since any shift from the path of fiscal prudence would upset investors, according to Rogelio Ramirez de la O, the head of Lopez Obrador’s economic team during the 2006 presidential campaign.

“The margin of tolerance for a leftist government in international markets isn’t the same as the tolerance granted a center-right government,” said Ramirez.

Mexico has refrained from a fiscal stimulus because it needs all the money available to carry out its social programs and for public investment, since “these will have better and more immediate results to reactivate the economy” and create jobs, the president’s press office said in response to questions. 

The president’s approval rating remains high at 59% in August, albeit down from 71% in January, according to newspaper El Financiero’s pollster Alejandro Moreno.

Yet some warning signs are flashing red. The same poll found 61% of voters consider the president’s handling of the economy bad or very bad, with 59% saying the same about his security strategy and 50% disapproving of his fight against corruption, his main rallying call ahead of the 2021 legislative and gubernatorial elections.

Still, AMLO’s readiness to stand his ground is undisputed. In April, he refused to sign off on a historic OPEC+ agreement to reduce oil production, the sole holdout among 22 nations, since the cuts upset his plans for Pemex. The White House stepped in to try and smooth things over.

On Sept. 15, the president was again in the Zocalo for the traditional commemoration of El Grito, the call to arms that triggered the Mexican War of Independence in 1810. The pandemic meant the public was absent.

AMLO, though, was already planning his next fight: That day he announced a referendum on whether to try Mexico’s former presidents for corruption.

“Conservatives, get ready; opponents, get ready because we won’t call a truce,” he said Sunday in Veracruz. “Not a single step back.”

Source: Bloomberg