Friday, May 24, 2024

Is AMLO that bad? Or that good? A perspective from our CEO

I’ll start with two disclaimers.

First, I am not firmly for or against Mexico’s president, Andrés Manuel López Obrador (AMLO).

Second, I understand that one could argue that the current president of any country is not fully responsible for what happens during his or her tenure, and instead credit (or blame) external factors and previous administrations. While there is some truth to this, it makes it difficult to do any meaningful analysis of a leader.

For the purposes of this article, I am working on the assumption that most of what has happened during President López Obador’s nearly five years in office – the good and the bad – can be credited to his policies.

The goal of this article is to provide a basic framework for evaluating AMLO’s presidency. Nearly everyone I talk to has a very strong opinion about him. In the conversations that I have had with Mexicans of all socioeconomic levels, I have found he is either strongly liked or strongly loathed. Those who like him generally believe him to be less corrupt, and focused on the needs of the lower classes. Those who loathe him point to his anti-business, socialist policies, and attacks against the Supreme Court, fearing he is putting Mexico on the economic path of Argentina, or even worse, Venezuela. But what is the reality?

I remember vividly when AMLO took office and one of his very first actions was shutting down the construction of his predecessor’s Mexico City airport project. It was a very public statement, and a fulfillment of a campaign promise. As a very frequent flyer into Mexico City, I was appalled that he would do something so brazen as halting construction on a project that already had many billions of dollars invested, and was designed to give a modern first impression of Mexico to millions of foreign visitors to the country. I remember thinking, “Wow, this guy is going to be very, very bad for business….and likely for the country as a whole.”

Despite that alarming start to his administration, in my opinion, he has done some good work. He has significantly raised Mexico’s far too low minimum wage and is on track to have it doubled during his administration. He has significantly raised Mexico’s pensions, which also were low by most international standards. He has put in worker-friendly legislation on overtime pay and vacation time, which seems reasonable given where Mexico was compared to international standards. He has redirected resources to parts of the country that historically have not received significant investment.

He has also launched some very bold initiatives. To name a few:

  • He has built Mexico’s largest refinery to try to capture more economic value from Mexico’s oil output.
  • He has built a new lower-cost Mexico City airport (Felipe Ángeles International Airport).
  • He has prioritized the Isthmus of Tehuantepec trade corridor project as an alternative route to the Panama canal.
  • He has willed the Maya Train project forward.
  • He is building a new airport in Tulum.
  • He is building a new natural reserve (Jaguar Park) in Tulum.
  • He has prioritized the completion of the very long-overdue Oaxaca City to Oaxaca Coast highway project.

Each of these projects is big, each is controversial, each is hard, and yet each one has progressed surprisingly quickly.

There is no shortage of criticism of his actions. Many critics have concerns regarding the military’s involvement in many infrastructure projects (and how that has allowed AMLO to bypass normal procedures and approvals for getting things done). Others point to environmental damage from the Maya Train and Tulum airport projects. Many insist that he is “bending the rules” to get these projects completed quickly. Other criticisms focus on his support of the national energy companies, CFE and Pemex, to the detriment of renewable energy investment by the private sector. Still others point to Mexico’s continued abysmal murder rate and AMLO’s security policy of “hugs, not bullets”, which appears to have failed. And others think he has created a general anti-business climate that has many concerned about future investments in the country.

I think that a heated debate is best cooled by looking at some important indicators. Of course, those who are pro-AMLO would say that all good things are due to his policies and those who loathe him would say he has nothing to do with them (and vice versa).

But let’s start by looking at some financial indicators. Foreign direct investment (FDI) is at record highs, Mexico’s debt ratios are very good, resulting in solid credit ratings, the Mexican peso is the strongest it has been in eight years, inflation is coming back down, GDP growth is solid (not great), remittances from abroad are at record highs, and tourism levels and spending are growing fast. I would argue that if AMLO were really that bad for business, we would be seeing worse financial indicators. Businesses would be withholding or delaying investment (which is not happening).

What about other indicators? Violence levels have had minimal improvement during his administration, though homicide rates have seen declines in some parts of the country. Environmental indicators would also point to no real improvement during his administration. There are other indicators that point to a deterioration in some government health services.

It’s too soon to gauge the success of the bold initiatives of the Maya Train, the Tulum airport, the new Mexico City airport, the Oaxaca highway, and the Isthmus of Tehuantepec projects. Each has their proponents, and each has significant opposition – as to be expected of such massive projects. I understand and share many of the environmental concerns about the projects, but at the same time recognize that too many people in these parts of Mexico have been left behind economically. The reality is, without these kinds of investments, sooner or later many of the residents of these communities would continue to leave in search of a better life for their families elsewhere. Is the answer to not invest in an area and have its residents flee to look for opportunities elsewhere?  I don’t think that makes sense, for many reasons.

A developing country like Mexico that is rapidly industrializing is obviously going to bring about significant changes that are disruptive and discomforting to many. Although the “business” side of me is put off by the socialist rhetoric of AMLO, I have to acknowledge that he has made some bold investments in areas long neglected, that have the potential for significant positive economic impact on the country.

I also have to recognize that he has not scared off investors, and has been capable of maintaining solid relationships with both the Trump and Biden administrations – not an easy task to say the least. It’s been an unpredictable ride during this administration, but the solid economic indicators and AMLO’s consistently high approval ratings point to him doing more than a few things right. Only time will tell if his unorthodox approach and bold initiatives result in a better Mexico for all.

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