April 19, 2024 • 42 mins
On June 2, 2024, Mexicans will go to the polls to elect a successor to current President Andrés Manuel López Obrador. His chosen successor, former Mexico City Mayor Claudia Sheinbaum, is the odds-on favorite. But what is AMLO’s legacy exactly? In some sense, economic growth under his administration has been robust. On the other hand, there’s been very little progress on domestic security. He also leaves a legacy of massive spending routed through the military, whose fruits are still undetermined. On this episode, we speak with Bloomberg News reporter Andrea Navarro, who has dug deep into how AMLO has conducted economic policy, his approach to industrial and fiscal policy, and whether Mexico is now in a position to ride the ongoing wave of trade with the US and the nearshoring of international supply chains.
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Speaker 1 (00:03):
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:20):
Hello and welcome to another episode of the Odd Lots podcast.
Speaker 3 (00:23):
I'm Joe Wisenthal and I'm Tracy Alloway.
Speaker 2 (00:26):
Tracy, I think we as a podcast, I think we
have to do more on Latin America, letam economics, the
business situation. It's just like a sort of part of
the world that I don't think we've covered enough.
Speaker 3 (00:37):
No, I have to admit this is a total or
almost total geographic and economic blind spot for me. With
the exception of Guatemala, I just haven't spent that much
time in Latin America. I haven't read that much about it.
I think the story there is becoming increasingly interesting, and
I think if you look at something like Mexico, for instance,
(01:00):
there's all this enthusiasm about the theme of near shoring,
the idea that American companies are going to build all
these big factories over there. It's going to be a
big beneficiary of trade tensions with China. But at the
same time, there's this ongoing political backdrop which is, as
(01:21):
far as I understand it, about to heat up in
the shape of the Mexican presidential elections on June second.
Speaker 2 (01:26):
Yes, that's right. There is a Mexican presidential election coming
up on June second, which is like a perfect news
hook for us to sort of set the stakes, understand
what this is all about, and sort of use that
as an entry way to expand our coverage. It is
sort of crazy just in general in the media, and
so like I'm not trying to excuse us by implicating
the entire media, it does feel like you're in the US.
(01:50):
There's much attention paid to Europe and the Middle East, obviously,
and various things going on in East Asia, and yet
the sort of dearth of coverage I would say countries
which probably are much more economically and politically intertwined with
US than the countries that get most of the sort
of foreign coverage.
Speaker 3 (02:09):
Yeah, it is actually kind of weird, isn't it now
that I think about it. What's that expression familiarity breeds contempt?
Speaker 2 (02:15):
Contempt? Yeah, maybe not.
Speaker 3 (02:17):
Contempt, I guess ignorance. Ignorance. You're right, we spend so
much time talking about things happening in the Middle East,
oil production in the rest of the world, but actually
not a lot of that attention trained on Latin America. So, okay,
here is our first offering to course correct and actually
learn something about specifically Mexico, but you know, will broaden
(02:42):
our horizons later and expand.
Speaker 2 (02:44):
We are going to be the change that we want
to see in the world. But you know, to this point,
a really interesting fact that probably people don't really realize.
Brand Censor had some great observations about this. Mexico set
to displace China is the biggest source of imports into
the US market. We know there is a lot of
investment happening. Tesla is building a factory in Mexico. We
(03:05):
know that some of the Chinese automakers that are already
impaired by terrorists and trade barriers, they're investing in Mexico
maybe as a way of getting a conduit to the
US market. So there's more and more investment happening. At
the same time, as we know there are very significant
issues with national security, violence, the power of the cartels
(03:27):
across the country. All of this setting up in terms
of like what are the stakes of this upcoming election.
Speaker 3 (03:32):
Yeah, I'm just going to re emphasize that I am
not entirely up to speed on the situation. I meant
to come in this morning and sort of speed read
my way through what's happening in Mexican politics. But then
I got really distracted because I read that one of
the things that's happening is this huge expansion of the
amount of money that the government is spending on the military,
(03:54):
and the defense programs are basically growing very very quickly,
and one of those is something called the National Security
Infrastructure Project. And in addition to building military bases and
hospitals and things like that, part of the project is
to build an equine reproduction center. So I saw that
(04:15):
and I went I spent an hour going down a
rabbit hole of why the Mexican Army seems to love horses,
And there's actually like a lot written about this, So anyway,
instead of reading about politics, I was reading about the
Mexican Army's love of show jumping and things like that. So, okay,
let's do it. Let's actually talk about important things.
Speaker 2 (04:35):
Listeners, getting a glimpse into the odd Lots episode of
preparation process. Right there, we do have the perfect guest.
We're going to be speaking with. Andrea and Navarro, senior
reporter covering business for US here at Bloomberg, based in
Mexico City. She has a big story out now on
the Onloa administration, the legacy of it, the upcoming election
(04:57):
and what it all means and the balancing of these
different countervailing forces. So, Andrea, thank you so much for
coming on odd loads, and we really appreciate you taking
on the task of getting me and Tracy up to
speed on what really is an important trading partner, neighbor
and big economic.
Speaker 1 (05:16):
Story for us.
Speaker 4 (05:17):
Hi, Joe and Tracy, thank you for having me.
Speaker 2 (05:19):
Let's just start. There is this Mexican presidential election upcoming
on June second. Who are the candidates? What is this
election about?
Speaker 4 (05:27):
So? Yeah, in Mexico, we have elections presidential elections coming
up in June second, and the candidates are Claudia Shanbaum.
She was the former major of Mexico City and she
was anointed by Lopez A Rador to be the candidate
of his party called Morena. It's very clear right now
that she's a likely winner. She has a fifty percent
(05:48):
preference in the polls in the most recent polls. The
distance second is held by a woman named Sochil Jalbis.
Sochil is from a coalition of opposition parties who were
severely weakened over the past five or six years during
the Lopaso rather presidency. They came together to choose an
(06:09):
opposition candidate that would have the best chances at really
competing against Shanebaum. But right now, the preference that she's
showing is around thirty three percent, which is not great,
So barring something unexpected and very big, it's very likely
that Claudia will win. There is a third candidate. His
(06:29):
name is Jorge Albaresminez and the party he's coming from
is Mohi Mintos. The last thing I read is that
he's holding about a nine percent preference. It's not likely
that he's going to have a big showing, so it's
most likely going to be between Souchil and Claudia. But
as I said, it's basically given that Claudia will win.
Speaker 3 (06:49):
Joe, I'm just going to say everyone should pray for
our Spanish pronunciation in this episode, because Andrea just did
a phenomenal amount of like switching there and getting like
the accent exactly right. Okay, So Lopez Obrador is aka
AMLO has been in power for multiple years and is
sort of expected to hand off to his successor. Again,
(07:13):
I don't know much about Mexico, but one thing I
know is that when emerging market analysts start talking about
weakening institutions and constitutional reforms, that's probably not a good thing.
And some of those notes have been hitting my inbox
relatively recently. What are they talking about here?
Speaker 4 (07:34):
Yeah, I'm Loo, as he is known, did have a
string of controversial decrees or reforms that sort of scared
the market throughout his presidency. I would say that the
very first was right as he came into power in
late twenty eighteen, he canceled an airport project that was
going to be built near Mexico City to replace our
(07:56):
old grumbling airport that's called Vinita. Juarrees. That project was
planned by his predecessor, and and it was going to
be a very big airport. It was going to be beautiful,
It was going to be state of the art and
handle I think it was like sixty eight million passengers
a year, which is much more than we can handle now.
But he amlan. When he was campaigning, he sort of
(08:19):
painted the airport as a thing of the elites and
that the average Mexican would never use it, and so
why was so much money going into a project that
was not going to benefit the average Mexican. So he
scrapped it, and that really scared investors because a lot
of businessmen in Mexico were involved in some way or
the other in the airport project. We had Mexico's richest person,
(08:42):
Carlo Slim. His company was going to build the terminal
and I think one or two of the runways, and
so coming in with such a strong move freaked everybody out,
and he just scrapped it. It ended up being more
costly than actually finishing the project because he had to
pay off bond holders. He had to pay off so
much debt and so much investment that had already gone
(09:02):
into the project. But he just went and did it
and he didn't really care. And after that, there were
a couple of things that sort of did scare investors.
One of them was changing the rules into how airport
operators can charge different fees. We have three big companies
here that operate most of the airports in Mexico, and
(09:23):
it was just one of those moves where nobody saw
it coming. And when he did it, I think it
was the largest sell of those shares that the companies
had ever seen. Shares tanked around like forty seven percent
before pairing back some losses. He's well known for making
these brash announcements and movements that he sort of then
(09:44):
pairs back, and then people end up feeling that everything
is going to be all right. I think that the
best way to say it is that he has kept
everybody on his toes. But in the end, if you
look at the macroeconomics in Mexico, it's not all that bad.
The best is that its strongest that it's been in
life twenty years. I think inflation is relatively under control.
We have tons of money flowing in. So it's really
(10:06):
been surprising, to say the least, to see how he
has handled both the businessman and the macro economy.
Speaker 2 (10:30):
Prior to the twenty twenty election, there was a lot
of fear at the time that Trump it's gonna build
the wall and it's gonna be terrible for the Mexican peso.
Thinking back to that time, the peso is actually through
twenty twenty almost seen as like the purest market proxy
for market expectations of that outcome.
Speaker 1 (10:47):
Didn't you have a.
Speaker 3 (10:47):
Trade like that involved the peso?
Speaker 2 (10:50):
I seem to remember, I'm not going to rag about
my MiCT trade.
Speaker 3 (10:53):
Well, I just gave.
Speaker 2 (10:54):
You, okay, I did tweet that you sort of took
seriously that the ultimate effect of is going to be
this sort of reinvigoration of sort of the North American
trade at the expense of East Asian trading partners. You
might want to go long Mexican pay so against the
Korean wand that has been a really big winner in
(11:16):
my imaginary FX hedge fund. Yes, thank you, Tracy. I
did correctly predict that the Mexican pace that would be
a winner of the sort of new trading environment, and
that has been born out. But we have seen this
idea of like and it really accelerated after COVID, this
idea of like near shoring or friend shoring, this real
turnarway against particularly China, and we do see this sort
(11:39):
of flood of investment in parts in Mexico. We know
that Tesla is opening up a new factory, as I
mentioned in the beginning of Mexico is set to displace
China's the biggest source of imports into the US market.
So for whatever reason, and you know you mentioned AMLO's
the anxiety that he gave to the business community there
are a lot of positive Mexican investment stories happening right now.
Speaker 4 (12:03):
I think that Tesla was a big example when it
was announced. The problem with that is that they haven't
really started construction on the plant, and there's some doubts
on whether that's going to happen at all, or if
it's going to happen in five to ten years. But
we do know that several suppliers to Tesla already came
up and set up shop in the northern parts of
(12:26):
the country, and we do have a very big auto industry.
Most of the big car companies have big plants here
and some of them have expanded them over the past
few years, so there is a lot of movement. It's
important to also mention some of the roadblocks that near
shoring has and why some people are doubting whether Mexico
(12:47):
is going to be able to take full advantage of
the larger geoeconomical situation that it could potentially benefit from.
But there are security concerns. There's water scars City in
the northern part of the country, in re Bolon in Sonora.
Speaker 1 (13:05):
There are a lot of.
Speaker 4 (13:05):
States that have been dealing with severe droughts over the
past few years. There's a problem with electricity. There's a
big problem with supplying and distributing electricity. So there are
a lot of industrial parks that have to set up
their own generators, their own grids. They have to go
in and connect their plants to the larger grids so
(13:27):
that they can get some electricity. It's not cheap, it's
not easy to do. All of those hurdles do represent
something expensive, and it's very complicated for some companies to
take on all of these problems by themselves. So they
have been asking the government for more help with the security,
with electricity, with water, because if they don't resolve all
(13:47):
of those things, it's going to be very difficult for
companies to just take full advantage of being so close
to the United States.
Speaker 3 (13:54):
I was going to ask what's AMLO's approach or feeling
towards the near shoring trend, because when I think of
his policies, you know, sort of leftist nationalist. He used to,
from what I remember, talk about the moral economy and
distributing gains and things like that. So I wonder if
there's a tension there between that agenda and sort of
(14:17):
inviting external capital into the country. But then of course
you know that capital leads to jobs, it leads to
GDP growth. And there's also a theme here where he
has been bulking up the military. He's been beefing up
security and trying to crack down on crime, at least publicly.
Speaker 4 (14:39):
Yeah, I think that the last part that you said
about what he says publicly versus what he actually does
is a big, very big difference. I think that he
doesn't really he hasn't really devoted that much time to
talking about near shoring. He knows that it's a thing,
he knows that it could be beneficial for the country.
But what he's really pushing for is for development in
(15:01):
the southern part of the country. So if you look
at a map of Mexico, you look at the northern states,
and those are the ones that typically have gotten a
lot of industrial and investment just because of the closeness
to the United States, and traditionally it's just the way
it has been. And if you look at the south
and especially the southeast, so where you have the Yucatan Peninsula,
(15:24):
campeche Waaga, some of these poorer states, they have traditionally
not received so much investment as their northern counterparts. So
what he has really pushed for has been for business
to just set up shop down south, and it hasn't
really been an easy decision for businesses because of the
(15:45):
same things. Right like, you're farther away from the US,
and when there's not a big environment already set up
for you to come in, it's expensive to just set
up everything. And there aren't in many hotels, there aren't
many roads. It's just a lack of infrastructure that has
held some of the businesses back. There's a train that
he built, well, there's two trains that he built. First
(16:07):
is a Maya train that's in the Yukata and Peninsula
that's supposed to be for passengers and for cargo, and
a part of it has already been inaugurated. The other
part is still under construction. But his big bed to
answer to the new or showing question, I think, is
the other train, and it's called the Transismiko. So it's
sort of his answer to the Panama Canal. He wants
(16:29):
us to replace the Panama Canal with this train. And
it's very interesting because if you look at all of
the problems with the Panama Canal and with the Swas Canal,
you could see some people or some companies potentially using
the transismiko to ship some of their goods across the ocean.
So one ending point of the Salinakuruzjahaka in the Pacific,
(16:51):
and then the other point is in the Gulf in Bakaruz.
So if that works out, logistically, it's not as easy
because it is a train, so sh would have to
come into one of the ports, offload all of the goods,
upload them to a train, have the train pass over,
and then reach the Nacarus where it would have to
be uploaded into a ship again. But if that works,
(17:14):
that could potentially be very good for the country and
for the economy. It's just not clear that that's what's
going to happen, Tracy.
Speaker 2 (17:22):
As we continue to do more Laddam episode, we're definitely
doing a specific episode on Mexico's ambition to replace the
Panama Canal. That sounds like a great that's a great
that's great, that's a great episode in its own right.
Let's talk about the national security situation. You have a
table in your story that shows just how much homicides
(17:44):
in the country have increased over the years. The homicide
rate during both the Onload administration, but also the previous
EPN administration more than double than what it was during
the Vicente Fox administration in the early two thousands. What
is this sort of big story here and what has
MLO tried to do and perhaps tried to do unsuccessfully
(18:07):
to improve the national security situation.
Speaker 4 (18:10):
Yeah, so if you look at that chart and the
numbers from starting in a two thousand, what happened very
clearly was around two thousand and eight when Felipe Kaledon
declared a war on drugs, on cartels and he just
deployed the military into the country and sent him out
to fight the big cartels. And back then we did
(18:31):
see this splash of violence just across the country, across newspapers.
It was horrible. It wasn't what the country was used to.
But then it sort of became the way of life.
You know, It's very sad to say it, but I
think that Mexicans lost some sensitivity to seeing so many
murders and so many homicides just splashed across the country.
(18:53):
And it did get a little bit worse during the
Endrique Pane the years, just because the dynamics of cartels
and how they work. You know, you kill off the
leader and ten new leaders come up. And so right
now what we're seeing is that the three or four
cartels that used to run the criminal organizations, they have
(19:13):
been spread out and they have sort of multiplied into
these cells and these smaller groups that are harder to fight,
harder to control, and that have taken on several pockets
of the country. So instead of having the big Sinaloa,
Tijuana or Golf cartels, now you have so many different groups.
(19:34):
I think that they were spread out more across the
northern States back then, but now you see headlines where
they're taking on several towns that are not that far
from Mexico City, which is not something that we were
used to seeing. And homicides as a result have just
shot up. Now, if you ask Amlo, he's going to
(19:55):
tell you that a closer look at the numbers will
show a tiny slowdown in the rate. That could be true,
but there are also many people who say that that's
because statistics in Mexico aren't really that trustworthy. There's a
big rate of impunity. There's many crimes that go on. Reporter,
(20:16):
if you look at homicides, they have shut up. But
I'm going to will tell you that they slow down
a little bit. There's doubts on how trustworthy the numbers are,
and the numbers that have come down, it's such a
tiny slow down that it could just be a statistical error,
not really a change in the trend.
Speaker 3 (20:35):
So in the intro I mentioned the national security infrastructure projects.
Could you maybe talk a little bit more about, which
include the equine reproduction Center. I feel I must repeat this.
Could you talk a little bit more about the Defense
Department and its role in the economy and what we've
seen there recently under AMLA.
Speaker 4 (20:56):
Of course, so the Defense Ministry has always been the
central ministry under which most of the army or the
military runs, but I would say that under this administration,
its profile and its power and its budget have grown
in a way that's been unprecedented and very surprising. And
(21:17):
what we did in the story was take a closer
look at the budget and not only at the money
that was given to them, but had how the money
is actually being used. And so we found a program
in Mexico we called it at Bartida, and it's literally
the line in the budget that's called K zero nineteen.
It's Casa O and that Bartida is specifically for the
(21:41):
use of the military for its own infrastructure. Because a
military in Mexico has been given so many infrastructure projects
over the AMUL years, it's easy to think that that's
the money that they're using to build the airports or
the trains that the president has handed them over, but
it's not. The money in this Partida specifically is for
(22:02):
their own use. So it was very hard to find
what contracts they were making with this money. But we
did find, as you say, a lot of spending on horses,
a lot of spending on gyms, on upgrades to their
headquarters here in Mexico City, and so it does paint
a picture of an army that's taking some of the
(22:24):
money that they're being given for its own use. And
another thing that's important to mention about this Partida specifically
is that Congress did not really approve this money for
this use. So how it works in Mexico is that
the president or the executive chose the Congress a proposal
for the budget. Congress then analyzes it, and the lower
(22:46):
chamber has to approve it the spending part. And what
we realized is that over the past few years, the
military has used this tool that's called modifications to just
change money from different partidas, to move it around, and
to use it at their discretion. So for this specific Bardida,
(23:10):
the money that was spent eventually there had not been
approved by Congress. They just approved a tiny portion, but
then they spent whatever they wanted on whatever they wanted.
And it's very hard for Congress to keep track of this,
and it's very hard for anybody to just find the
contracts and see where the average taxpayer's money is going to,
(23:32):
which is very it's very sad.
Speaker 2 (23:34):
It's interesting. We recently recorded an episode on some of
the structural flaws of the Egyptian economy, and part of
the story there was just like how many aspects of
the economy are implicitly or directly under the control of
the Egyptian military and some of the problems there. It
feels very redolent of that. But just go into this
(23:54):
a little bit further, because it's still sort of counterintuitive.
I think you say in your story that defense during
the Omlo years is of one hundred and twenty eight percent,
which is extraordinary. But talk more about this disconnect between
the surge in defense spending and the lack of progress
and someoney you arguably perhaps backsliding in terms of security
(24:17):
and violence.
Speaker 4 (24:18):
Defense spending has grown one hundred and twenty eight percent
over the first five years in amdo's administration. Over the
past year, just a single year, it grew sixty three percent,
which is not nothing. And the problem here is that
a closer look at the budget will show you how
the money is being spent on these big ticket infrastructure projects,
(24:40):
on airports, on a state run airline that nobody thought
we needed, on the trains, and the amount of money
that's being actually directed to training soldiers, to deploying them,
to buying them weapons and equipment has stayed the same
ever since the Galton years. That program hasn't really grown
(25:03):
and that tells you a lot, because when you talk
to people on the ground, they will tell you that
the National Guard members don't have gas money to do
the patrolling that they have to do in highways. So
we did talk to a couple of people who told
us that they called the National Guard after thefts, after
highway thefts that they had run into and the National
(25:25):
Guard couldn't get there because they had no gas money.
So there's this huge disconnect into how it could be
that they're getting the largest budget they have had in
years and they're just not doing what they should be
doing with it. You know, some of the planes that
the military has are now being used for the state
(25:47):
owned airline that's called Mahigana, And that's we know, and
I'm sure that you guys are very aware of how
hard it is to take on new planes, to buy
new planes from Boeing, or to get lessers to to
give you a plane. It's not the easiest thing in
the world. But the president thought it would be, so
he just launched in an airline. He said it was
(26:08):
going to have ten planes, and then, after realizing that
it was going to be more difficult than he had
thought initially, he just got some planes from the military
to run the airline. So what we see now is
that that has been at the expense of security in Mexico.
As I'd said before, we have had several instances of
cartels just running parts of the country and we're hearing
(26:31):
things as they're charging people for Wi Fi connections, they're
charging people for the right to have a party. They're
throwing mini bombs from drones and just killing scores of people.
So there are parts of the country that are just
becoming no man's land and they're being abandoned and cartels
are just running the show.
Speaker 3 (26:51):
We mentioned the presidential election is coming up in June.
The official campaign kicked off. I believe at the beginning
of March, how much continuity could we expect between Amlow
and his anointed successor, assuming that the party, you know,
stays in power. And then I guess, just to add
(27:12):
on to that, how much political presence will Amlo have
even after the term limit comes into effect and he
is no longer president. Because my understanding is again going
back to that weakening institutional and controversial constitutional reform point
that you see from some of the em analysts right now,
(27:33):
is that he has been instituting some changes to the
judiciary and things like that that could possibly pave the
way for him to still, you know, have some influence
in the political sphere.
Speaker 4 (27:48):
I think that that's a million dollar question, Tracy. I
think that nobody is really wondering what's going to happen
on June. Second, everybody's pretty sure that Claudia is going
to win. I think that the true question is whether
or not Amlo is going to let her actually be
the president, and we're not going to know that for
(28:09):
a while, right, So he has maintained that he's going
to leave. He has a ranch in his hometown, and
that he's going to just go and retire and live
a quiet life. But nobody really believes that. So that's
what we're wondering as well. And I think that one
of the bigger questions is what she's going to do
(28:31):
exactly on security. If you look at what she did
in Mexico City, she had a very strong police force,
which is against what AMLO did at the national level,
and her security ministry here was led by a police person,
a policeman that's now going to be in the Senate probably.
(28:52):
So if she follows through with the strategy that she
had here, it's going to be a clear divergent from
AMLO's strategy, which was to prop up the military. So
it's going to be very interesting to see whether she
follows her own lines or whether she has to fall
in line without whatever AMLA tells her to do.
Speaker 2 (29:26):
Going back to the expansion of the military budget and
the lack of improvement on the security front, so you
mentioned that a lot of this money is going to
the building of airports, and you talked about the rail lines,
and one of them is in existence in some of
this infrastructure setting aside the lack of progress on security,
is the infrastructure spending bearing fruit, because obviously that's important too,
(29:49):
and that's critical if for ongoing GDP expansion, are these
infrastructure projects delivering in some manner in terms of making
parts of the country more hospitable or more business friendly
or better for the public than they were before.
Speaker 4 (30:04):
That's a good question. I would say not yet. It
takes a while for airports to just like ramp up,
and it takes a while for people to realize that
instead of the airport here in Mexico City that you've
always used, there's another one that's an hour away, but
it's probably less crowded, you know. So that airport that's
called Santa Lucia or Phelippe Acheles, it's I've never been there,
(30:29):
but people are telling me that there is usually one
or two flights a day, and some of those flights
aren't all that full. So it's not clear yet that
it's going to be a big success, but there is potential.
And the same for the one in Tulum, for example,
it's only an hour away from the one in Cancun,
so it's not clear that it was the biggest necessity ever,
(30:51):
but it could potentially in the future alleviate some of
the traffic that Gangcun is getting because it a lot
of international flyers use Gancun Airport instead coming to Mexico City.
As for the trains, as we said, like one of them,
if it has potential to replace the Panama Canal or
at least compete with it, it's going to be a
huge success, but that's not clear yet. And for the
(31:12):
trend Maaya, the one in the Yukataan Peninsula, it's been
a very controversial train because the part that's already running
is pretty easy. It was pretty easy to do. They
just had to expand some highways and it wasn't all
that technically complicated to build. I do think that that
has potential to connect some of the towns that didn't
(31:33):
have any airports or any bus terminals around, so that
could have some success. But the other part that's still
under construction, it's going to be very hard for them
to manage that successfully. The terrain on which it's built,
it's these open ended caves. I don't know if you
know what I'm going to talk about, but it's there
(31:54):
are called say not this, and there are these lines
so I've heard of it are very fragile, and so
when you try to put like a cargo train or
a passenger train on top of them, there's a very
real risk of collapse. And I did a story on
this a couple of years ago. It's very strange and
it's very hard to build a train on these grounds.
But that's just what they're doing. So we're going to
(32:14):
have to see whether it works, whether they're constantly having
to stop them because of collapses of the caves or accidents.
We hope not that's not the case, but it could
happen potentially. All of the projects that he has chosen
have been in theory good, but nobody really thought that
(32:34):
it was something that we absolutely needed. There are things
that there are smaller things, smaller highways that you could build,
smaller water systems, smaller electricity projects that you could do
to improve the lives of people that aren't in the
big CDs. But those projects aren't newsworthy, you know, like
that's I think that that's what he figured these big
(32:56):
ticket projects are he views them as his legacy, and
in the end he's going to leave two railroads, about
a dozen airports, and in an airline. So that's what
he chose to focus on.
Speaker 3 (33:09):
This is actually exactly what I wanted to ask you about,
because I'm struggling to wrap my head around one thing,
which is there are these big ticket headline infrastructure projects.
There is the expanding military budget. But I think overall
there's also a discussion of or a perception that Amlo
(33:32):
is sort of he's into austerity and the sort of
Republican austerity ideals. So how do we square those two things?
So these big ticket items more money for the military,
versus the perception or at least the stated ambition to
be more disciplined when it comes to spending.
Speaker 4 (33:54):
He has been very disciplined in spending and that's something
that we can give him. He has pulled that off.
But as you say, when you try to square it,
the thing or the ministries that have suffered are smaller programs,
you know, health education, domestic violence programs, nature programs, or
(34:17):
if not, they have just simply disappeared because he hasn't
taken on large debt for the country. But he has
had to just pull money from other projects or ministries
that he doesn't view as essential in order to fund
some of these big ticket items that he does view
(34:37):
as his legacy.
Speaker 2 (34:38):
He's very popular. I mean, so we can talk about, okay,
the national security situation has not improved, arguably gotten worse
during his term in office. Many of these infrastructure projects
maybe will have potential, but have yet to bear fruit
for most people, certain levels of austerity cutting these programs,
(34:59):
et cetera. And yet, according to a poll I'm looking
at right now, he has approval rating at sixty percent.
And as you mentioned, still the likelihood is that his
successor will win the election. What is the source of
his persistent popularity.
Speaker 4 (35:14):
It's him. It's very strange, but it's just him. He
has a magnetic poll and he has a very loyal
fan base. And he has just been involved in Mexican
politics for so long that people do view him as
a savior of some sorts. He has, to his credit,
(35:37):
done things to improve the lives of a certain demographic
in Mexico's He has spent a lot of money on
direct welfare programs where people old people or students they
get scholarships. He increased minimum wage for the country quite
a bit during his administration, so there is a demographic
that things that he's done well for the poor, he's
(35:58):
done well for the macro economy, and security is a
pending matter that a lot of people are worried about.
But his approval rating, it's stayed very high. And yeah,
as you say, right now, it's close to sixty. He
only has a few months left in office, and it's
probably going to be that way when he goes. But
(36:19):
at the same time, you have to take a look
at the other numbers. You know, forty six percent of
the people perceive that security has gotten the worse during
his term, and seventy four percent perceive a very corrupt government,
and that just doesn't really square with his approval rating.
But he Yeah, he's a very good politician. I would say,
all right.
Speaker 2 (36:38):
Well, Andrea and Navarro, fascinating reporting. Everybody should go read
your article on the Bloomberg Terminal or on Bloomberg dot com.
Excellent investigative work and sort of looking at what's going
on with the budget and with the national security situation.
Thank you so much for coming on and hopefully the
first of many episodes that we do on mexic Go
(37:00):
and the region. This is a great start for it,
so really appreciate your taking the time.
Speaker 4 (37:04):
Thank you, Thank you for having.
Speaker 2 (37:06):
Me, Tracy. I feel like such a stereotype of an
American because the things that she said that I had
some sort of personal frame of reference towards was having
(37:28):
flown to the Kancun Airport, having taken that very congested
highway down to Tuloom from there, having gone swimming in
one of the not days, which you could see how
difficult that would be to build a train line above
that geological structure. So the things that I knew are
like the most cliche things to know.
Speaker 3 (37:50):
I am very, very jealous that you've been to Mexico.
I think maybe when I was a kid, I went
to like one of the border towns because we were
in Texas, but I've never really spent much time there.
I feel like I should, especially after this episode, to
get a sense of it. One thing that struck me
that I hadn't realized was the division between North and
(38:10):
South economically and the idea that the North, I mean,
this seems obvious in retrospect, but the North in its
proximity to the US means that there has been more investment,
more capital pouring into their more development versus the South,
and I hadn't realized the extent to which AMLO was
targeting the South in terms of economic programs and infrastructure
(38:34):
projects there.
Speaker 2 (38:34):
It sort of reminded me of like in the UK
and they're always like, we're going to rebuild the Northern Powerhouse,
you know, and like to derive money away from London,
and it never never really seems to work. But you know,
I'm also and I mentioned this during the conversation, I'm
struck by like some of the parallels to the Egypt
conversation we really have of how doing things through the
(38:55):
military feels like in many countries, the path of least
resistance for industrial development you have this military. And so
if you want to build highways, if you want to
build rail, if you want to build equine reproduction centers,
if you want to build a new airlines, that the
military is the vehicle that becomes the easiest to do
this from. And I'm sure there's a lot of parallels
to that in US history. And you think about how
(39:17):
the Hoover damn all. Yeah, the West and the crucial
role that the Army Corps of Engineers, which of course
still exists, but the crucial role that the Army Corps
of Engineers had in sort of turning the West into
a habitable part of the country. You know, it just
seems to be a pattern across history and countries.
Speaker 3 (39:36):
It really does. And it's funny how it has come
up multiple times recently, particularly in that episode that we
did on Egypt. I think Andrea gave a very good
answer about the sort of tension between austerity in certain
government spending programs and then expansion of the military budget
and the tension there. But I feel good about this conversation.
(39:59):
I feel it was a good starting point to certainly
understand Mexico and also use it to expand our knowledge
of the Latin American region completely.
Speaker 2 (40:08):
And now I feel like I'll have something to sort
of pay attention to in the June second election. You asked, like,
I think, like the key question that's on many people's mind,
assuming that Schinbaum the successor, does win the election. Like
the analogy that everyone wonders is like the Medvedev years
in Russia when Medvedev was nominally the president, but everyone
(40:30):
sort of knew that Putin was still the leader of
the country, and then he came back eventually, obviously, and
so this question of like, okay, can the successor actually
have her own agenda? As Andrea mentioned that she took
a different approach in Mexico City and relying on the
police for security instead of the military, and so it'll
(40:51):
be interesting to see whether, assuming she wins, does she
have that discretion to take a different national security approach
than her predecessor.
Speaker 3 (41:00):
Omlo Absolutely, although I gotta say retiring to a ranch
sounds kind of nice. There have been multiple presidents in
various countries that always seem to be retiring to ranches.
Speaker 2 (41:11):
I George W.
Speaker 3 (41:12):
Buck Yeah, exactly, Crawford, I think that's what I would do. Okay,
shall we leave it there?
Speaker 2 (41:17):
Let's leave it there.
Speaker 3 (41:18):
This has been another episode of the au Thoughts podcast.
I'm Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 2 (41:24):
And I'm Jill Wisenthal. You can follow me at The Stalwart.
Follow our guest Andrea Navarro, She's at Andrea Navarro R
and be sure to check out her big take on
the Terminal and Bloomberg dot Com. Now for a fascinating
look at the economy and the budget of the OMLO administration.
Follow our producers Carmen Rodriguez at Carmen armand dash Ol
(41:45):
Bennett at Dashbot and Kelbrooks at Kelbrooks. Thank you to
our producer Moses Onam. For more Oddlots content, go to
Bloomberg dot com slash odd Lots, where you have transcripts,
a blog, and a weekly newsletter and you can chat
twenty four to seven with Hello listeners in the discord
Discord dot gg slash odd Lots.
Speaker 3 (42:04):
And if you enjoy odd Lots, if you want us
to have more conversations about Latin America, then please leave
us a positive review on your favorite podcast platform. And remember,
if you are a Bloomberg subscriber, you can listen to
all of our episodes absolutely ad free. All you need
to do is connect your Bloomberg subscription to Apple Podcasts.
(42:24):
Thanks for listening.
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:20):
Hello and welcome to another episode of the Odd Lots podcast.
Speaker 3 (00:23):
I'm Joe Wisenthal and I'm Tracy Alloway.
Speaker 2 (00:26):
Tracy, I think we as a podcast, I think we
have to do more on Latin America, letam economics, the
business situation. It's just like a sort of part of
the world that I don't think we've covered enough.
Speaker 3 (00:37):
No, I have to admit this is a total or
almost total geographic and economic blind spot for me. With
the exception of Guatemala, I just haven't spent that much
time in Latin America. I haven't read that much about it.
I think the story there is becoming increasingly interesting, and
I think if you look at something like Mexico, for instance,
(01:00):
there's all this enthusiasm about the theme of near shoring,
the idea that American companies are going to build all
these big factories over there. It's going to be a
big beneficiary of trade tensions with China. But at the
same time, there's this ongoing political backdrop which is, as
(01:21):
far as I understand it, about to heat up in
the shape of the Mexican presidential elections on June second.
Speaker 2 (01:26):
Yes, that's right. There is a Mexican presidential election coming
up on June second, which is like a perfect news
hook for us to sort of set the stakes, understand
what this is all about, and sort of use that
as an entry way to expand our coverage. It is
sort of crazy just in general in the media, and
so like I'm not trying to excuse us by implicating
the entire media, it does feel like you're in the US.
(01:50):
There's much attention paid to Europe and the Middle East, obviously,
and various things going on in East Asia, and yet
the sort of dearth of coverage I would say countries
which probably are much more economically and politically intertwined with
US than the countries that get most of the sort
of foreign coverage.
Speaker 3 (02:09):
Yeah, it is actually kind of weird, isn't it now
that I think about it. What's that expression familiarity breeds contempt?
Speaker 2 (02:15):
Contempt? Yeah, maybe not.
Speaker 3 (02:17):
Contempt, I guess ignorance. Ignorance. You're right, we spend so
much time talking about things happening in the Middle East,
oil production in the rest of the world, but actually
not a lot of that attention trained on Latin America. So, okay,
here is our first offering to course correct and actually
learn something about specifically Mexico, but you know, will broaden
(02:42):
our horizons later and expand.
Speaker 2 (02:44):
We are going to be the change that we want
to see in the world. But you know, to this point,
a really interesting fact that probably people don't really realize.
Brand Censor had some great observations about this. Mexico set
to displace China is the biggest source of imports into
the US market. We know there is a lot of
investment happening. Tesla is building a factory in Mexico. We
(03:05):
know that some of the Chinese automakers that are already
impaired by terrorists and trade barriers, they're investing in Mexico
maybe as a way of getting a conduit to the
US market. So there's more and more investment happening. At
the same time, as we know there are very significant
issues with national security, violence, the power of the cartels
(03:27):
across the country. All of this setting up in terms
of like what are the stakes of this upcoming election.
Speaker 3 (03:32):
Yeah, I'm just going to re emphasize that I am
not entirely up to speed on the situation. I meant
to come in this morning and sort of speed read
my way through what's happening in Mexican politics. But then
I got really distracted because I read that one of
the things that's happening is this huge expansion of the
amount of money that the government is spending on the military,
(03:54):
and the defense programs are basically growing very very quickly,
and one of those is something called the National Security
Infrastructure Project. And in addition to building military bases and
hospitals and things like that, part of the project is
to build an equine reproduction center. So I saw that
(04:15):
and I went I spent an hour going down a
rabbit hole of why the Mexican Army seems to love horses,
And there's actually like a lot written about this, So anyway,
instead of reading about politics, I was reading about the
Mexican Army's love of show jumping and things like that. So, okay,
let's do it. Let's actually talk about important things.
Speaker 2 (04:35):
Listeners, getting a glimpse into the odd Lots episode of
preparation process. Right there, we do have the perfect guest.
We're going to be speaking with. Andrea and Navarro, senior
reporter covering business for US here at Bloomberg, based in
Mexico City. She has a big story out now on
the Onloa administration, the legacy of it, the upcoming election
(04:57):
and what it all means and the balancing of these
different countervailing forces. So, Andrea, thank you so much for
coming on odd loads, and we really appreciate you taking
on the task of getting me and Tracy up to
speed on what really is an important trading partner, neighbor
and big economic.
Speaker 1 (05:16):
Story for us.
Speaker 4 (05:17):
Hi, Joe and Tracy, thank you for having me.
Speaker 2 (05:19):
Let's just start. There is this Mexican presidential election upcoming
on June second. Who are the candidates? What is this
election about?
Speaker 4 (05:27):
So? Yeah, in Mexico, we have elections presidential elections coming
up in June second, and the candidates are Claudia Shanbaum.
She was the former major of Mexico City and she
was anointed by Lopez A Rador to be the candidate
of his party called Morena. It's very clear right now
that she's a likely winner. She has a fifty percent
(05:48):
preference in the polls in the most recent polls. The
distance second is held by a woman named Sochil Jalbis.
Sochil is from a coalition of opposition parties who were
severely weakened over the past five or six years during
the Lopaso rather presidency. They came together to choose an
(06:09):
opposition candidate that would have the best chances at really
competing against Shanebaum. But right now, the preference that she's
showing is around thirty three percent, which is not great,
So barring something unexpected and very big, it's very likely
that Claudia will win. There is a third candidate. His
(06:29):
name is Jorge Albaresminez and the party he's coming from
is Mohi Mintos. The last thing I read is that
he's holding about a nine percent preference. It's not likely
that he's going to have a big showing, so it's
most likely going to be between Souchil and Claudia. But
as I said, it's basically given that Claudia will win.
Speaker 3 (06:49):
Joe, I'm just going to say everyone should pray for
our Spanish pronunciation in this episode, because Andrea just did
a phenomenal amount of like switching there and getting like
the accent exactly right. Okay, So Lopez Obrador is aka
AMLO has been in power for multiple years and is
sort of expected to hand off to his successor. Again,
(07:13):
I don't know much about Mexico, but one thing I
know is that when emerging market analysts start talking about
weakening institutions and constitutional reforms, that's probably not a good thing.
And some of those notes have been hitting my inbox
relatively recently. What are they talking about here?
Speaker 4 (07:34):
Yeah, I'm Loo, as he is known, did have a
string of controversial decrees or reforms that sort of scared
the market throughout his presidency. I would say that the
very first was right as he came into power in
late twenty eighteen, he canceled an airport project that was
going to be built near Mexico City to replace our
(07:56):
old grumbling airport that's called Vinita. Juarrees. That project was
planned by his predecessor, and and it was going to
be a very big airport. It was going to be beautiful,
It was going to be state of the art and
handle I think it was like sixty eight million passengers
a year, which is much more than we can handle now.
But he amlan. When he was campaigning, he sort of
(08:19):
painted the airport as a thing of the elites and
that the average Mexican would never use it, and so
why was so much money going into a project that
was not going to benefit the average Mexican. So he
scrapped it, and that really scared investors because a lot
of businessmen in Mexico were involved in some way or
the other in the airport project. We had Mexico's richest person,
(08:42):
Carlo Slim. His company was going to build the terminal
and I think one or two of the runways, and
so coming in with such a strong move freaked everybody out,
and he just scrapped it. It ended up being more
costly than actually finishing the project because he had to
pay off bond holders. He had to pay off so
much debt and so much investment that had already gone
(09:02):
into the project. But he just went and did it
and he didn't really care. And after that, there were
a couple of things that sort of did scare investors.
One of them was changing the rules into how airport
operators can charge different fees. We have three big companies
here that operate most of the airports in Mexico, and
(09:23):
it was just one of those moves where nobody saw
it coming. And when he did it, I think it
was the largest sell of those shares that the companies
had ever seen. Shares tanked around like forty seven percent
before pairing back some losses. He's well known for making
these brash announcements and movements that he sort of then
(09:44):
pairs back, and then people end up feeling that everything
is going to be all right. I think that the
best way to say it is that he has kept
everybody on his toes. But in the end, if you
look at the macroeconomics in Mexico, it's not all that bad.
The best is that its strongest that it's been in
life twenty years. I think inflation is relatively under control.
We have tons of money flowing in. So it's really
(10:06):
been surprising, to say the least, to see how he
has handled both the businessman and the macro economy.
Speaker 2 (10:30):
Prior to the twenty twenty election, there was a lot
of fear at the time that Trump it's gonna build
the wall and it's gonna be terrible for the Mexican peso.
Thinking back to that time, the peso is actually through
twenty twenty almost seen as like the purest market proxy
for market expectations of that outcome.
Speaker 1 (10:47):
Didn't you have a.
Speaker 3 (10:47):
Trade like that involved the peso?
Speaker 2 (10:50):
I seem to remember, I'm not going to rag about
my MiCT trade.
Speaker 3 (10:53):
Well, I just gave.
Speaker 2 (10:54):
You, okay, I did tweet that you sort of took
seriously that the ultimate effect of is going to be
this sort of reinvigoration of sort of the North American
trade at the expense of East Asian trading partners. You
might want to go long Mexican pay so against the
Korean wand that has been a really big winner in
(11:16):
my imaginary FX hedge fund. Yes, thank you, Tracy. I
did correctly predict that the Mexican pace that would be
a winner of the sort of new trading environment, and
that has been born out. But we have seen this
idea of like and it really accelerated after COVID, this
idea of like near shoring or friend shoring, this real
turnarway against particularly China, and we do see this sort
(11:39):
of flood of investment in parts in Mexico. We know
that Tesla is opening up a new factory, as I
mentioned in the beginning of Mexico is set to displace
China's the biggest source of imports into the US market.
So for whatever reason, and you know you mentioned AMLO's
the anxiety that he gave to the business community there
are a lot of positive Mexican investment stories happening right now.
Speaker 4 (12:03):
I think that Tesla was a big example when it
was announced. The problem with that is that they haven't
really started construction on the plant, and there's some doubts
on whether that's going to happen at all, or if
it's going to happen in five to ten years. But
we do know that several suppliers to Tesla already came
up and set up shop in the northern parts of
(12:26):
the country, and we do have a very big auto industry.
Most of the big car companies have big plants here
and some of them have expanded them over the past
few years, so there is a lot of movement. It's
important to also mention some of the roadblocks that near
shoring has and why some people are doubting whether Mexico
(12:47):
is going to be able to take full advantage of
the larger geoeconomical situation that it could potentially benefit from.
But there are security concerns. There's water scars City in
the northern part of the country, in re Bolon in Sonora.
Speaker 1 (13:05):
There are a lot of.
Speaker 4 (13:05):
States that have been dealing with severe droughts over the
past few years. There's a problem with electricity. There's a
big problem with supplying and distributing electricity. So there are
a lot of industrial parks that have to set up
their own generators, their own grids. They have to go
in and connect their plants to the larger grids so
(13:27):
that they can get some electricity. It's not cheap, it's
not easy to do. All of those hurdles do represent
something expensive, and it's very complicated for some companies to
take on all of these problems by themselves. So they
have been asking the government for more help with the security,
with electricity, with water, because if they don't resolve all
(13:47):
of those things, it's going to be very difficult for
companies to just take full advantage of being so close
to the United States.
Speaker 3 (13:54):
I was going to ask what's AMLO's approach or feeling
towards the near shoring trend, because when I think of
his policies, you know, sort of leftist nationalist. He used to,
from what I remember, talk about the moral economy and
distributing gains and things like that. So I wonder if
there's a tension there between that agenda and sort of
(14:17):
inviting external capital into the country. But then of course
you know that capital leads to jobs, it leads to
GDP growth. And there's also a theme here where he
has been bulking up the military. He's been beefing up
security and trying to crack down on crime, at least publicly.
Speaker 4 (14:39):
Yeah, I think that the last part that you said
about what he says publicly versus what he actually does
is a big, very big difference. I think that he
doesn't really he hasn't really devoted that much time to
talking about near shoring. He knows that it's a thing,
he knows that it could be beneficial for the country.
But what he's really pushing for is for development in
(15:01):
the southern part of the country. So if you look
at a map of Mexico, you look at the northern states,
and those are the ones that typically have gotten a
lot of industrial and investment just because of the closeness
to the United States, and traditionally it's just the way
it has been. And if you look at the south
and especially the southeast, so where you have the Yucatan Peninsula,
(15:24):
campeche Waaga, some of these poorer states, they have traditionally
not received so much investment as their northern counterparts. So
what he has really pushed for has been for business
to just set up shop down south, and it hasn't
really been an easy decision for businesses because of the
(15:45):
same things. Right like, you're farther away from the US,
and when there's not a big environment already set up
for you to come in, it's expensive to just set
up everything. And there aren't in many hotels, there aren't
many roads. It's just a lack of infrastructure that has
held some of the businesses back. There's a train that
he built, well, there's two trains that he built. First
(16:07):
is a Maya train that's in the Yukata and Peninsula
that's supposed to be for passengers and for cargo, and
a part of it has already been inaugurated. The other
part is still under construction. But his big bed to
answer to the new or showing question, I think, is
the other train, and it's called the Transismiko. So it's
sort of his answer to the Panama Canal. He wants
(16:29):
us to replace the Panama Canal with this train. And
it's very interesting because if you look at all of
the problems with the Panama Canal and with the Swas Canal,
you could see some people or some companies potentially using
the transismiko to ship some of their goods across the ocean.
So one ending point of the Salinakuruzjahaka in the Pacific,
(16:51):
and then the other point is in the Gulf in Bakaruz.
So if that works out, logistically, it's not as easy
because it is a train, so sh would have to
come into one of the ports, offload all of the goods,
upload them to a train, have the train pass over,
and then reach the Nacarus where it would have to
be uploaded into a ship again. But if that works,
(17:14):
that could potentially be very good for the country and
for the economy. It's just not clear that that's what's
going to happen, Tracy.
Speaker 2 (17:22):
As we continue to do more Laddam episode, we're definitely
doing a specific episode on Mexico's ambition to replace the
Panama Canal. That sounds like a great that's a great
that's great, that's a great episode in its own right.
Let's talk about the national security situation. You have a
table in your story that shows just how much homicides
(17:44):
in the country have increased over the years. The homicide
rate during both the Onload administration, but also the previous
EPN administration more than double than what it was during
the Vicente Fox administration in the early two thousands. What
is this sort of big story here and what has
MLO tried to do and perhaps tried to do unsuccessfully
(18:07):
to improve the national security situation.
Speaker 4 (18:10):
Yeah, so if you look at that chart and the
numbers from starting in a two thousand, what happened very
clearly was around two thousand and eight when Felipe Kaledon
declared a war on drugs, on cartels and he just
deployed the military into the country and sent him out
to fight the big cartels. And back then we did
(18:31):
see this splash of violence just across the country, across newspapers.
It was horrible. It wasn't what the country was used to.
But then it sort of became the way of life.
You know, It's very sad to say it, but I
think that Mexicans lost some sensitivity to seeing so many
murders and so many homicides just splashed across the country.
(18:53):
And it did get a little bit worse during the
Endrique Pane the years, just because the dynamics of cartels
and how they work. You know, you kill off the
leader and ten new leaders come up. And so right
now what we're seeing is that the three or four
cartels that used to run the criminal organizations, they have
(19:13):
been spread out and they have sort of multiplied into
these cells and these smaller groups that are harder to fight,
harder to control, and that have taken on several pockets
of the country. So instead of having the big Sinaloa,
Tijuana or Golf cartels, now you have so many different groups.
(19:34):
I think that they were spread out more across the
northern States back then, but now you see headlines where
they're taking on several towns that are not that far
from Mexico City, which is not something that we were
used to seeing. And homicides as a result have just
shot up. Now, if you ask Amlo, he's going to
(19:55):
tell you that a closer look at the numbers will
show a tiny slowdown in the rate. That could be true,
but there are also many people who say that that's
because statistics in Mexico aren't really that trustworthy. There's a
big rate of impunity. There's many crimes that go on. Reporter,
(20:16):
if you look at homicides, they have shut up. But
I'm going to will tell you that they slow down
a little bit. There's doubts on how trustworthy the numbers are,
and the numbers that have come down, it's such a
tiny slow down that it could just be a statistical error,
not really a change in the trend.
Speaker 3 (20:35):
So in the intro I mentioned the national security infrastructure projects.
Could you maybe talk a little bit more about, which
include the equine reproduction Center. I feel I must repeat this.
Could you talk a little bit more about the Defense
Department and its role in the economy and what we've
seen there recently under AMLA.
Speaker 4 (20:56):
Of course, so the Defense Ministry has always been the
central ministry under which most of the army or the
military runs, but I would say that under this administration,
its profile and its power and its budget have grown
in a way that's been unprecedented and very surprising. And
(21:17):
what we did in the story was take a closer
look at the budget and not only at the money
that was given to them, but had how the money
is actually being used. And so we found a program
in Mexico we called it at Bartida, and it's literally
the line in the budget that's called K zero nineteen.
It's Casa O and that Bartida is specifically for the
(21:41):
use of the military for its own infrastructure. Because a
military in Mexico has been given so many infrastructure projects
over the AMUL years, it's easy to think that that's
the money that they're using to build the airports or
the trains that the president has handed them over, but
it's not. The money in this Partida specifically is for
(22:02):
their own use. So it was very hard to find
what contracts they were making with this money. But we
did find, as you say, a lot of spending on horses,
a lot of spending on gyms, on upgrades to their
headquarters here in Mexico City, and so it does paint
a picture of an army that's taking some of the
(22:24):
money that they're being given for its own use. And
another thing that's important to mention about this Partida specifically
is that Congress did not really approve this money for
this use. So how it works in Mexico is that
the president or the executive chose the Congress a proposal
for the budget. Congress then analyzes it, and the lower
(22:46):
chamber has to approve it the spending part. And what
we realized is that over the past few years, the
military has used this tool that's called modifications to just
change money from different partidas, to move it around, and
to use it at their discretion. So for this specific Bardida,
(23:10):
the money that was spent eventually there had not been
approved by Congress. They just approved a tiny portion, but
then they spent whatever they wanted on whatever they wanted.
And it's very hard for Congress to keep track of this,
and it's very hard for anybody to just find the
contracts and see where the average taxpayer's money is going to,
(23:32):
which is very it's very sad.
Speaker 2 (23:34):
It's interesting. We recently recorded an episode on some of
the structural flaws of the Egyptian economy, and part of
the story there was just like how many aspects of
the economy are implicitly or directly under the control of
the Egyptian military and some of the problems there. It
feels very redolent of that. But just go into this
(23:54):
a little bit further, because it's still sort of counterintuitive.
I think you say in your story that defense during
the Omlo years is of one hundred and twenty eight percent,
which is extraordinary. But talk more about this disconnect between
the surge in defense spending and the lack of progress
and someoney you arguably perhaps backsliding in terms of security
(24:17):
and violence.
Speaker 4 (24:18):
Defense spending has grown one hundred and twenty eight percent
over the first five years in amdo's administration. Over the
past year, just a single year, it grew sixty three percent,
which is not nothing. And the problem here is that
a closer look at the budget will show you how
the money is being spent on these big ticket infrastructure projects,
(24:40):
on airports, on a state run airline that nobody thought
we needed, on the trains, and the amount of money
that's being actually directed to training soldiers, to deploying them,
to buying them weapons and equipment has stayed the same
ever since the Galton years. That program hasn't really grown
(25:03):
and that tells you a lot, because when you talk
to people on the ground, they will tell you that
the National Guard members don't have gas money to do
the patrolling that they have to do in highways. So
we did talk to a couple of people who told
us that they called the National Guard after thefts, after
highway thefts that they had run into and the National
(25:25):
Guard couldn't get there because they had no gas money.
So there's this huge disconnect into how it could be
that they're getting the largest budget they have had in
years and they're just not doing what they should be
doing with it. You know, some of the planes that
the military has are now being used for the state
(25:47):
owned airline that's called Mahigana, And that's we know, and
I'm sure that you guys are very aware of how
hard it is to take on new planes, to buy
new planes from Boeing, or to get lessers to to
give you a plane. It's not the easiest thing in
the world. But the president thought it would be, so
he just launched in an airline. He said it was
(26:08):
going to have ten planes, and then, after realizing that
it was going to be more difficult than he had
thought initially, he just got some planes from the military
to run the airline. So what we see now is
that that has been at the expense of security in Mexico.
As I'd said before, we have had several instances of
cartels just running parts of the country and we're hearing
(26:31):
things as they're charging people for Wi Fi connections, they're
charging people for the right to have a party. They're
throwing mini bombs from drones and just killing scores of people.
So there are parts of the country that are just
becoming no man's land and they're being abandoned and cartels
are just running the show.
Speaker 3 (26:51):
We mentioned the presidential election is coming up in June.
The official campaign kicked off. I believe at the beginning
of March, how much continuity could we expect between Amlow
and his anointed successor, assuming that the party, you know,
stays in power. And then I guess, just to add
(27:12):
on to that, how much political presence will Amlo have
even after the term limit comes into effect and he
is no longer president. Because my understanding is again going
back to that weakening institutional and controversial constitutional reform point
that you see from some of the em analysts right now,
(27:33):
is that he has been instituting some changes to the
judiciary and things like that that could possibly pave the
way for him to still, you know, have some influence
in the political sphere.
Speaker 4 (27:48):
I think that that's a million dollar question, Tracy. I
think that nobody is really wondering what's going to happen
on June. Second, everybody's pretty sure that Claudia is going
to win. I think that the true question is whether
or not Amlo is going to let her actually be
the president, and we're not going to know that for
(28:09):
a while, right, So he has maintained that he's going
to leave. He has a ranch in his hometown, and
that he's going to just go and retire and live
a quiet life. But nobody really believes that. So that's
what we're wondering as well. And I think that one
of the bigger questions is what she's going to do
(28:31):
exactly on security. If you look at what she did
in Mexico City, she had a very strong police force,
which is against what AMLO did at the national level,
and her security ministry here was led by a police person,
a policeman that's now going to be in the Senate probably.
(28:52):
So if she follows through with the strategy that she
had here, it's going to be a clear divergent from
AMLO's strategy, which was to prop up the military. So
it's going to be very interesting to see whether she
follows her own lines or whether she has to fall
in line without whatever AMLA tells her to do.
Speaker 2 (29:26):
Going back to the expansion of the military budget and
the lack of improvement on the security front, so you
mentioned that a lot of this money is going to
the building of airports, and you talked about the rail lines,
and one of them is in existence in some of
this infrastructure setting aside the lack of progress on security,
is the infrastructure spending bearing fruit, because obviously that's important too,
(29:49):
and that's critical if for ongoing GDP expansion, are these
infrastructure projects delivering in some manner in terms of making
parts of the country more hospitable or more business friendly
or better for the public than they were before.
Speaker 4 (30:04):
That's a good question. I would say not yet. It
takes a while for airports to just like ramp up,
and it takes a while for people to realize that
instead of the airport here in Mexico City that you've
always used, there's another one that's an hour away, but
it's probably less crowded, you know. So that airport that's
called Santa Lucia or Phelippe Acheles, it's I've never been there,
(30:29):
but people are telling me that there is usually one
or two flights a day, and some of those flights
aren't all that full. So it's not clear yet that
it's going to be a big success, but there is potential.
And the same for the one in Tulum, for example,
it's only an hour away from the one in Cancun,
so it's not clear that it was the biggest necessity ever,
(30:51):
but it could potentially in the future alleviate some of
the traffic that Gangcun is getting because it a lot
of international flyers use Gancun Airport instead coming to Mexico City.
As for the trains, as we said, like one of them,
if it has potential to replace the Panama Canal or
at least compete with it, it's going to be a
huge success, but that's not clear yet. And for the
(31:12):
trend Maaya, the one in the Yukataan Peninsula, it's been
a very controversial train because the part that's already running
is pretty easy. It was pretty easy to do. They
just had to expand some highways and it wasn't all
that technically complicated to build. I do think that that
has potential to connect some of the towns that didn't
(31:33):
have any airports or any bus terminals around, so that
could have some success. But the other part that's still
under construction, it's going to be very hard for them
to manage that successfully. The terrain on which it's built,
it's these open ended caves. I don't know if you
know what I'm going to talk about, but it's there
(31:54):
are called say not this, and there are these lines
so I've heard of it are very fragile, and so
when you try to put like a cargo train or
a passenger train on top of them, there's a very
real risk of collapse. And I did a story on
this a couple of years ago. It's very strange and
it's very hard to build a train on these grounds.
But that's just what they're doing. So we're going to
(32:14):
have to see whether it works, whether they're constantly having
to stop them because of collapses of the caves or accidents.
We hope not that's not the case, but it could
happen potentially. All of the projects that he has chosen
have been in theory good, but nobody really thought that
(32:34):
it was something that we absolutely needed. There are things
that there are smaller things, smaller highways that you could build,
smaller water systems, smaller electricity projects that you could do
to improve the lives of people that aren't in the
big CDs. But those projects aren't newsworthy, you know, like
that's I think that that's what he figured these big
(32:56):
ticket projects are he views them as his legacy, and
in the end he's going to leave two railroads, about
a dozen airports, and in an airline. So that's what
he chose to focus on.
Speaker 3 (33:09):
This is actually exactly what I wanted to ask you about,
because I'm struggling to wrap my head around one thing,
which is there are these big ticket headline infrastructure projects.
There is the expanding military budget. But I think overall
there's also a discussion of or a perception that Amlo
(33:32):
is sort of he's into austerity and the sort of
Republican austerity ideals. So how do we square those two things?
So these big ticket items more money for the military,
versus the perception or at least the stated ambition to
be more disciplined when it comes to spending.
Speaker 4 (33:54):
He has been very disciplined in spending and that's something
that we can give him. He has pulled that off.
But as you say, when you try to square it,
the thing or the ministries that have suffered are smaller programs,
you know, health education, domestic violence programs, nature programs, or
(34:17):
if not, they have just simply disappeared because he hasn't
taken on large debt for the country. But he has
had to just pull money from other projects or ministries
that he doesn't view as essential in order to fund
some of these big ticket items that he does view
(34:37):
as his legacy.
Speaker 2 (34:38):
He's very popular. I mean, so we can talk about, okay,
the national security situation has not improved, arguably gotten worse
during his term in office. Many of these infrastructure projects
maybe will have potential, but have yet to bear fruit
for most people, certain levels of austerity cutting these programs,
(34:59):
et cetera. And yet, according to a poll I'm looking
at right now, he has approval rating at sixty percent.
And as you mentioned, still the likelihood is that his
successor will win the election. What is the source of
his persistent popularity.
Speaker 4 (35:14):
It's him. It's very strange, but it's just him. He
has a magnetic poll and he has a very loyal
fan base. And he has just been involved in Mexican
politics for so long that people do view him as
a savior of some sorts. He has, to his credit,
(35:37):
done things to improve the lives of a certain demographic
in Mexico's He has spent a lot of money on
direct welfare programs where people old people or students they
get scholarships. He increased minimum wage for the country quite
a bit during his administration, so there is a demographic
that things that he's done well for the poor, he's
(35:58):
done well for the macro economy, and security is a
pending matter that a lot of people are worried about.
But his approval rating, it's stayed very high. And yeah,
as you say, right now, it's close to sixty. He
only has a few months left in office, and it's
probably going to be that way when he goes. But
(36:19):
at the same time, you have to take a look
at the other numbers. You know, forty six percent of
the people perceive that security has gotten the worse during
his term, and seventy four percent perceive a very corrupt government,
and that just doesn't really square with his approval rating.
But he Yeah, he's a very good politician. I would say,
all right.
Speaker 2 (36:38):
Well, Andrea and Navarro, fascinating reporting. Everybody should go read
your article on the Bloomberg Terminal or on Bloomberg dot com.
Excellent investigative work and sort of looking at what's going
on with the budget and with the national security situation.
Thank you so much for coming on and hopefully the
first of many episodes that we do on mexic Go
(37:00):
and the region. This is a great start for it,
so really appreciate your taking the time.
Speaker 4 (37:04):
Thank you, Thank you for having.
Speaker 2 (37:06):
Me, Tracy. I feel like such a stereotype of an
American because the things that she said that I had
some sort of personal frame of reference towards was having
(37:28):
flown to the Kancun Airport, having taken that very congested
highway down to Tuloom from there, having gone swimming in
one of the not days, which you could see how
difficult that would be to build a train line above
that geological structure. So the things that I knew are
like the most cliche things to know.
Speaker 3 (37:50):
I am very, very jealous that you've been to Mexico.
I think maybe when I was a kid, I went
to like one of the border towns because we were
in Texas, but I've never really spent much time there.
I feel like I should, especially after this episode, to
get a sense of it. One thing that struck me
that I hadn't realized was the division between North and
(38:10):
South economically and the idea that the North, I mean,
this seems obvious in retrospect, but the North in its
proximity to the US means that there has been more investment,
more capital pouring into their more development versus the South,
and I hadn't realized the extent to which AMLO was
targeting the South in terms of economic programs and infrastructure
(38:34):
projects there.
Speaker 2 (38:34):
It sort of reminded me of like in the UK
and they're always like, we're going to rebuild the Northern Powerhouse,
you know, and like to derive money away from London,
and it never never really seems to work. But you know,
I'm also and I mentioned this during the conversation, I'm
struck by like some of the parallels to the Egypt
conversation we really have of how doing things through the
(38:55):
military feels like in many countries, the path of least
resistance for industrial development you have this military. And so
if you want to build highways, if you want to
build rail, if you want to build equine reproduction centers,
if you want to build a new airlines, that the
military is the vehicle that becomes the easiest to do
this from. And I'm sure there's a lot of parallels
to that in US history. And you think about how
(39:17):
the Hoover damn all. Yeah, the West and the crucial
role that the Army Corps of Engineers, which of course
still exists, but the crucial role that the Army Corps
of Engineers had in sort of turning the West into
a habitable part of the country. You know, it just
seems to be a pattern across history and countries.
Speaker 3 (39:36):
It really does. And it's funny how it has come
up multiple times recently, particularly in that episode that we
did on Egypt. I think Andrea gave a very good
answer about the sort of tension between austerity in certain
government spending programs and then expansion of the military budget
and the tension there. But I feel good about this conversation.
(39:59):
I feel it was a good starting point to certainly
understand Mexico and also use it to expand our knowledge
of the Latin American region completely.
Speaker 2 (40:08):
And now I feel like I'll have something to sort
of pay attention to in the June second election. You asked, like,
I think, like the key question that's on many people's mind,
assuming that Schinbaum the successor, does win the election. Like
the analogy that everyone wonders is like the Medvedev years
in Russia when Medvedev was nominally the president, but everyone
(40:30):
sort of knew that Putin was still the leader of
the country, and then he came back eventually, obviously, and
so this question of like, okay, can the successor actually
have her own agenda? As Andrea mentioned that she took
a different approach in Mexico City and relying on the
police for security instead of the military, and so it'll
(40:51):
be interesting to see whether, assuming she wins, does she
have that discretion to take a different national security approach
than her predecessor.
Speaker 3 (41:00):
Omlo Absolutely, although I gotta say retiring to a ranch
sounds kind of nice. There have been multiple presidents in
various countries that always seem to be retiring to ranches.
Speaker 2 (41:11):
I George W.
Speaker 3 (41:12):
Buck Yeah, exactly, Crawford, I think that's what I would do. Okay,
shall we leave it there?
Speaker 2 (41:17):
Let's leave it there.
Speaker 3 (41:18):
This has been another episode of the au Thoughts podcast.
I'm Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 2 (41:24):
And I'm Jill Wisenthal. You can follow me at The Stalwart.
Follow our guest Andrea Navarro, She's at Andrea Navarro R
and be sure to check out her big take on
the Terminal and Bloomberg dot Com. Now for a fascinating
look at the economy and the budget of the OMLO administration.
Follow our producers Carmen Rodriguez at Carmen armand dash Ol
(41:45):
Bennett at Dashbot and Kelbrooks at Kelbrooks. Thank you to
our producer Moses Onam. For more Oddlots content, go to
Bloomberg dot com slash odd Lots, where you have transcripts,
a blog, and a weekly newsletter and you can chat
twenty four to seven with Hello listeners in the discord
Discord dot gg slash odd Lots.
Speaker 3 (42:04):
And if you enjoy odd Lots, if you want us
to have more conversations about Latin America, then please leave
us a positive review on your favorite podcast platform. And remember,
if you are a Bloomberg subscriber, you can listen to
all of our episodes absolutely ad free. All you need
to do is connect your Bloomberg subscription to Apple Podcasts.
(42:24):
Thanks for listening.
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