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A fork in the road for Mexico

Jul 15,2018 - Last updated at Jul 15,2018

NEW YORK — “When you come to a fork in the road,” said the famously muddled baseball legend Yogi Berra, “take it”. That is what Mexico has just done. Andrés Manuel López Obrador, known as AMLO, won a landslide victory in the country’s presidential election, gaining 53 per cent of the vote, significantly more than the next contender. His Morena Party and its small coalition partners will have a large majority in Mexico’s Congress.

The challenges that AMLO faces cannot be underestimated. He will need to address a combination of economic malaise and staggering levels of poverty, inequality and debt, aggravated by severe deterioration of political and security conditions. The watchdog group Transparency International  ranks Mexico in the first quartile of countries for corruption and the crime rate is the highest on record, with over 100,000 homicides reported during current President Enrique Peña Nieto’s six-year term. Impunity rates are also among the world’s highest. Although a modern legal framework largely exists, the rule of law and political accountability urgently need to be strengthened.

The issue worrying almost half the electorate is whether the fork that Mexico took will put it on the dictatorial and economically unsustainable path taken by Venezuela. But to indulge this fear is to misjudge AMLO fundamentally. His National Plan and his commitment to combating corruption, will more likely put Mexico on the less-known but more sustainable path that Uruguay has followed.

In Uruguay, the appalling socioeconomic consequences of the 2002 economic crisis led to the victory of a broad leftist coalition, known as Frente Amplio (FA), in the 2004 elections. But the reason the FA won that election, and the two held since then, is that by that point it had matured politically and worked out a detailed, progressive, and policy-consistent programme that could be financed without causing large disequilibria.

Many people, including me, who had argued against the FA programme in 1999, mostly for its inconsistencies, contradictions and fiscally irresponsible assumptions, were by 2004 willing to vote for it. By then, the FA had dropped its old rhetoric on foreign debt, and was proposing investment incentives for the local private sector and foreign investors alike. The party was also arguing in favour of trade agreements to improve international competitiveness. This shift gave Tabaré Vázquez a clear majority to be elected president.

The FA turned out to be the right path for Uruguay and it achieved some remarkable results: Growth increased to 6 per cent on average during its first seven years in power, before decelerating to slightly below 3 per cent annually for the next six years, as commodity prices fell and Argentina and Brazil, Uruguay’s large neighbours and trade partners, stagnated. In 10 years, poverty fell from 33 per cent to less than 10 per cent. Foreign direct investment jumped to about 6 per cent of GDP on average in 2005-2011, from a historical 1 per cent and averaged close to 4 per cent after that.

Uruguayans who worried in 2004 that democracy would be endangered if the FA won are no longer concerned. Today, Uruguay not only has the highest per capita income in the region; it is also the only Latin American country, and the only developing country, ranked among the world’s 20 “full democracies”. Moreover, Uruguay is ranked the least corrupt country in Latin America and among the 25 least corrupt countries in the world. After 13 years of the FA administration, Uruguayans have the highest level of trust in their government among all free emerging countries.

AMLO, like Vázquez in Uruguay, had unsuccessfully run for the presidency twice before. By the third time, AMLO, backed by a new, more progressive party with zero tolerance for corruption, had learned from past mistakes, adopted more moderate positions, and was better prepared to govern. Like Vázquez in 2004, AMLO also managed to attract excellent expert advisers and produced a rigorous, comprehensive and policy-consistent economic plan. Although opponents and the press continue to refer to AMLO as a “leftist populist”, he developed a detailed, progressive but fiscally conservative strategy to finance his National Plan.

The two leaders’ similarity does not stop there. In contrast to their opponents, both came to the presidency with executive experience as mayors of the capitals of their countries.

AMLO also has a lot in common with Pepe Mujica, who was president of Uruguay between Vázquez’s two terms. Both have reputations as honest people who follow ascetic lifestyles, uninterested in material possessions. At the same time, they became viable candidates without calling for revenge (Mujica was imprisoned and tortured during the 12-year military dictatorship and rigged elections deprived AMLO of the presidency at least once). As it happened with Luiz Inácio Lula da Silva in Brazil in 2002, AMLO’s impressive and conciliatory victory speech should reassure markets that he is a much safer pair of hands than they might expect.

 

Graciana del Castillo, an Uruguayan-American economist, is a political and economic risk analyst. As a director of Latin American sovereign ratings at Standard & Poor’s, she led the upgrade of Mexico’s credit rating to investment grade in 2002. Copyright: Project Syndicate, 2018. www.project-syndicate.org

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