Last week, Mexico’s President Andrés Manuel López Obrador (AMLO) launched one of his frequent temper tantrums in his daily morning rant, press conferences-cum-tirades at which he attacks enemies, lies and distorts the facts. But this time he was really mad, complaining “what do they think, that I am just a flowerpot?”
He was referring to a deal secured between Mexico’s Business Council, a private sector group of entrepreneurs, and the Inter-American Development Bank (IDB) to secure a loan to help medium-sized corporations confront their temporary lack of revenue with the guarantee of their accounts receivable, an operation known as “reverse factoring.”
For someone who enjoys posing as a flower pot, it was an odd comment made all the more ludicrous by the fact his administration has done virtually nothing to help the economy avoid the terrible collapse that lurks ahead. While he poses and pouts, organized business has been forced to take the initiative.
There was not a peso of government money in the deal, nor a commitment to backstop un-payable debts that would have required nothing more than a simple nod from the Ministry of Finance since the government is a shareholder of the IDB.
But AMLO disliked the “demeanor and conceit of Mexico’s businessmen” and the multilateral bank’s “wish to impose their plan upon us” by arranging the financial salvage operation without asking his approval, which inevitably would have been denied.
Indeed, AMLO has rejected every scheme proposed to prevent the impending collapse of the country’s productive capacity. AMLO’s reaction reveals his true intention: he wants most private sector corporations to fail so that the government can nationalize them on the cheap to “save jobs,” a fact that pliant business leaders have been unwilling to believe.
While AMLO is actively trying to ruin private business, he has sunk 5% of GDP (around US$50 billion) in his just 17 months in office to “rescue” Pemex, the bankrupt government oil monopoly with whopping debts of $105 billion. The state firm just reported its largest loss ever in the first quarter, causing it to lose its rating agency investment grade.
AMLO’s demeanor fits perfectly with his bid to concentrate all power without declaring a state of emergency as defined in the constitution. He intends to direct all federal government spending at his whim without the approval of Congress. As one of the few semi-literate legislators of his party put it, “he does not need this. He has the necessary majority to pass any thing that he wishes, and besides it is an illegal power grab.”
Some analysts believe that AMLO is anticipating the loss of his party’s majority in Congress at mid-term elections in July. Following the textbook of autocratic leaders like Venezuela’s Hugo Chávez, he has resorted to governing by decree and will likely continue to do so, particularly if he is unable to thwart the upcoming election by dismantling the independent electoral entity, as he is now bidding to do.
At the same time, the economy is imploding, unemployment has hit a record high and violence is raging even with a Covid-19 lockdown of business and people. Meanwhile narco-groups are winning public sympathies as they cleverly give away boxes of basic goods emblazoned with the images of their regional cartel chieftains, a political marketing ploy the government has failed to match.
So what does AMLO do in this situation? Worse than playing the lire as Nero did while Rome burned, AMLO has issued a new “decree to face the crisis” that goes in exactly the opposite direction in which he should be moving by imposing more government austerity (Mexicans have ingeniously dubbed it “austericide”) that will cut 70% of the government’s operational spending.
This means that an already inept administration will no longer perform the basic functions of governing and will soon fire more bureaucrats – mostly those that are not loyal, probably the best ones left – and slash the budgets of every entity in the administration except the armed forces, taking another disastrous page from Venezuela’s Chávez playbook.
And, of course, AMLO’s decree will give more money to his pet projects, including giveaway gifts to 22 million potential voters and a ramping-up of his favorite money-losing “infrastructure” projects.
As the Mexican economy fell 2.4% on an annual basis in the first quarter of this year, AMLO shrugged that “it was not so bad.” But, according to certain reputable analysts, the 2020 collapse could see growth fall an unprecedented -12%.
Prospects for a near-term recovery are nonexistent since the government refuses to open industrial production in sync with US counterparts, to which they are intricately connected in supply chains. At the same time, it has been extremely lenient in allowing all kinds of mass gatherings, breaking its own “social distancing” rules and likely worsening contagion.
Name a sector and it’s inevitably in the doldrums. Tourism, which represents 8% of GDP, is dead in the water. Agriculture is being killed by AMLO’s insistence on food self-sufficiency and the cultivation of “native crops.” AMLO has attacked medium and large food producers while granting guaranteed prices above market rates to inefficient communal landholdings and imposing absurd prohibitions on the use enhanced and hybrid seeds.
Meanwhile remittances from Mexican workers abroad that have been a boon for poor communities and the country’s balance of payments, contributing close to US$30 billion per year, will fizzle as the US economy where most of them work slips with the Covid-19 crisis.
The dire conclusions of this awful situation could not be clearer: a public health crisis without precedent that will result in mass death; the imminent collapse of the economy with negative double-digit growth; the immiseration of millions of people who will have no other option to survive except to flee to the US, join drug cartels or die; and the strengthening of criminal organizations which are gaining poplar support and control of ever larger swathes of the country.
AMLO is oblivious to these harsh realities, seemingly unaware of the dreadful disaster he has created.
The four horses of the Apocalypse now ride fast and wild in Mexico: the black horse of the plague, devastating the poorest; the pale horse of famine that will soon appear; the red horse of war, seen in the government’s surrender to drug lords; and the white horse of conquest, riding in many large states increasingly unhappy in a federal pact where they pay far more than they receive.
All the while Mexico’s great demolition continues apace, with AMLO galavanting around the nation as a flowerpot cursing those who aim to fix a disaster he has sown and will soon reap.
Manuel Suárez-Mier is a former Mexican central bank official, economic diplomat and professor at Georgetown and American universities. He is currently a consultant residing in Washington D.C.