Mexico’s New Leftist President Brings Hope for Citizens but Uncertainty for Investors

The Mexican election of 2018 led to a landslide victory forMexico’s new leftist president, Andrés Manuel López Obrador, better known by his initials, AMLO. López Obrador was elected on July 1st as the first leftist president in decades, with promises to fight Mexico’s problems of corruption, poverty, and the militarised drug war. 

Obrador plans on expanding pensions for the elderly, increasing spending for social programs, developing grants for students, pardoning nonviolent offenders, and decriminalising marijuana. However, several business leaders and investors question if López Obrador will be able to find funding for his progressive policies.In spite of that, the results of the election are considered a major achievement for many voters in Mexico, which has had the most violent electoral season in modern Mexican history. 

The new Mexican president-elect, Obrador, will be inaugurated on December 1st, and his term will last for 6 years. He is the former mayor of Mexico City, with this being the third time running for president. Obrador overwhelmingly captured 53 percent of the vote, which is more than double of his closest rival.  He is also carrying on his feminist legacy.While he was mayor of Mexico City, his Cabinet was composed of 50 percent women. The new Cabinet that López Obradorhas offered is also comprised of 50 percent women. 

In an interview with Democracy Now, the future comptroller general in President-elect Lopez Obrador’s governement, Irma Sandoval, stated when asked by interviewer Amy Goodman, “Were you surprised by the massive outpouring of Support? The significance of how much Lopez Obrador won by?”:

IRMA SANDOVAL: This is a historic moment, and we are very, very happy, because this moment really synthesized a lot of decades of struggles in Mexico, struggles for human rights, struggles for social movements, and also a very meaningful struggle that we had last year that is the struggle for justice in Ayotzinapa. And I think that everybody in Mexico is very happy of this moment, of this achievement. And also, personally, I’m very proud, very honored of being part of the team that is going Help López Obrador to confront corruption, to combat corruption and to finish with this important—with this problem in Mexico.

On the campaign trail, he repeated catchy slogans in order to convey his opposition to the militarised drug war, such as “No puedes apagar el fuego con el feugo” (you can’t fight fire with fire). Obradorsays that the goal, instead,starts with changing the discourse andto attack the deep roots of the drug war problem,by developing Mexico´s economic and social structures. Since the 1980s, Mexico has been governed by the ideology of neoliberal authoritarianism. Mexico has been going through a messy drug war for the last 12 years, with Calderón, who put the military on the streets, and with Peña Neito. 

The Mexican people have been struggling for democracy for decades, but on July 1st 2018, a peaceful revolution happened, despite the violent electoral season. Since September 2017, there has been 136 assassinated politicians in Mexico, and at least seven journalists were murdered leading up to the 2018 election. The year 2017 marked the most violent year in Mexico for decades, with the highest amount of murders in modern history. More than than 37,000 have been reported missing since 2007, and more than 350,000 dead. 

Mexico has had problems with corruption, violence, censorship, and the repression of social movements for decades.Since 2006, when Calderón deployed the military to combat drug cartels, the results in Mexico have been devastating. Rather than minimising violence and crime in Mexico, the result was, in fact, the opposite. Drug trafficking has reached epidemic levels, with production levels of heroin and methamphetamine on the incline. The organised crime in Mexico is not only carried out by crime groups, but the military, the local police, and the federal state. Mexico has a broken police and judicial system, which is why Mexicans overwhelmingly lack trust in the authorities, leaving 94 percent of crimes in Mexico to go unreported. 

In order to combat the drug war, Obrador talks about peace instead of war, and plans on addressing the big problems, such as the addressing the lack of a separation between the criminals and the government. The new administration wants to replace the military on the streets with better-trained, better-paid, and more professional police. The drug laws will be rewritten to regulate certain drugs, such as marijuana, and possibly poppy. Nonviolent drug offenders will be pardoned. And most importantly, the social programs, education, and jobs will be created for at-risk individuals in violent regions. During his victory speech on election night, July 1st 2018, Obrador declared:

PRESIDENT-ELECTANDRÉS MANUEL LÓPEZOBRADOR:[translated] The failed strategy to tackle insecurity and violence will change. More than using force, we will attack the causes that create insecurity and violence. I am convinced that the most efficient and most humane way to confront these evils necessarily demand we combat inequality and poverty.

Further policies that Obrador promises to implement in the fight against organised crime include, scholarships for youth, Support for the countryside, for peasants, and creating a possibility for food-self sufficiency, in order to be less import reliant and make Mexico become more productive. 

Some things Obrador promised he will not do is raise taxes, increase debts, and interfere with the central bank’s independence, which leads several people, including investors and business leaders, to question where the funds are going to come from in order to Support these policies. Mexico has been growing at about 2 percent for the last three decades, whereas the world is growing roughly 4 percent. So far, Obrador has stated that the financing will emerge from stopping corruptionand boosting social expenditures, which will spark a consumption-driven increase in economic growth. But this plan doesn’t seem concrete enough for many investors.

The president-elect and his incoming administration will have to deal with their limited autonomy when it comes to economic management. Mexico’s main trading partner is with the U.S. and although, Obrador is not a free-trader, he has claimed to be pro-NAFTA. However, the re-negotiation of the free trade deal between US, Mexico and Canada, rests on U.S. President Donald Trump’s impulses. Monetary policy will also be governed by Mexico’s conservative central bank, whose mandate is limited to inflations and raising interest rates. While Obrador says he will not be raising taxes, one way to retain the revenue from taxes could be to fight the major levels of tax evasion that Mexico has, but that will not be an easy task.

Analysts are concerned that Obrador could risk running huge deficits and make Mexico’s economy even worse off. To make matters more unsettlingly for investors, Obrador wants to re-nationalise the oil and gas industry in Mexico, meaning that he wants to undo Peña Nieto´s opening of the country´s energy markets to the private sector in 2014. Over the past 3 years, several of the state’s oil refinery blocks have been sold to Shell and ExxonMobil. The new administrations plans to increase spending on the state’s oil refinery, Petroleos Mexicanos (Pemex) in order to reactivate it. The goal is to reduce Mexico’s imports. 

The Bank of Mexico has predicted higher inflation rates, close to 3 percent, for this year and next. Additionally, given the nation’s economic challenges, it will be lowering expected gross domestic product growth from 2-3 percent to 2-2.6 percent for 2018. For 2019, the forecast was lowered from 2.2-3.2 percent to 1.8-2.8 percent.

Mexico faces enormous challenges: security, corruption, the need for social spending and investment for development, and achieving a beneficial NAFTA deal. However, the recent democratic shift, and the changes that López Obradorand his administration will bring, offers new opportunities for Mexico.