Geopolitics

100 Days: AMLO's Presidency Has Not Crashed Mexico's Economy

Fears of an economic meltdown in Mexico provoked by the new socialist president  have not materialized, even if the economy has slowed and must remains to be seen.

Mexican President AMLO in Mexico City on March 11
Mexican President AMLO in Mexico City on March 11
Fernando Chavez iQ

-Analysis-

MEXICO CITY - In the first 100 days of the presidency of Andrés Manuel López Obrador (AMLO), Mexico has embarked on a process of major social and political change in a context of economic and market uncertainty, even instability. It may be too early to adequately untangle the nature and scope of our economic problems at this stage of AMLO's six-year term. Still, certain signs indicate that despite the persistence of a kind of national inertia, certain government decisions are creating new conditions that could change something in our economic life.

Checking the pulse of four key areas — production, inflation, exchange rates and unemployment — we can begin to separate the old from the new, and discern possible new patterns.

The government's macroeconomic approach has been broadly orthodox along two, fundamental axes: monetary and fiscal policies. The first is the responsibility of the Central Bank and the second, the Finance Ministry, both of which have been coordinating their actions. The two have worked together to boost the economy in an environment of relative monetary and financial stability, against the pessimistic auguries of AMLO's critics.

The notable points of concern begin with a decline in the growth rate since late 2018. Effectively there was a "coincidental" decline in the last two months of last year in public and private investments and consumer spending, and stagnant industrial exports. This has led many analysts to revise downwards Gross Domestic Product (GDP) forecasts for 2019, while some are even fearing, prematurely perhaps, negative growth in the first quarter, in a likely prelude to a recession. One should consider here the hesitant international economic setting and limited dynamism both in industrialized states and emerging economies.

We should also recall that a slowing economy has been a constant of the last eight presidencies (1970-2018). Usually the announcement of new economic policies alongside adverse, national and international factors have either slowed growth or even provoked recessions. It happened in 1971, then in 1977 with President José López Portillo, with Felipe Calderón in 2007 and Enrique Peña Nieto in 2013. Presidents Ernesto Zedillo and Vicente Fox faced bona fide recessions in the first two years of their administrations, beginning in 1995 and 2001 respectively.

The peso's consolidation has improved the financial mood.

Inflation has clearly lost steam in recent months, running in February at an estimated annual rate of 3.89%. This "hawkish" phase of the Central Bank culminated with a freezing of the daily interbank rate at 8.25%, following a unanimous decision taken in AMLO's collegial cabinet.

The currency exchange turmoil of the first months after the 2018 elections, particularly affecting the dollar-peso rate, have also ceased. The peso's consolidation has improved the financial mood and belied dire warnings from critics on the consequences of AMLO's decisions on the new (now cancelled) airport. A balanced fiscal policy for 2019 has generated investor confidence, as have several presidential initiatives to calm private-sector fears. The peso's revaluation can be explained by negotiations for a new trade treaty to replace NAFTA, and the restrictive monetary policies cited above.

The Mexican Stock Exchange — Photo: El Universal/ZUMA

The job market has also shown resilience in the slowdown, at least judging by the slowing rise in jobless rates (both nationwide and in cities) in late 2018. Those indeed are usually associated with seasonal factors like a reduction in formal job creation in those months. Yet the reality of this market is that it includes a very large population of underemployed or informal workers, or non-working, working-age people not registered as unemployed. Separately consumer confidence rose dramatically in December and January, which we can attribute in part to AMLO's new minimum wage policy and social aid programs for certain vulnerable sectors.

So there is a hybrid macroeconomic panorama for the first 100 days of the presidency. It combines production slowdown, subsiding inflation, a cheaper dollar and a slight rise in unemployment, with an unexpected rise in consumer confidence. One may state, cautiously, that nothing suggests any imminent crisis.

We can begin to separate the old from the new.

Critics had warned of the collapse of various economic indices with the new government, and this has not occurred. Social and political tensions that would inevitably come with a change of economic course after decades of neoliberalism, remain. But these are being processed peacefully and legally through contending social and political entities acting for or against AMLO's heterodox guidelines. There are no prospects for a showdown that will bring the institutions crashing down. With a bit of give and take, everyone seems to be finding their place.

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Geopolitics

"The Truest Hypocrisy" - The Russia-NATO Clash Seen From Moscow

Russia has decided to cut off relations with the Western military alliance. But Moscow says it was NATO who really wanted the break based on its own internal rationale.

NATO chief Stoltenberg and Russian Foregin Minister Lavrov

Russian Foreign Ministry/TASS via ZUMA
Pavel Tarasenko and Sergei Strokan

MOSCOW — The Russian Foreign Ministry's announcement that the country's permanent representation to NATO would be shut down for an indefinite period is a major development. But from Moscow's viewpoint, there was little alternative.

These measures were taken in response to the decision of NATO on Oct. 6 to cut the number of personnel allowed in the Russian mission to the Western alliance by half. NATO Secretary-General Jens Stoltenberg said the removal of accreditations was from eight employees of the Russian mission to NATO who were identified as undeclared employees of Russian intelligence." We have seen an increase in Russian malicious activity for some time now," Stoltenberg said.


The Russian Foreign Ministry called NATO's expulsion of Russian personnel a "ridiculous stunt," and Stoltenberg's words "the truest hypocrisy."

In announcing the complete shutdown in diplomacy between Moscow and NATO, the Russian Foreign Ministry added: "The 'Russian threat' is being hyped in strengthen the alliance's internal unity and create the appearance of its 'relevance' in modern geopolitical conditions."

The number of Russian diplomatic missions in Brussels has been reduced twice unilaterally by NATO in 2015 and 2018 - after the alliance's decision of April 1, 2014 to suspend all practical civilian and military cooperation between Russia and NATO in the wake of Russia's annexation of Crimea. Diplomats' access to the alliance headquarters and communications with its international secretariat was restricted, military contacts have frozen.

Yet the new closure of all diplomatic contacts is a perilous new low. Kommersant sources said that the changes will affect the military liaison mission of the North Atlantic alliance in Moscow, aimed at promoting the expansion of the dialogue between Russia and NATO. However, in recent years there has been no de facto cooperation. And now, as Foreign Minister Sergey Lavrov has announced, the activities of the military liaison mission will be suspended. The accreditation of its personnel will be canceled on November 1.

NATO told RIA Novosti news service on Monday that it regretted Moscow's move. Meanwhile, among Western countries, Germany was the first to respond. "It would complicate the already difficult situation in which we are now and prolong the "ice age," German Foreign Minister Heiko Maas told reporters.

"Lavrov said on Monday, commenting on the present and future of relations between Moscow and the North Atlantic Alliance, "If this is the case, then we see no great need to continue pretending that any changes will be possible in the foreseeable future because NATO has already announced that such changes are impossible.

The suspension of activities of the Russian Permanent Mission to NATO, as well as the military liaison and information mission in Russia, means that Moscow and Brussels have decided to "draw a final line under the partnership relations of previous decades," explained Andrei Kortunov, director-general of the Russian Council on Foreign Affairs, "These relations began to form in the 1990s, opening channels for cooperation between the sides … but they have continued to steadily deteriorate over recent years."

Kortunov believes the current rupture was promoted by Brussels. "A new strategy for NATO is being prepared, which will be adopted at the next summit of the alliance, and the previous partnership with Russia does not fit into its concept anymore."

The existence and expansion of NATO after the end of the Cold War was the main reason for the destruction of the whole complex of relations between Russia and the West. Today, Russia is paying particular attention to marking red lines related to the further steps of Ukraine's integration into NATO. Vladimir Putin's spokesman Dmitry Peskov previously stated this, warning that in response to the alliance's activity in the Ukrainian direction, Moscow would take "active steps" to ensure its security.

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