The Mexico Bubble

When U.S. President Barack Obama travels to Mexico this Thursday for his first summit with new President Enrique Peña Nieto, he’s going to hear a lot about the country’s uptick in international portfolio investment, its recent discovery of vast new petroleum reserves, and its new political grand bargain, called the "Pact for Mexico," in which the leaders of the three largest political parties have gone behind closed doors to hammer out deals on tax, education, energy, banking and telecom reform, among other areas.

But instead of giving priority to the interests of Wall Street and of Mexico’s discredited political class, Obama should turn his gaze to Main Street and listen to the voices of the Mexican people on both sides of the Rio Grande. Otherwise, he risks committing the United States to a highly risky political game run by Latin American cronies that could soon end in disaster, with an impact that could be felt across North America.

According to the hype, Peña Nieto has already transformed the political landscape in Mexico after only four months in office. Time magazine has named him one of its "100 Most Influential People in the World," claiming that he "combines Reagan’s charisma with Obama’s intellect and Clinton’s political skills." The Financial Times raves that with the death of Venezuela’s Hugo Chávez, Peña Nieto may now take up the torch of Latin American leadership and revive the "Washington Consensus" that predominated in the region during the 1980s and called for drastic restrictions in social spending and the implementation of "trickle-down" neoliberal economic policies. The Washington Post editorial board suggests that "Washington should be cheering Mexico’s gridlock busting — and taking it as an example." Meanwhile, Thomas Friedman, of the New York Times, has called Mexico the "Comeback Kid" and Shannon O´Neil argues in Foreign Affairs that Mexico has now "made it."

Such exaggerations have no basis in reality. Even after months of an expensive, high-profile media blitz, Peña Nieto has begun his administration with the lowest public approval rating of any Mexican president over the last two decades. Only 50 percent of Mexicans approve of his presidency today, much less than the 70 percent who supported the first non-PRI president, Vicente Fox, at the beginning of his term, according to Reforma newspaper. Peña Nieto’s approval rating is even lower than that for presidents Ernesto Zedillo and Felipe Calderón at the disastrous crisis-ridden beginnings of their terms, according to the same source.

A recent poll also shows increased public skepticism in Peña Nieto’s, "Pact for Mexico," Today, only 21 percent of the population believes that this pact will benefit them while 31 percent are convinced that it will harm them. This same independent poll reveals that the majority of the population perceives the agreement to be in the interests principally of the political parties and big business. Only 35 percent think that the country as a whole will benefit.

It is important to remember that Peña Nieto only received 38.2 percent of the vote in the 2012 presidential elections and that the voting base of his party (Party of the Institutional Revolution-PRI) is principally located in the poorest, least educated, and most isolated rural sectors of the population. All of the most "modern" and "middle class" sectors of the population voted overwhelmingly against bringing the PRI and its pretty-boy candidate back to power, according to independent exit polls and demographic surveys. For instance, the only time Peña Nieto dared to hold a campaign event with college students during last year’s presidential race, he was aggressively run off the campus amid shouts that he was an "assassin" and a "thief."

Peña Nieto’s strategy has been to compensate for this weakness in public support by co-opting the old political opposition and turning his back on his critics in society. But this approach has recently come up against a brick wall.

For instance, in their haste to demonstrate quick legislative results, the politicians forgot to consult with civil society before pushing through a controversial education reform at lightning speed last December. As a result, today thousands of teachers are on strike throughout Mexico’s poorest southern states of Chiapas, Oaxaca, Guerrero, and Michoacán in protest against a reform which they correctly claim threatens to drastically reduce job security, introduce excessive standardized testing, entrench inequality between schools in wealthy and poor areas, and privatize public education. In the state of Guerrero, local citizen militias, parents, and youth groups have even joined with the teachers in a broad-based coalition against Peña Nieto’s broader neoliberal economic agenda.

Indeed, the Pact for Mexico itself may soon entirely break apart. A new scandal involving the use of Peña Nieto’s federal social programs to purchase votes has led the two leading opposition parties, PAN from the right and PRD from the left, to threaten abandoning the pact altogether unless the president takes action against his own top officials. This will be an important test of political will for Peña Nieto to see whether he is able to prioritize accountability over political expediency.

Meanwhile, Peña Nieto has continued with the time-old tradition of using the justice system as an arm of political control. He has jailed a significant political adversary, Elba Esther Gordillo, a leader of the teacher´s union well known for her corrupt and illegal practices.  But he has simultaneously freed Jesús Angeles, an army general who had links to Peña Nieto´s presidential campaign but was jailed on corruption charges by Calderón shortly before the 2012 elections.

Meanwhile, violence continues to wreak havoc over large swathes of the country.  Organized crime-related executions continue at the startling pace of more than 1,000 a month since Peña Nieto took office on Dec. 1. While some border cities like Ciudad Juárez and Tijuana have shown improvement, other coastal cities such as Acapulco and Veracruz are much worse off than they were in the past. And even in places where the homicide rate has gone down, there is widespread suspicion that this is due more to deals being cut with the drug cartels than to actually defeating them, as reflected in the most recent report of the International Crisis Group and reports in the international press.

Peña Nieto talks about changing the approach to the "drug war" by focusing on reducing crime and improving social programs instead of on drug interdiction, but in fact his strategy has been more of the same. The president has not taken any steps to withdraw the more than 40,000 military troops that today patrol Mexico’s streets, putting human rights at grave risk, nor has he taken any concrete measures to clean up endemic corruption in law enforcement. Instead, he has conducted a minor bureaucratic shake-up by eliminating the Fox-era federal public security agency and next plans to create a new national police out of military personal, paradoxically just as Fox himself did 10 years ago. Peña Nieto has also suggested that the media no longer pay so much attention to violent crime, as if turning the other way could somehow make the problem miraculously disappear.

The press, meanwhile, has come under heavy attack under the new administration. Three of Mexico’s leading female investigative journalists, Lydia Cacho, Anabel Hernández, and Ana Lilia Pérez, whose principal work has been to expose government complicity with organized crime, have had to leave the country in recent months due to threats and judicial pressure on their work. One of the most important international NGOs that defends press freedoms, London-based Article 19, recently received a letter with credible death threats under the door of its office in Mexico City. Meanwhile, the dominant television and radio monopolies continue to allow very little space for genuinely plural debate on public affairs and rarely criticize the president’s policies.

In the economic realm, we need to look beyond the short-term increase in international portfolio investment. According to Mexico’s Central Bank, international capital flows have skyrocketed in recent months. This is due to a combination of both low interest rates in more developed economies and the international media hype around Peña Nieto’s presidency. Japanese investment has played a particularly important role.  But the recent political difficulties reveal important underlying problems with the top-down development model being pursued by Mexico’s new president.

There is also growing concern about underlying fundamentals. For instance, past-due consumer debts are now at their highest level since the 2008-2009 economic crisis. If Peña Nieto responds to today’s political difficulties with more police repression, as he did on his inauguration day, instead of by changing course and opening himself up to a genuine dialogue with civil society, the economy could easily come tumbling down like a house of cards.

Peña Nieto’s honeymoon has not lasted long. Extremely controversial reforms such as a new role for foreign oil companies in the energy sector and an increase in the value-added tax, which the president had promised to implement at the beginning of his administration, look less feasible than ever. Washington’s hope that Mexico could serve as an anti-Bolivarian "stabilizing" force in the region may also have to wait for another day.

But this is good news for the Main Streets of North America. Washington’s geopolitics and Peña Nieto’s proposed energy and tax reforms were never designed in the best interest of the common man and woman anyway. Instead of increasing its highly regressive value-added tax, Mexico, one of the most unequal countries in the world with a Gini coefficient of .51, should consider implementing capital gains and wealth taxes. Instead of handing over its oil reserves to abusive and environmentally dangerous international oil corporations, Mexico may well be able to manage better on its own by increasing the investment, transparency and technology of its homegrown company, PEMEX. Instead of helping the United States dominate Latin America, Mexico could do a great service to peace and stability in the region by defending a healthy multilateralism.

In general, Peña Nieto’s weakness creates an opportunity for organized civil-society groups to start rebuilding the broken link between politics and society which is the underlying cause of Mexico’s contemporary problems. Mexico is not a "failed state" that needs to be buffered through increased militarization or by recentralizing power in the executive branch, as Peña Nieto and some scholars seem to think. To the contrary, the central problem is not a lack of state power but the consistent abuse of the government’s significant authority by politicians of all colors and stripes to favor friends and punish rivals.

Fortunately, independent citizen action has the potential to transform the system before the entire edifice comes crumbling down in a widespread and dangerous political crisis. If Obama, and the citizens of the United States he represents, dare to look beyond Peña Nieto and into the eyes of their Mexican neighbors, colleagues, and family members, they will inevitably find a source of enormous hope for the future.