Mexico: Will AMLO Bring a “Fourth Transformation” or Return to Authoritarian Past?

By Daniela Stevens*

President-Elect Andrés Manuel López Obrador / Eneas / 500px / Creative Commons

A week before his inauguration, Mexican President-elect Andrés Manuel López Obrador (AMLO) continues to stress his commitment to be a “good president” and leader of the country’s “Fourth Transformation,” but some of his early actions suggest that he will challenge political pluralism and destabilize the investment environment.  His sexenio could have a rocky start both politically and economically.

  • AMLO’s handling of a “national consultation” over the ongoing construction of Mexico City’s new international airport – a project that he criticized as corruption-laden – raised red flags about his intended governing style. Most observers say the consultation was unconstitutional and, with only one percent of registered voters participating, inconsistent with the President-elect’s pledge to respect the “people’s will.”  AMLO’s reaction to the criticism – asking “¿quién manda?” (who governs?) – was widely interpreted as a sign that the airport maneuver was not about careful financial planning but rather political power.  He held another referendum last weekend, a “consultation” with citizens on 10 projects on which he seemed to have made up his mind beforehand.  These referendums seem intended to legitimize his intentions and enhance his power.
  • He and his party, Movimiento de Regeneración Nacional (Morena), appear to be moving ahead with plans to increase control over public spending, eroding institutional checks on presidential power. The Morena majority in the Tabasco state congress, for example, last month approved a provision empowering the next governor, also from Morena, to assign public works and acquisitions directly, without public bidding.  If the Supreme Court does not deem the reform unconstitutional, the administration will build a refinery in Tabasco without any review of the integrity of the process.
  • To reduce imports of gasoline and natural gas, AMLO plans to halt oil exports and reserve production for national consumption only, as well as to build a new refinery and modernize six existing ones. Critics say such policies reflect an outdated vision of national sovereignty closely tied to oil, and that they would directly diminish Mexico’s creditworthiness, endanger the finances of state-owned Petróleos Mexicanos (Pemex), and, according to Moody’s, result in a two percent decrease in GDP.  Additionally, oil experts say, the emphasis on refining would detract from important efforts to expand exploration and production.  The country cannot immediately meet domestic demand for crude.  Similarly, the transition team seems to disregard the potential of renewable energies and the need to electrify transportation.

Morena proposals to reduce the autonomy of regulatory agencies are scaring investors as well.  A Morena Congressman, for example, is pushing to incorporate the energy sector’s regulatory agencies into the Secretariat of Energy, subordinating them to greater political control.  Although AMLO did not publicly support the initiative, his appointee as Secretary of Energy, Rocío Nahle, has already asked the director of the National Commission of Hydrocarbons, one of the regulatory agencies, to step down three years ahead of schedule.  Given its debt and deficits, Pemex can ill afford to strain its partnerships with private capital.

It’s too early to assess how many of these actions reflect AMLO’s and Morena’s inexperience or a considered approach to governing, but the incoming leadership so far seems unaware or unconcerned that such measures undercut their stated vision of ushering in a “Fourth Transformation” on a par with the country’s three previous ones – independence (1810–1821), the Reforma wars (1857–1861), and revolution (1910).  The hints of authoritarianism, alongside decisions to appoint single-representatives in the states and to maintain a pervasive military presence in the streets, suggest AMLO’s tenure may indeed transcend history – as a government not different from the priista centralized governments of the 20th century, and the militarized calderonista administration (2006 2012) he vehemently criticizes.  After 1997, when the hegemonic Partido Revolucionario Institucional (PRI) – from which AMLO had already defected to lead the leftwing Partido de la Revolución Democrática (PRD) – lost the majority of the Chamber of Deputies for the first time, political analysts and academics pointed out the disadvantages of divided governments in presidential systems, such as political gridlock.  A unified government under AMLO, however, may not be the answer for Mexico either, unless progressives in Morena committed to democracy and its institutions find a way to restrain his impulses and keep his government on a democratic path. 

November 27, 2018

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

Mexico’s Petroleum Sector: Not Yet Out of the Woods

By Thomas Andrew O’Keefe*

Photo Credits: Ian Burt and Alex / Flickr / Creative Commons

Photo Credits: Ian Burt and Alex / Flickr / Creative Commons

The September 30 awarding of three contracts on five oil production blocks that the Mexican government opened for bidding has raised hopes that the Peña Nieto administration’s efforts to reform the country’s energy sector are back on track, but many challenges remain.  In contrast, an auction of leases on 14 blocks in July was a huge disappointment as contracts could only be issued for two of them.  The auctions are part of Mexico’s effort to reverse years of declining petroleum output by permitting private sector and foreign participation in an industry monopolized for decades by the state oil company, PEMEX.  Foreign and private sector firms are now allowed to enter into both profit- as well as production-sharing agreements with PEMEX and thereby retain a percentage of the gains on the oil they extract.  In some cases, outright concessions – termed “licenses” so as not to run afoul of the Mexican Constitution – are permitted.

A careful examination of the successful bids last month, however, leaves doubts as to whether the auction marks a change of fortune.  To entice a better response, the Mexican entity responsible for the auctions, the National Hydrocarbons Commission (CNH), relaxed many rules in a way that may be difficult to repeat and can be challenged politically.  Noticeably absent from the list of winning bidders are the major multinational oil giants.

  • The Italian state oil company, ENI International, won the block that attracted the most bids, while an Argentine-led consortium headed by Pan American Energy won a second block. They are well-known players in several South American countries – Argentina, Bolivia, Ecuador, and Venezuela – where the rules of the game are constantly changing and lack of transparency is a major issue.  The third block had only one bidder, a consortium made up of the U.S.-based Fieldwood Energy and Mexican Petrobal (whose director is PEMEX’s former director of exploration and production, Carlos Morales Gil).
  • The blocks awarded on September 30 are for already discovered shallow water fields, meaning lower geological risks for private operators. In order to make the auction attractive, the CNH lowered the fees required to bid and added the right to explore for new oil as well as pumping oil from existing reserves.

Mexican President Enrique Peña Nieto came to office in 2012 with an ambitious reform plan to revitalize the Mexican economy by focusing on structural reforms, including education, finance, telecommunication, transportation infrastructure, and energy.  While there have been noticeable changes in all five areas, the results have not yet led to significant improvements in Mexico’s economic performance.  The optimistic reform scenarios of three years ago are further clouded by corruption scandals – including one touching the President, his wife, and a finance minister who had houses built by prominent contractors who had won lucrative government contracts – the lack of progress investigating the Iguala Massacre (involving 43 students who disappeared), and high levels of citizen insecurity.  The real test for the Mexican energy reform – and the credibility of President Peña Nieto’s reform policies – will come next year when offshore deep water blocks in the Gulf of Mexico and extra-heavy oil fields are put up for auction.

October 19, 2015

* Thomas Andrew O’Keefe is President of San Francisco-based Mercosur Consulting Group, Ltd.

Mexico: Reform Promises Boost in Energy

By Amy Ruddle

Photo credit: Wonderlane / Foter / CC BY

Photo credit: Wonderlane / Foter / CC BY

Landmark reforms passed by the Mexican Congress last month – amendments to three articles of the Constitution – allow private investment in the country’s energy industry for the first time in 75 years. They open the door for international companies to enter into joint ventures with Petróleos Mexicanos (PEMEX), with the first round of contract bidding slated for 2016 – and increased oil and gas production as soon as 2018. PEMEX will remain state-owned and all hydrocarbons in the ground will continue to belong to Mexico, but private companies will gain rights to oil at the wellhead and be permitted to participate in site exploration, gas and oil production, seismic analyses, and the transportation, marketing and refining of these resources. They will also be allowed to bid for rights to conduct offshore and shale exploration.

Although the oil industry is expected to attract billions of investment dollars – PEMEX signed a cooperation contract with Russia’s Lukoil last week for an undisclosed amount – Mexican officials say they’re not rushing into deals. Undersecretary of Hydrocarbons Enrique Ochoa Reza recently said that the government is proceeding carefully, taking cues from Brazil and Norway as examples of how energy reform can be executed successfully. “In order to do it right – and we are committed to doing this – we need to do it one step at a time,” he said. The Mexican government’s hope is to return oil production (roughly 3 million barrels per day in 2012) to its 2000 levels (3.5 million) by 2025, and possibly 4 million barrels in the distant future.  In addition to creating jobs, the government projects the reforms will increase GDP by 1 percent by 2018, and by 2 percent by 2025. Increased revenues should stabilize budgets, fund a long-term savings mechanism, and eventually support long-term projects including the universal pensions system, scholarships, and science and technology research.

The next hurdle in energy reform will be passage of secondary legislation over the next five months — and faithful implementation. The transparency mechanisms written into the constitutional reforms, including public bidding rounds, transparency clauses in energy contracts, external industry audits, and the full disclosure of all payments related to oil and gas contracts are essential to success, but overcoming the corruption and inefficiency that have plagued PEMEX will require sustained effort. In addition, President Peña Nieto still has to sell these changes to the Mexican people. Tens of thousands of citizens took to the streets to protest the changes in early December, and opinion polls show that many, if not most, Mexicans are not in favor of them. Polls conducted by Vianovo in September (still deemed to be among the most accurate) show that only 33 percent of respondents favor profit-sharing contracts between the government and private companies to explore and produce hydrocarbons, although 53 percent were at least somewhat in favor of the energy reforms overall. Unions are upset too, as the union representing PEMEX’s 140,000 employees has now been eliminated from the company’s board, and private firms benefiting from the reforms may create labor contracts without union involvement.

What does the New Year hold for Latin America?

We’ve invited AULABLOG’s contributors to share with us a prediction or two for the new year in their areas of expertise.  Here are their predictions.

Photo credit: titoalfredo / Foter.com / CC BY-NC-SA

Photo credit: titoalfredo / Foter.com / CC BY-NC-SA

U.S.-Latin America relations will deteriorate further as there will be little movement in Washington on immigration reform, the pace of deportations, narcotics policy, weapons flows, or relations with Cuba.  Steady progress toward consolidating the Trans-Pacific Partnership (TPP), however, will catalyze a shared economic agenda with market-oriented governments in Chile, Mexico, Peru and possibly Colombia, depending on how election-year politics affects that country’s trade stance.

– Eric Hershberg

The energy sector will be at the core of the economic and political crises many countries in the Americas will confront in 2014.  Argentina kicked off the New Year with massive blackouts and riots.  Bolivia, the PetroCaribe nations, and potentially even poster child Chile are next.

– Thomas Andrew O’Keefe

Unprecedented success of Mexico’s Peña Nieto passing structural reforms requiring constitutional amendments that eluded three previous administrations spanning 18 years, are encouraging for the country’s prospects of faster growth.  Key for 2014: quality and expediency of secondary implementing legislation and effectiveness in execution of the reforms.

– Manuel Suarez-Mier

Mexico may be leading the way, at least in the short term, with exciting energy sector reforms, which if fully executed, could help bring Mexico’s oil industry into the 21st Century, even if this means discarding, at least partly, some of the rhetorical nationalism which made Mexico’s inefficient and romanticized parastatal oil company – Petróleos Mexicanos (PEMEX) – a symbol of Mexican national pride.  Let’s see if some of the proceeds from the reforms and resulting production boosts can fortify ideals of the Mexican Revolution by generating more social programs to diminish inequality, and getting rid of the bloat and corruption at PEMEX.

– Todd Eisenstadt

Brazil is without a doubt “the country of soccer,” as Brazilians like to say.  If Brazil wins the world cup in June, Dilma will also have an easy win in the presidential elections.  But if it loses, Dilma will have to deal with new protests and accusations of big spending to build soccer fields rather than improving education and health.

– Luciano Melo

Brazilian foreign policy is unlikely to undergo deep changes, although emphasis could shift in some areas.  Brazil will insist on multilateral solutions – accepting, for example, the invitation to participate at a “five-plus-one” meeting on Syria.  The WTO Doha Round will remain a priority.  Foreign policy does not appear likely to be a core issue in the October general elections.  If economic difficulties do not grow, Brazil will continue to upgrade its international role.

– Tullo Vigevani

In U.S.-Cuba relations, expect agreements on Coast Guard search and rescue, direct postal service, oil spill prevention, and – maybe – counternarcotics.  Warming relations could set the stage for releasing Alan Gross (and others?) in exchange for the remaining Cuban Five (soon to be three).  But normalizing relations is not in the cards until Washington exchanges its regime change policy for one of real coexistence.  A handshake does not make for a détente.

– William M. LeoGrande

A decline in the flow of Venezuelan resources to Cuba will impact the island’s economy, but the blow will be cushioned by continued expansion of Brazilian investment and trade and deepened economic ties with countries outside the Americas.

– Eric Hershberg

In a non-election year in Venezuela, President Maduro will begin to incrementally increase the cost of gasoline at the pump, currently the world’s lowest, and devalue the currency – but neither will solve deep economic troubles.  Dialogue with the opposition, a new trend, will endure but experience fits and starts.  The country will not experience a social explosion, and new faces will join Capriles to round out a more diverse opposition leadership.  Barring a crisis requiring cooperation, tensions with the United States will remain high but commerce will be unaffected.

– Michael McCarthy

Colombia’s negotiations with the FARC won’t be resolved by the May 2014 elections, which President Santos will win easily – most likely in the first round.  There will be more interesting things going on in the legislative races.  Former President Uribe will win a seat in the Senate.  Other candidates in his party will win as well – probably not as many as he would like but enough for him to continue being a big headache for the Santos administration.  Colombia’s economy will continue to improve, and the national football team will put up a good fight in the World Cup.

– Elyssa Pachico

Awareness of violence against women will keep increasing.  Unfortunately, the criminalization of abortion or, in other words, forcing pregnancy on women, will still be treated by many policy makers and judges as an issue unrelated to gender violence.

– Macarena Saez

In the North American partnership, NAFTA’s anniversary offers a chance to reflect on the trilateral relationship – leaving behind the campaign rhetoric and looking forward. The leaders will hold a long-delayed summit and offer some small, but positive, measures on education and infrastructure. North America will be at the center of global trade negotiations.

– Tom Long

The debate over immigration reform in Washington will take on the component parts of the Senate’s comprehensive bill. Both parties could pat themselves on the back heading into the mid-term elections by working out a deal, most likely trading enhanced security measures for a more reasonable but still-imposing pathway to citizenship.

– Aaron Bell

The new government in Honduras will try to deepen neoliberal policies, but new political parties, such as LIBRE and PAC, will make the new Congress more deliberative. Low economic growth and deterioration in social conditions will present challenges to governability.

– Hugo Noé Pino

In the northern tier of Central America, despite new incoming presidents in El Salvador and Honduras, impunity and corruption will remain unaddressed.  Guatemala’s timid reform will be the tiny window of hope in the region.  The United States will still appear clueless about the region’s growing governance crisis.

– Héctor Silva

Increased tension will continue in the Dominican Republic in the aftermath of the Constitutional Tribunal’s decision to retroactively strip Dominicans of Haitian descent of citizenship.  The implementation of the ruling in 2014 through repatriation will be met with international pressure for the Dominican government to reverse the ruling.

— Maribel Vásquez

In counternarcotics policy, eyes will turn to Uruguay to see how the experiment with marijuana plays out. Unfortunately, it is too small an experiment to tell us anything. Instead, the focus will become the growing problem of drug consumption in the region.

– Steven Dudley

Eyeing a late-year general election and possible third term, Bolivian President Evo Morales will be in campaign mode throughout 2014.  With no real challengers, Morales will win, but not in a landslide, as he fights with dissenting indigenous groups and trade unionists, a more divisive congress, the U.S., and Brazil.

– Robert Albro

In Ecuador, with stable economic numbers throughout 2014, President Rafael Correa will be on the offensive with his “citizen revolution,” looking to solidify his political movement in local elections, continuing his war on the press, while promoting big new investments in hydroelectric power.

– Robert Albro

Determined to expand Peru’s investment in extractive industries and maintain strong economic growth, President Ollanta Humalla will apply new pressure on opponents of proposed concessions, leading to fits and starts of violent conflict throughout 2014, with the president mostly getting his way.

– Robert Albro

Mexico: Peña Nieto’s big push

By CLALS Staff

President Enrique Peña Nieto / Photo credit: Eneas / Foter / CC BY

President Enrique Peña Nieto / Photo credit: Eneas / Foter / CC BY

President Peña Nieto’s reformist agenda wins kudos from the business and financial class, but both a recalcitrant leftist opposition and mass organizations previously aligned with his party are taking to the streets in protest – raising serious doubts about its prospects.  In his first state of the nation speech, delivered last week, Peña Nieto pledged to plow ahead with “transformational” reforms, giving flesh to the PRI’s slogan that it is Transformando a México. In education, he’s proposed a more rigorous system for hiring, evaluating, promoting and firing teachers who have resisted change despite evidence that the current system is not equipping Mexican youth for employment.  In the energy sector, he wants to open up the oil and gas industry to foreign investment, an idea that was strictly off-limits in the past even though lagging investment has caused production in Mexico’s leading export industry to decline steadily.  He is also pursuing tax reforms that, although watered down when announced on Sunday, entail political risk and, tellingly, raise marginal rates by 2 percent for higher earners and impose a levy on capital gains.  In June, he picked a fight with powerful business leaders over control of the country’s telecommunications industry, an oligopolistic structure that imposes excess costs on consumers and producers alike, diminishing Mexico’s economic competitiveness.

The teachers unions, whose symbiosis with the PRI in the past ensured cooperation, mobilized huge protests in Mexico City, forcing Peña Nieto to delay his speech by a day and then causing monstrous traffic jams during it.  The President cloaked his announcement of the energy reform in nationalistic rhetoric, and PEMEX, the oil company, followed it up with predictions of positive results – huge increases in oil investment and production that purportedly would help to create 500,000 new oil-sector jobs by 2018 and 2.5 million by 2025. But opposition to the reform has been strident, and tens of thousands filled the Zócalo on Sunday to protest it as a “covert privatization.”  Opposition leaders are already pledging demonstrations to oppose taxes, though the likelihood of this may be diminished because the long rumored reform unexpectedly left untouched the value-added tax exemption for food and medicines, which would have been a major rallying point for the Left.

Some Mexican commentators say Peña Nieto’s leadership is already losing its shine and that his Pacto por México, the loose coalition he engineered in Congress, is at risk of falling apart.  He prevailed in his congressional showdown over the long overdue education reforms, but success in transforming the underperforming education sector appears uncertain, as the teachers are threatening more protests.  The arrest of narco bosses from the Gulf Cartel and the Zetas have not given him a bounce on the security front; indeed, Mexican press reports indicate that kidnapping, extortion and other crimes that more directly affect citizens’ lives continue to rise. Further complicating Peña Nieto’s life is news last month that the economy is slowing down.  The first contraction in four years has forced the government to cut its 2013 GDP growth forecast in half, to 1.8 percent.  The administration will undoubtedly point to data showing that PEMEX production has fallen by about a quarter in the past decade because of low investment, and will emphasize that this makes modernization of the oil sector all the more imperative.  But Mexicans have heard promises before, during NAFTA debates and since, that economic reforms and greater openness to trade and investment will massively improve their lives.  Whether there is any fuel left in that rhetorical tank remains to be seen.