MCALLEN, RGV – Texas Governor Greg Abbott could help persuade Mexico President Andrés Manuel López Obrador to change his economic policies, says the director of the Mexico Institute.
Duncan Wood gave a negative assessment of the way AMLO was running the economy when he spoke at a luncheon hosted by IBC Bank and the Rio Grande Valley Partnership and held at the McAllen Performing Arts Center.
In his speech, Wood said Mexico was technically in a recession. However, when interviewed after his speech by veteran broadcaster Ron Whitlock, Wood said that if Abbott took a trade delegation to Mexico City, he might have some influence.
“I think the first thing is, this president is stubborn, he is determined. He believes what he believes. What we have seen, though, is that he does respond well to pressure from the United States government,” Wood told Whitlock.
“So, if we were to see, not just business people but a mission from Texas, led by Governor Abbott, for example, taking down Texas-based business people to talk to him and to say, we are concerned about what is happening in the country, and we think we can help you to do better, I think that is good.”
Wood said that if the United States federal government was to “really inject more energy” into mechanisms like the high-level economic dialogue and and the CEO dialogue, that would be even better.
Wood added: “The opportunity is there. You could have pressure coming from the U.S. side that may actually be more effective than what we are seeing from the Mexican business community today. Send a trade and investment mission because that is what they are looking for. The are looking for people to invest in Mexico right now.”
Gerry Schwebel is executive vice president of IBC Bank’s Corporate International Division and a member of the United States-Mexico Economic Council, an initiative of the U.S. Chamber of Commerce that seeks to strengthen the economic and commercial relationship between the U.S. and Mexico.
Schwebel was at the Wood event. Interviewed by Whitlock after Wood’s speech, Schwebel said he agreed that a trade mission from Texas should visit Mexico City.
“That is all good and necessary. But we have to work with our business counterparts in Mexico to deliver a joint message,” Schwebel said.
Schwebel pointed out that the leaders of the U.S. Chamber of Commerce, including its president and CEO, Tom Donahue have met with AMLO and Wilbur Ross, the U.S. secretary of commerce.
Schwebel said the president of IBC Bank, Dennis Nixon, is going to be a co-chair of a trade policy working group of the United States-Mexico CEO Dialogue, which is part of the U.S. Chamber of Commerce.
“From the private sector, he will be directly at the table of influence to set what will become private sector trade policy for the United States in the binational relationship with Mexico,” Schwebel said.
Asked about current trade conditions between the U.S. and Mexico, Schwebel said while truck crossings continue to rise, the number of passenger vehicles going back and forth was declining. “This is a concern for border communities. People come over and shop and buy things. Those numbers are not as good.”
Schwebel said a criticism of the North American Free Trade Agreement is that its monitoring mechanisms were not strong. He said the United States-Mexico Economic Council would be monitoring implementation of all 33 chapters of the United States-Mexico-Canada Agreement.
“It has been a long journey (to get USMCA passed) but we are there. Let’s get this wrapped up, eliminate the uncertainty and get back to work,” Schwebel said.
In his speech, Wood said he needed to be a little bit more optimistic than he was when he gave a speech about AMLO in McAllen in November 2018. In that speech Wood warned that having won a landslide victory in July of that year, AMLO would seek to centralize power. Wood said he did not like being right but he had been.
Wood said that when AMLO took office he promised four percent economic growth in his first year and six to seven percent economic growth by end of his presidency. In reality, Wood said, Mexico is probably now in a negative growth situation.
“We know that by the middle of the year we were at zero percent growth. That was later revised down to zero point one percent growth. We think that by the end of the year the Mexican economy will have contracted. The Mexican economy is in a technical recession,” Wood said.
Wood said this is at a time when the United States, Mexico’s largest trading partner, has a “booming” economy.
“In fact, economic growth in the United States in the past couple of years is estimated to be responsible for 0.2 percent of Mexico’s growth. Imagine how bad it would be if the United States, God forbid, slipped into recession?”
Wood said AMLO is doing many things correctly. “He is maintaining macro-economic stability, he is maintaining fiscally conservative policies. He is maintaining the autonomy of the Central Bank. The peso is stable.”
However, investors, both Mexican and foreign, have been “spooked,” Wood said. He said AMLO’s decision to cancel what was going to be a very successful new airport project for Mexico City has worried investors.
“They are worried about the economic conditions. Economic growth has dried up. Investors have not got certainty,” Wood said, pointing to concerns that the sanctity of contracts between the federal government and private sector will not be honored.
One example of this came when AMLO challenged contracts in the energy sector, Wood said. He noted that over 100 foreign and Mexican investments had been made since Mexico’s energy reforms of 2014 were put in place.
Wood said those investments are now safe. “The government knows they cannot violate those contracts without sparking a crash of the Mexican economy. However, there are no new contracts being issued. Andrés Manuel wants to see how the contracts play out.”
Wood said AMLO had tried to challenge the terms of a contract to provide gas pipeline from Texas to Veracruz. He said the Texas-Tuxpan pipeline was completed last year on time and at the predicted cost. However, Wood said, the Mexican Federal Electricity Commission was not ready to take the gas at the time.
“Andrés Manuel challenged the two major companies, Trans Canada and IEnova. He wanted to renegotiate the price. At the end of the day an equitable solution was found but it created more doubts in the minds of investors as to whether Mexico was a safe place to invest.”
Wood said the situation with Pemex is not good. He said that in 2003-04 the state owned petroleum company was producing 3.4 million barrels of oil a day. Now, Wood said, it is pumping out less than 1.7 million barrels of oil a day.
“That is less than 50 percent of what it used to. This has serious implications, not just for the oil company but for government revenue,” Wood said, explaining that Pemex accounts for 20 percent of Mexico’s total budget.
“As oil production continues to fall and as there are no new contracts being issued to the private sector to engage in exploration production, unfortunately there is very little hope that oil production will increase,” Wood said.
There have been a couple of major oil field finds in recent years but AMLO will not be in office to see the benefit, Wood said.
“I said I would be optimistic, right?” Wood joked. “The good news is, Andrés Manuel is enormously popular. Andrés Manuel is loved by the people. He is highly effective at making personal contact with Mexicans. They love their president. How long is that sustainable?”
Wood ran through AMLO’s popularity rankings.
With regard to public security, Mexican public opinion is slightly negative towards AMLO, Wood said. When it comes to the economy, Mexicans were very unhappy but that has been turned around. “It is better now, the cash transfer policies are beginning to flow. The money is beginning to go to poorer people in Mexico. The checks are beginning to arrive,” Wood said.
On the issue of corruption, the public is not convinced but believe progress is being made. On poverty, Mexicans think things are getting better. On education, AMLO is overwhelmingly popular and on public health, it is a mixed bag, Wood said.
“Andrés Manuel is a genius at convincing Mexicans that things are going well. I personally believe that is unsustainable. I believe that ultimately, over the next year, those numbers are going to come down and he is going to be in real trouble in the mid-term elections of 2021,” Wood predicted.
Concluding his remarks, Wood said AMLO’s decision to “placate the man in the White House” so that he can focus on internal affairs, “was not a stupid strategy.” He pointed out that AMLO had been cooperative with the White House on USMCA, security and migration.
“I do believe that Andrés Manuel wants to do the right thing for Mexico. I do believe he wants to be a good president. But, unfortunately, he is going about it all wrong,” Wood said.
Taking a question from the audience, Wood was asked where the optimistic part of his speech was. He responded: “The optimistic part is, in the long run everything is going to be great.” That drew laughs from the audience.
Wood elaborated on his answer by saying he had been pitched a question earlier in the day during a presentation in Laredo.
“The question was, would I invest in Mexico. Mexico is such an attractive market to invest in, long term. Demographics, geographic proximity to the United States, shared border, the integration of the manufacturing platform, who would not want to invest in Mexico? But do I want to invest in Mexico today? Nah. I want to wait until I know that my investment is going to be a bit more secure.”
Wood said another reason to be more optimistic is that what Mexico is going through right now might just what it needs. “Maybe Mexico needs to go through this process in order to learn that not everything of the previous administrations were bad.”
Wood said he understand why Mexicans voted for AMLO and why they support him.
“But, you can’t just abandon all the things that were working. You can’t throw out the baby with the bathwater, which is what I think is happening here. I hope that will lead to a re-evaluation on the part of the Mexican government.”
Wood speculated that economic policies could change, if AMLO suffer bad results in the mid-term elections in 2021. “Having said that Andrés Manuel is an incredibly stubborn man.”
Wood then gave an example of AMLO changing his mind: the Texas-Tuxpan pipeline renegotiation. He said AMLO had been asked what would happen if the dispute over the price of imported natural gas went to a tribunal and the president lost. He said it was pointed out that AMLO would lose political face, pay a fine, and lose investment money. He said AMLO responded by asking advisors to find a way whereby he could save face.
“He (AMLO) has the capacity to change. But only if you convince him that it is the best thing for him and his political program. That is a tricky thing to do,” Wood said.
Veteran broadcaster Ron Whitlock also asked Wood a question during the Q&A. He asked if things might improve once USMCA becomes law.
“They (the AMLO administration) believe now that it has been resolved they will see higher levels of investment. I want to believe that is true but I don’t think it is. I will tell you why,” Wood answered. “The underlying problem is not the trading conditions. The underlying problem is the lack of certainty for investors. Until Andrés Manuel resolves that problem, until he restores the faith of investors both foreign and national, I am afraid the economic problems are not going to be resolved.”
Whitlock then asked Wood what he would say to AMLO, given the chance.
“If he would listen to me, I would say he needs to start listening to the business community in Mexico,” Wood answered. “He needs to reassure them and he needs to provide them with guarantees that he will respect their decisions and he will provide them with a conducive business environment in which to invest. He is not doing that right now. He is railing against them, telling them they are not doing their job.”
Editor’s Note: The main image accompanying the above news story shows Duncan Wood being interviewed at the McAllen Performing Arts Center on Jan. 16, 2020.