Mexico: Tough Congressional-Executive Relations Ahead

By Daniela Stevens*

Piñata with the Mexican flag in the background

Bandera mexicana en el Zócalo de la Ciudad de México / Wikimedia/ Creative Commons

Whoever wins Mexico’s presidential election on July 1 probably will face a divided and cantankerous Congress – especially if, as appears likely, Andrés Manuel López Obrador of the Morena Party is the victor.  López Obrador has been ridiculed by the Mexican political class, some of whose leaders have called him the next Hugo Chávez, but most polls give the polemical candidate at least a 10-point lead over Ricardo Anaya of the coalition Por México al Frente.  In Congressional races, polls also give the advantage to López Obrador’s party and its coalition partners, including Partido del Trabajo (PT) and Partido Encuentro Social (PES), under the joint banner of Juntos Haremos Historia.  According to the Parametría poll, 32 percent of respondents intend to vote for Morena, five percent for PT, and two percent for PES.  Other polls give them higher numbers.

  • The formerly hegemonic Partido Revolucionario Institucional (PRI) appears likely to fall to third place due to President Peña Nieto’s poor performance and the party’s association with corruption, while the Partido de la Revolución Democrática (PRD), traditionally the largest leftist party, would be the fourth.
  • Under the most likely post-election scenarios, López Obrador’s coalition would constitute the largest minority in the Chamber but still fall short of the 51 percent absolute majority, except perhaps by the thinnest of margins. Under Mexico’s mixed electoral system – with both majority and “proportional representation” determining the allocation of Congressional seats – the larger parties lure the smaller ones into coalitions, but unity is often seriously challenged during legislative and other battles.

The traditional categories of left and right are growing obsolete in Mexico, as parties and candidates increasingly resort to opportunism rather than act based on loyalty to any particular ideology or party.  Personal and political grudges also often trump political agendas.

  • As a result, an alternative scenario may emerge in which alliances shift after election day in a way that enhances López Obrador’s power. Tensions between the left-leaning PRD and López Obrador, who was its leader for many years, were so deep that the candidate split with it and created Morena as a party in 2014, but opportunists in the party could well jump ship and join him if he wins by a comfortable margin.  In the PRI also, frustration with party leadership could also prompt defections, and López Obrador – a prominent Priista in the 1970s and 1980s – could also harness their backing.
  • Party switching from one election to another has long been a common practice of politicians in Mexico, but only recently have representatives switched parties in the midst of legislative periods. In particular the PRD’s ranks significantly dwindled as legislators elected under its rubric defected to join Morena. Were this to be replicated later this year or next, López Obrador’s congressional majority could be larger than polls suggest.
  • Party discipline in Mexico has been comparatively higher than in other multi-partisan presidential systems such as Brazil, because of the constitutional prohibition of consecutive reelection. In the past, incumbents did not have incentives to serve their constituencies because their careers depended strictly on party leaders, who centralized nominations to elective positions.  From 2018 on, representatives in both Chambers may run for reelection.  The promise of a Morena candidacy can fuel even more defections into its ranks if the party keeps growing its electoral base.
  • If Morena achieves such dominance, the Congress’s commissions, the equivalent of U.S. Congressional committees, could be important partners of López Obrador because the executive delivers proposals directly to them, and they, in turn, issue the final dictamen that the plenary votes on. Juntos’ influence in the commissions would translate into a fairly unexamined prioritization of the presidential agenda.

Even a comfortable victory on July 1 will not assure López Obrador a readily compliant Congress.  Most legislators in the Por México al Frente coalition, which includes PAN, PRD, and Movimiento Ciudadano stalwarts, will certainly constitute an obstructionist opposition.  How successfully they can sabotage the president’s agenda will obviously depend on their numbers, but unity in opposition to Constitutional amendments required by some of his campaign promises appears certain.  Constitutional amendments require a two-thirds majority in both chambers of Congress and in a majority of state legislatures – unachievable in any likely political configuration during a López Obrador administration.  His proposals for revocation of presidential tenure, lowering high-ranking officials’ salaries, and reversing education reforms– which would require Constitutional amendments – thus appear dead on arrival.  Absent reliable Congressional support, López Obrador would also have difficulty passing essential budget and revenue bills and gaining confirmation of important appointees such as the attorney general and key prosecutors.  No candidate would have an easy Congress, but the Mexican parties’ willingness to set aside petty divisions and coalesce behind pressing issues, at least early in the presidential term, appears lower than ever before.  Thus, López Obrador would have a lot riding on the willingness of some sectors of the opposition to defect.

May 24, 2018

* Daniela Stevens is a Ph.D. candidate in Political Science in the School of Public Affairs at American University.

Argentina: The Downside of Gradualism

By Arturo C.  Porzecanski*

Tortoise heads down a dirt path surrounded by greenery

Towards Turtle Path / Maxpixel / Creative Commons

President Mauricio Macri made a surprise announcement on May 8 that his government would seek financial support from the IMF to enable the country to “avoid a crisis like the ones we have faced before in our history” – essentially, an admission that time may be up for his policy of gradualism in dealing with the legacy of populism.  Sources in his administration expressed confidence that Argentina could obtain some $30 billion in “precautionary” loans at low interest rates and with few strings attached as an alternative to more borrowing in the international capital markets at higher and rising rates.  His finance minister, Nicolás Dujovne, and other members of the economic team departed Buenos Aires for Washington, DC, that same evening to formalize the request at IMF headquarters and to meet with a top Trump administration official at the U.S. Treasury.  After an initial round of friendly conversations, the parties agreed to meet again starting on May 14 to initiate a negotiation process that they acknowledged would take several weeks.

  • Macri blamed downward pressure on the Argentine peso (despite drastic hikes in short-term interest rates and the sale of one-tenth of hard-currency official reserves), on tighter monetary conditions and on volatility abroad at a time when the government must still raise money internationally to finance its large fiscal deficit.  “The problem that we have today is that we are one of the countries in the world that most depends on external finance, as a result of the enormous public spending that we inherited and are restoring order to,” the President stated.
  • The decision to turn to the IMF surprised observers because it came at an unusually early point in the country’s financial cycle.  Argentina’s central bank still has about $55 billion in international reserves, the equivalent of some 10 months of imports, or three times the amount of foreign-currency government debt maturing in 2018.  Also, foreign investors by no means have slammed the door on Argentina’s face, though admittedly the government probably could not sell another 100-year dollar bond like it did last June, raising $2.75 billion from die-hard optimists.  Argentina in the past, like most other countries, has generally turned to the IMF only in desperation once they were unwelcomed by Wall Street and their vaults were almost bare.
  • The onus placed by Macri on deteriorating financial conditions abroad was also surprising.  After all, the U.S. Federal Reserve has barely begun its monetary tightening process: the overnight fed funds rate, currently around 1.7 percent per annum, is still below U.S. inflation of 2.1 percent, so it has yet to enter positive territory.  Moreover, U.S. bond yields now in the vicinity of 3 percent for 10-year Treasuries, are up from 2.3 percent a year ago but have merely bounced back to a level they were at as of end-2013.  And the financial markets’ “fear” index VIX, a measure of expectations implied by options on the S&P 500 index, has fluctuated in the teens, which while higher than last year’s mostly single digits, remains very far from the range of 30 to 80 seen during prior episodes of extreme risk aversion in the financial markets.

 President Macri’s announcement did not have the favorable intended effect on confidence and market behavior, as evidenced by the peso remaining under downward pressure in the three business days that followed.  Despite renewed central bank intervention to boost the currency, it now takes almost 24 pesos to buy a U.S. dollar when it took fewer than 16 pesos to do so a year ago – a loss of about one-third in the currency’s purchasing power.  One reason is that Macri’s blaming adverse developments abroad for his currency’s woes rings hollow with investors, given how very slowly his administration has moved to reduce a fiscal deficit running above 6 percent of GDP since 2015; how much debt (around $100 billion) he has taken on in just a couple of years; and how timid his central bank has been in its attempt to bring down inflation running at about 2 percent per month.  And the other reason is that it quickly became apparent that any loan from the IMF will come with strict conditionality attached, because Argentina’s request was routed to the Fund’s regular, “stand-by” window – and not to its easier-access, precautionary lending window for highly creditworthy borrowers.  The Fund spelled out its economic policy advice for Argentina in its December 2017 “Staff Report for the 2017 Article IV Consultation,” and it calls for a more assertive reduction in the fiscal deficit, especially by cutting government spending, and for supply-side reforms it called “indispensable” to support economic growth, raise labor productivity, attract private investment, and enhance the country’s competitiveness.  These are all recommendations that fly in the face of President Macri’s gradualist approach to defusing the economic minefield left behind by his populist predecessor, Cristina Fernández Kirchner, and will therefore paint his government into a politically fragile corner.  We are witnessing the demise of Macri’s cherished – and popular – gradualism.

 May 14, 2018

*Dr.  Arturo C.  Porzecanski is Distinguished Economist in Residence at American University and Director of the International Economic Relations Program at its School of International Service.

 

U.S.-Mexico: Trump’s Misguided Approach to NAFTA Renegotiation

By Robert A. Blecker*

Three people stand at podiums with flags behind them

Canadian Foreign Minister Chrystia Freeland, U.S. Trade Representative Robert Lighthizer, and Mexican Minister of Economy Ildefonso Guajardo (L to R) participate in the fourth round of NAFTA negotiations in Washington, DC in October 2017. / State Department / Flickr / Creative Commons

President Trump has characterized NAFTA as a “win” for Mexico and a “loss” for the United States; his administration is currently working on a renegotiated “deal” that would allegedly reduce the U.S. trade deficit and recapture lost manufacturing employment, but his nationalistic approach fails to recognize the fundamental causes of both U.S. and Mexican economic problems.  In fact, NAFTA was a huge success for President George H.W. Bush and his administration, as it achieved their fundamental goal of enabling U.S. corporations to make products in Mexico with low-cost labor – without fear of expropriation, regulation, or other loss of property rights – and export them to the United States duty-free.  The Mexican government went along because it thought NAFTA would bring in desperately needed foreign investment and provide a growth stimulus, while U.S. and Canadian workers rightly feared that they would lose jobs as a result.  While much discussion has focused on which country “won” or “lost” in NAFTA, that is the wrong way to evaluate a trade agreement.  The two key criteria for judging the accord are which sectors, groups, or interests won and lost in each country, and how it, in conjunction with other policies, has affected long-term growth, development, and inequality in each.

  • Under NAFTA, U.S.-Mexican trade in goods and services has grown exponentially, reaching $623 billion (with a U.S. deficit of $69 billion) last year. However, NAFTA (along with other causes and policies) has contributed to worsening inequality in both the United States and Mexico.  Less-skilled U.S. workers definitely lost, with wage losses up to 17 percent in local areas most exposed to NAFTA tariff reductions.  In Mexico, although consumer gains from trade liberalization were widespread, upper-income groups and the northern region benefited the most.  Real wages for Mexican manufacturing workers have stagnated since 1994.  Labor shares of national income have fallen in both countries since the late 1990s.
  • Domestic policies, exchange rates, financial crises, and the impact of China can make the impact of NAFTA difficult to identify, but effects in some sectors are clear. Mexico gained jobs in automobiles and parts, appliances, electrical and electronic equipment, and seasonal produce.  The United States gained in basic grains, soybeans, animal feed, and paper products.  Although about a half million jobs in automobiles and related industries have “moved” to Mexico, total U.S. job losses in manufacturing (5 million since 2000) have been much more affected by China and technology than by Mexico.  What Trump’s nationalistic rhetoric ignores is that U.S. companies capitalized on these dislocations to raise their profit margins and increase their bargaining leverage over workers and governments both within North America and globally.

Trump’s aggressive posture about NAFTA exploits political discontent with these sectoral effects and the overall worsening of inequality, but the U.S. Trade Representative (USTR)’s key demands in the renegotiation appear unlikely to remedy either problem.  USTR Lighthizer is focused on protection for the auto sector, by requiring higher U.S. content (or higher wages for Mexican auto workers), and on changes to dispute resolution procedures that would favor investment in the United States instead of in Mexico.  At best, these measures could bring back a small number of U.S. jobs; at worst, they could make some U.S. industries less competitive (if costs increase).

All of this debate in the United States ignores the fact that NAFTA has been a huge disappointment for Mexico.  Although export industries like automobiles have prospered, the gains to domestic sectors of the Mexican economy have been limited, resulting in sluggish growth (only 2.5 percent per year since 1994, far below the 7.6 percent achieved in East Asia) and leaving millions in poverty while millions more emigrated to the United States.  Of course, other policies and events (including Chinese competition) played into these outcomes, but NAFTA (and related liberalization policies) didn’t turn out to be the panacea for the Mexican economy that then-President Carlos Salinas promised in 1993.  Yet, in the short run the Mexican economy remains highly dependent on foreign investment and exports to the U.S. market, so Trump’s demands for a revised NAFTA and his threats to withdraw are undermining Mexico’s current economic prospects.  Instead of following Trump’s nationalistic approach, the three NAFTA members should focus on making all of North America into a more competitive region with rising living standards for workers in all three countries.  This would start with policies at home, such as public investment in infrastructure, education, and R&D, that could foster industrial growth, along with redistributive measures like higher minimum wages consistent with each country’s economic conditions.

May 11, 2018

* Robert A. Blecker is a Professor of Economics at American University.

Colombia: Is the Peace Process Failing?

By Christian Wlaschütz*

A man stands on the right side of the frame with a large rifle

Members of the FARC in Tumaco, Colombia waiting to be disarmed last January. / Andrés Gómez Tarazona / Flickr / Creative Commons

As Colombia prepares for its presidential elections, the peace process with the FARC is already seriously jeopardized by shortcomings in its implementation —and it stands to worsen considerably.

  • The strong showing in polls of Iván Duque – nominee of Alvaro Uribe’s Centro Democrático (CD), which has consistently opposed the peace agreement – bodes poorly for implementation in the future. Former Vice President Germán Vargas Lleras is polling poorly, but his Cambio Radical’s antagonism toward the peace agreement enjoys support.  Leftist candidate and former Bogotá mayor Gustavo Petro, second in the polls, supports the accord, but he faces a steep uphill battle.  Centrist candidates Sergio Fajardo, former mayor of Medellín and governor of Antioquia, and Humberto de la Calle, chief negotiator with the FARC, have not been able to gain ground.  The polls do not enjoy much credibility but are influencing public perceptions on the peace process and other key policies.
  • The peace talks between the government and the country’s other main guerrilla group, the Ejército de Liberación Nacional (ELN), have been in a limbo since Ecuador withdrew as host and guarantor of the negotiations two weeks ago. Ecuadoran President Lenín Moreno made the announcement apparently in anger over the assassination of two Ecuadoran journalists by FARC “dissidents” (those rejecting the accords) and over the increasing criticism among locals of the worsening security situation in the border region with Colombia.  It was a big blow to Colombian President Santos’s hopes to conclude an agreement with the ELN during his mandate.  The peace talks have been suspended several times in the past due to bombings and kidnappings, but most observers believe it will be very difficult for talks to resume without Ecuador’s facilitation.

A serious challenge to political consensus to push ahead with the peace process is the dramatic decline in security in several Colombian regions, most notably Catatumbo (near the Venezuelan border) and Tumaco (on the Pacific Coast).  As experts had foreseen, the vacuum left by the FARC’s demobilization was quickly filled by the ELN and criminal organizations linked to the drug trade.  In Catatumbo, a hitherto irrelevant force, the “dissidents” of the Ejército Popular de Liberación (that is, those who did not demobilize with EPL in 1991), have taken advantage of the opportunity to conduct a deadly war against the ELN.  According to the weekly Semana, the dissidents may be supported by the Mexican Clan del Golfo cartel that wants control of strategic corridors for the drug trade.  Armed actors are sowing fear by declaring and suspending curfews at random; the state seems completely absent.  In Tumaco, bloody battles between FARC dissidents, other criminal groups, and state security forces are terrorizing the civilian population.  In these and other regions, threats against community leaders and assassinations are increasing.

  • Deficient implementation of reintegration programs for former FARC combatants is a major concern. Most former combatants are in a limbo regarding their judicial, economic, and social situation.  Lessons learned from the demobilization of paramilitary fighters some 14 years ago have not been applied, and lagging reintegration is tempting fighters to join other illegal actors.  The possible extradition of FARC leader Jesús Santrich to the United States on drug-related charges is also undermining demobilized combatants’ confidence that they’ll get a fair deal.  Santrich has started a hunger strike and claims to prefer dying than being extradited.

Most worrying in the long run is the polarization demonstrated by the inappropriate behavior of most of the presidential candidates.  Instead of offering programs to lead the country into a different future, personal attacks and the settling of accounts are at the core of the campaigns so far.  Colombian society’s contract to integrate into national life an unarmed FARC, free to pursue change through peaceful, democratic means, has never been strong.  But a surge in opposition to the peace process and the former guerrillas – led by politicians without a viable alternative policy – could easily translate into irreversible blows for peace and democratic inclusion.  Colombia is at a risky and decisive crossroad.  The possibility to relapse into former times is real.

May 4, 2018

* Christian Wlaschütz is a political scientist, independent mediator, and international consultant who has lived and worked in Colombia, in particular in conflict zones in the fields of transitional justice, reconciliation, and communitarian peace-building.

Colombia’s Elections: With New Comes Old

By Julián Silva*

Two men sit in white chairs during an interview

Iván Duque (left), appears to be the frontrunner in Colombia’s May 27 presidential election. / Casa de América / Flickr / Creative Commons

The first round of Colombia’s presidential election on May 27 has raised the profile of independent voices but does not appear likely to bring significant changes.  Most of the nine candidates represent new political forces, but the strongest are allied with the traditional elites that ruled under Liberal and Conservative banners during most of the 20th century.

  • Since the 1991 Constitution opened space for new competition to the Liberal and Conservative Parties, “independent” groups have shown increasing willingness to take the presidency for themselves. The old clientelistic machines, associated with the land-owning elites and those parties, have lost popularity in the urban-dominated country, and the rejection of the more traditional families seems to have prompted a certain “rebranding” by their heirs.  This year, only the Liberal Party presented a candidate – former minister, vice president, and peace negotiator Humberto De la Calle – but current polls indicate that he is unlikely to reach one of the two spots heading into the second round.  The youngest of the candidates seem to hold the lead: Iván Duque (42 years old) is pulling 38 percent; Gustavo Petro (58) has 29 percent support; Sergio Fajardo (61) has 12.8 percent; German Vargas Lleras (56) has 8.2 percent; and De la Calle (71) has 3.2 percent.

Several ostensibly independent candidates actually have close ties to well-established local and national elites.  Iván Duque, a fairly new figure in the Colombian political landscape, is aggressively supported by former President and current Senator Álvaro Uribe Vélez, who had deep roots in the Liberal Party and Antioquia Department elite before founding Centro Democrático in 2013.  The party is closely tied to land-owning oligarchs, big corporations, and the military, which gives Duque prospects for victory no truly independent candidate could have.  German Vargas Lleras, grandson of former President Alberto Lleras, is running on a new ticket called “Coalición Mejor Vargas Lleras,” which receives support from his old party, Cambio Radical, as well as stalwarts of the Conservative party and his family’s Liberal allies.

  • Several independents deserve the label. Gustavo Petro, a former guerrilla and mayor of Bogotá, occupies a more leftist space on the political spectrum that was usually excluded by the traditional parties during most of the 20th century.  Former Mayor of Medellín and Governor of Antioquia Sergio Fajardo promises to bring an “academic” perspective to the presidency if elected.
  • In addition to airing complaints about the candidates, social media users have been extremely critical of links that most candidates have to the traditional Colombian political class. Provocateurs mix truthful information with fake news to mislead the electorate and, protected by anonymity and authorities’ loose control over the virtual space, even issue threats of violence.  An unidentified projectile shattered a window of the car in which Gustavo Petro was heading to a rally in the city of Cúcuta.  The Matador, a political cartoonist working for El Tiempo, received death threats after he depicted Ivan Duque as a pig in one of his drawings.

With a little more than three weeks until the first round, the table seems to be set for Colombians to choose between leaders with significantly different political bases.  Current polls suggest they will stick with the neoconservative elite that has improved security and driven economic growth during the last few decades but has been tolerant of corruption, inequity, and even violence in some parts of the country.  But support for a different formula that promises to address some of these chronic problems is not inconsequential, even if the new leaders’ effectiveness is still unproven on a national level.  Colombians will also have a chance to decide if social media will be a vehicle for amplifying the old politics of threats and violence – or perhaps channel legitimate popular voices to demand accountability that exposes “fake news” and hate-mongering for what they are.  On that, too, the old practices and characters seem to have the advantage as they pursue a strategy that creates an image of change to ensure that everything remains the same.  The appearance of change in Colombia probably portends more of the same.

May 2, 2018

* Julián Silva is a CLALS Research Fellow, a Ph.D. Candidate in History at Universidad de los Andes, and Professor of International Relations at several Colombian universities.