Strengthening your global relationships is the best way to escape the pandemic-induced recession and help the country’s poor population.
Globalization created Mexico today, transforming its economy, society and politics, to the displeasure of the current president, Andrés Manuel López Obrador. Now, if you want to save your presidency and the country from the coronavirus pandemic and a ruthless recession, the man who in his presidential inauguration speech denounced neoliberalism as “corrupt” it will have to strengthen Mexico’s international relations.
Over the past 30 years, Mexico has become one of the most open economies in the world. Trade exceeds 80% of gross domestic product: Millions of Mexican jobs depend on a booming export sector that encompasses auto parts, aircraft engines, medical devices, television screens, agricultural products, and much more.. According to McKinsey Global Institute, these sectors with international impact are the most productive and represent a solid foundation for higher-paying jobs and longer-term economic growth.
More than half a trillion dollars of foreign direct investment has reached the nation in the last two decades, allowing the construction of a globally competitive manufacturing base and, more recently, a stabilization and modernization of the weakened energy sector. The liquidity of the peso has facilitated this with a cross-border flow of more than USD 100 billion a day. Half of the Mexican population indicates that they have family abroad, mainly in the United States. From the common citizen to the elite, from construction sites to farms, migration has attracted the humble and the wealthy of Mexico, its entrepreneurs and its people in difficulty. These 12 million Mexicans, 10% of the population send remittances (about USD 40,000 million in 2019) that represent a livelihood for families and communities at home.
As in other countries, globalization has had its costs. Many of Mexico’s criminal organizations are transnational, move illegal substances and traffic people across borders, simultaneously besieging those who remain in the country. Inequality increased along with the opening of Mexico (although it has decreased in the last decade), and poverty endures. Planes and ships brought in a deadly virus that was initially hatched from across the ocean.
However, the real result of globalization for Mexico is evident through the great disparities between north and south: the open and connected north fares much better in terms of income, wealth, education and life expectancy than the isolated south. Mexicans’ own decisions reveal which world they prefer; populations in more international states are growing.
And yet López Obrador insists on disconnecting Mexico from the world.
It began its crusade against a global Mexico long before its successful presidential campaign in 2018 and the COVID-19 outbreak this year (its 2006 presidential push, for example, urged it to reject lower agricultural tariffs agreed in NAFTA). Now, in your daily press conferences, it rants against the foreign policies of its predecessors, blaming them for poverty, inequality, corruption and insecurity.
At the energy level, it only visualizes the State and has canceled auctions and weakened private contracts. In his bid to be self-sufficient in terms of gasoline, he invests billions in refineries (although those in Mexico operate at only a quarter of its capacity) and blocks policies that aim to buy the cheapest energy available (often imported and cleaner natural gas).
Self-sufficiency, not dependency, also guides your vision of agriculture. Your Government Spends Billions of Dollars on Free Fertilizer for Farmers, guaranteed prices for corn, beans, flour, rice, and milk, and subsidies for consumers to pay less than market rates for these foods and others in the basic basket.
In general terms, he seems to care little about international standards. Go to local referendums to resolve investment decisions. These “popular” consultations (which frequently represent a small portion of the voters) have been used to cancel the construction of a new airport in Mexico City in 2018, authorize the Mayan Train that would affect the forests of the Yucatan peninsula and prevent for the Corona beer producer to open a plant in Baja California. It is undermining the independence of regulatory agencies, chasing away investors as it replaces qualified experts with supporters.
López Obrador’s government has not totally distanced itself from the rest of the world. It has reached free trade agreements with the US and Canada, as well as with the European Union. In addition, it is prioritizing the reopening of factories related to North American supply chains. But these few positive factors are overshadowed by the growing disregard for basic trade rules.
Revealing Fact? López Obrador has not left the country since his electoral victory. He has sent others to the Group of 20, to the United Nations General Assembly and to the World Economic Forum in Davos, leaving all Mexican leadership adrift on a range of issues, from financial to climate.
If the president really wanted to help those he claims to represent, he would welcome Mexico’s global advantages. It would favor foreign investment and experience in the energy sector, thus accelerating the transition to a more stable and efficient network. This would benefit the poor population more than anything with lower prices. Increasing production led by the private sector would also mean higher government royalties to dedicate to social programs. A prolific electricity system would also attract more manufacturing, a key step in expanding Mexico’s role in supply chains and generating more and better jobs. Greater agricultural trade would keep consumer prices low, thus helping the poor population without costly government outlays. It would also allow them to specialize in greater profitability of fruits, vegetables, coffee and other products, a path that enables them to get out of the permanent poverty that subsistence agriculture means. Furthermore, adhering to trade-based standards and non-politicized support would bring back local and international investment that fuels economic growth.
Sadly, López Obrador is unlikely to change the course he has taken. Rather, the current recession will intensify. The new 10 million poor will have the company of millions more. The country will not be considered for the relocation of supply chains leaving China at this time, limiting its long-term economic potential. Lives and livelihoods will be lost. A more solitary Mexico will be a diminished Mexico that drains the hope of those who have long been forgotten.
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