AMLO’s Farewell Address

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GCaM Greater Caribbean Monitor
February 16, 2024

Dear all,

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In this issue, which is the last of the year, you will find:

Títulos en este boletín

•AMLO’s Farewell Address

•In Colombia, Petro Quarrels With the Supreme Court

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The GCaM Team

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•AMLO’s Farewell Address
615 words | 3 minutes reading time

Outgoing Mexican President Andrés Manuel López Obrador (AMLO) has sent Congress 18 proposed constitutional amendments, as well as two proposals for far-reaching secondary legislation. The proposals, which do not cloak their ambition, are to be interpreted as AMLO’s political will and testament.

  • The president wants judges and magistrates to be elected by popular vote. He also calls for an annual above-inflation hike to the minimum wage, with significant pay raises for state employees.

  • The package of reforms is an utter crowd pleaser; it has something for everyone. It seeks to ban fracking and open-pit mining, protect water rights, and establish the right to housing, education, and work. AMLO also wishes to provide constitutional recognition to indigenous and Afro-Mexican groups. 

  • The most expensive is the proposed pension reform, which would guarantee retirees a monthly payment identical to their final salary, up to a limit of 16,777 Mexican pesos (US$984.61).

Between the Lines. AMLO proposes financing these additional expenses by dissolving autonomous agencies and shrinking Congress, which would go from 500 deputies and 128 senators to 300 and 64, respectively. The Supreme Court would go from 11 to nine to justices—a cosmetic change intended to punish adversaries.

  • AMLO also wishes to reduce the federal contribution to campaign expenses. For this year’s elections, the National Electoral Institute will hand over 10.4 billion pesos (~$612.6 million) to the country’s parties.

  • Such a change would disproportionately harm the opposition, which lacks the ability to campaign from within the state. This does not bother AMLO, whose goal, in his words, is to make it “very difficult” for his reforms to be reversed.

  • AMLO is aware that the package of reforms likely will not be approved by the current Congress. His initiatives have two primary purposes: to serve as campaign fodder, and above all, to set the agenda for his hand-picked successor, Claudia Sheinbaum, who will likely enjoy a comfortable majority.

The Data. AMLO is wont to flaunt his frugality. A few months ago, The Economist called him an “unusually parsimonious populist.” This is partly true: Mexico, along with sub-Saharan Africa, was one of the few places to allocate less than 2.5% of GDP to COVID relief. 

  • “Republican austerity” has brought cuts to countless state agencies, often those the president dislikes. From 2018 to 2024, for example, the Energy Regulatory Commission had 81.4% of its budget cut.

  • Far from reallocating inefficient spending to better ends, AMLO is fond of white elephant projects. His laudable objective of investing in the country’s south, which is poorer, resulted in Tabasco, his home state, being gifted a refinery. Cost overruns on the project, initially forecast to cost $8 billion, reached 46%.

  • In light of this, pension reform is frankly unaffordable. It would cost 1.3% of GDP, rising to 2% in 2035. According to the Mexican Business Council, VAT would have to be raised to 35% (it currently stands at 16%) to finance the venture.

The  Balance. Pensions already take up 22% of the Mexican federal budget, and this will only continue rising. In 2024, Mexico will also face its highest debt servicing costs since 1991; the budget deficit will hit 5.4% of GDP—a 36-year high.

  • Mexico, which has displaced China as the United States’ largest trading partner, would do well to prioritize both security and sensible infrastructure, to the detriment of AMLO’s often pharaonic projects.

  • For Central America, especially for Guatemala, Mexico is of existential importance. Its ups and downs trickle down and have effects to the south of Chiapas, which, incidentally, remains Mexico’s poorest state.

  • It is important, therefore, that Mexico be well managed. Otherwise, Central America will find it difficult to expand its U.S. market reach as a supplier for Mexican firms. And there is always the risk that Mexico will set a bad example for Central American politicians.

What We’re Watching

U.S. Gas Producers Are Racing to Sell to Asia. And Mexico Is Key [link]

Max Bearak, The New York Times

Given the drought and traffic jams in the Panama Canal, American natural gas producers will begin exporting their product through the Costa Azul terminal in Baja California. Fracking, which AMLO wishes to ban, has led to significant increases in production in the Permian Basin; demand from Asian markets is also immense. Mexico could benefit enormously: the White House has placed barriers on the export of natural gas, but five terminals have been proposed to export U.S. natural gas through Mexican ports. If built, they would make Mexico the fourth-largest natural gas exporter in the world.

More than 57,000 migrants have crossed through Honduras since 2024 began [link]

Kevin Benítez, El Tiempo

Most of the 57,000 migrants who have passed through Honduras so far this year are Venezuelan, Cuban or Haitian, but non-Latin Americans, ranging from Guineans to Chinese, are increasingly prominent. Despite the logistical difficulties for Honduras, it should be taken into account that these flows are likely to continue, and even intensify, until Congress takes action on the border. Indeed, even a hypothetical Trump victory could intensify border crossings in the last months of Joe Biden’s term.

Explainer: China’s Free-Trade Agreements in Latin America [link]

Jon Orbach, Americas Society/Council of the Americas

Under the FTA between Beijing and Managua, which came into force on January 1, 71% of Nicaraguan products can enter the Chinese market tariff-free. In Nicaragua, the FTA is expected to be especially beneficial for meat and seafood exporters. The country will retain its enormous trade deficit vis-à-vis China, but under the agreement, it managed to protect its agricultural industries. For countries that maintain relations with Taiwan, this represents an opportunity, since Taiwan is increasingly likely to draw its fish exports from them.

Fitch Affirms Guatemala at ‘BB’; Outlook Stable [link]

Fitch Ratings

Despite last year’s political instability, Guatemala maintains a stable economic outlook. It is estimated that GDP will grow 3.5% this year, a figure that matches the historical average; frankly, Guatemala is approaching the peak of its potential growth and cannot grow at a faster pace without substantial investments in infrastructure. Fitch points out, moreover, that political instability could lead to a downgrade of the credit rating if public finances or tax receipts were affected.

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•In Colombia, Petro Quarrels With the Supreme Court
652 words | 3 minutes reading time

There is no white smoke over Bogota. The Supreme Court has thus far failed to accept any of the three options for attorney general suggested by President Gustavo Petro (Humane Colombia, left). The president called on his supporters, many of them union members, to demonstrate, and then distanced himself when the protests turned violent. 

  • Outside the Supreme Court, a siege of sorts took place. Protesters sought to prevent the hesitant judges from leaving until they had a favorable result. They then called for the court, which is considered relatively technocratic and impartial, to be dissolved.

  • Officials at the Palace of Justice sought to intercede, albeit to no avail. Police were eventually pelted with stones, to which they responded with tear gas. The judges and court officials were subsequently escorted from the building. 

  • Petro, conscious of the need to keep up appearances, has attempted to absolve himself of all responsibility. He talks of “infiltrators” among the protesters, and claims he did not call for demonstrations against the court.

Between the Lines. The president’s change of tone is rather unconvincing. The OAS, however, struck a conciliatory tone, demanding that “attempts by different political actors to damage the democratic process in Colombia be abandoned.” It even entertained Petro’s talk of a coup against him and criticized “threats to interrupt the constitutional mandate of President Petro.”

  • The president needs a successor to Attorney General Francisco Barbosa, who left office on Monday. Barbosa, a staunch critic of the government, was provisionally replaced by his deputy, Martha Mancera, who is accused of covering up a drug trafficker. 

  • Petro says the Prosecutor’s Office is leading a witch hunt against him and asks the Supreme Court for a quick vote, which is unlikely. Indeed, under previous presidents, attorney general appointments have taken over a year.

  • The Prosecutor’s Office handles cases that harm Petro. Nicolás, his son, has been charged with money laundering. Furthermore, FECODE, the pro-government teachers’ union, was recently raided for an unreported donation of $127,000 to Petro’s presidential campaign.

Panorama. The state of affairs would be different if Petro were a popular leader, but he is not. In 2022, he clinched the presidency with a mere 50.42% of the vote; last December, his approval rate stood at 26%. His peace talks with the National Liberation Army, an armed group fond of kidnapping, are similarly unpopular.

  • In recent years, Colombia, like many countries in the region, has experienced an uptick in crime. In fact, the first nine months of 2023 saw a 70% increase in kidnappings. 

  • It is unlikely that the current Minister of Defense, Iván Velázquez, will be able to control the phenomenon. The former head of the UN-backed CICIG theoretically leads the defense apparatus, but he has never hidden his distaste for the military

  • Petro lacks the Midas touch. The economy grew 1.2% in 2023, an obscenely low figure for a Latin American country. Inflation has been persistently high and ended the year at 9.3%, forcing the Bank of Colombia to keep its 13% benchmark rate. 

The Balance. Unfortunately for Petro, the Supreme Court can continue to prevaricate, although it is under immense pressure, both from within and without, to pick one of Petro’s three candidates. For better or worse, Mancera will take the reins of the Prosecutor’s Office and continue the “persecution” loathed by the president.

  • Colombia lacks immediate re-election, and Petro is not keen on having a hostile Prosecutor’s Office for the rest of his term. Colombia’s habit of prosecuting former presidents, including conservative Álvaro Uribe, could pose an additional complication. 

  • It is unlikely that the confrontation with the Prosecutor’s Office will make the president recalibrate his efforts. When an internal war between radicals and moderates broke out in his cabinet, Petro opted to shift further left.

  • Petro is, much to the country’s chagrin, ideologically consistent. The president, a committed environmentalist, has harmed the state-owned energy giant, Ecopetrol, with a punitive tax reform. This is far from sensible in a country whose primary export product is oil, followed by coal.