nakedcapitalism | But you are unlikely to hear much about Mexico’s unconventional economic success story in the mainstream media, whether in Mexico, the US, Europe or other parts of Latin America. After all, it might encourage others to follow suit.
Over the past four years, the mainstream media has consistently derided or attacked the AMLO government’s reform agenda, including its promotion of energy security, its rewriting of the rules for outsourcing and its nationalization of lithium. Even today, most MSM coverage attributes the lion’s share of Mexico’s economic success in 2022 to “external factors”, such as increased consumer demand and investment from the US.
Every time AMLO has tried to pursue policies that generally favor Mexico’s broader economy, dire warnings erupt that investors, both domestic and foreign, will stampede for the exits. A case in point: one of AMLO’s first acts in government was to cancel a $13-billion airport for the capital that was almost one-third finished, around $5 billion over budget, mired in allegations of corruption and posed serious environmental downsides. In effect, he took his presidential predecessor Enrique Peña Nieto’s legacy infrastructure project and ripped it up, for a slew of good reasons. And in doing so, he sent a clear signal to Mexico’s business elite that the time for “business as usual” was over.
But he also made sure that the investors holding the bonds that had financed the unfinished project were paid in due course. And contrary to what many economists, bankers and media pundits had warned, investors did not rush for the exits.
Nor was there a mad stampede when the AMLO government began strong-arming domestic and global corporations into finally settling their decades-long tax debts with the Mexican state. Until AMLO’s arrival, no government had even bothered to try. Coca-Cola bottler Femsa, and brewer Grupo Modelo, a division of the world’s largest brewer Anheuser-Busch InBev, paid hundreds of millions of dollars in current taxes and back taxes. So too did Walmart and a host of other companies.
As a result, the government was able to raise more tax funds in 2020 than in 2019, without raising taxes on the middle classes. Again, no rush to the exits, though some companies, such as Canadian mining giant First Majestic Silver Corp, are still refusing to pay up.
In fact, Mexico is fast becoming a magnet for foreign investment, as corporations, particularly from the US, shift their focus from China to a production base that is similarly cheap but closer to home. In the first three quarters of 2022 Mexico received record levels of foreign direct investment, much of it from the US. According to research by the McKinsey Global Institute, American investors poured more money into Mexico than into China last year. As the NYT kindly pointed out, for American companies moving business to Mexico location is the main driver:
Shipping a container full of goods to the United States from China generally requires a month — a time frame that doubled and tripled during the worst disruptions of the pandemic. Yet factories in Mexico and retailers in the United States can be bridged within two weeks.
A coterie of Mexican business lobbies have even suggested that Mexico could become a vast investment hub for the whole of the American continent. If this happens, the biggest beneficiaries, of course, will be transnational corporations, mainly from the US. For Mexico, it will mean even closer integration with the US economy, which already accounts for over 85% of Mexican exports.
Just how much economic policy independence future Mexican governments will have under such an arrangement remains to be seen, though the answer is likely to be “not much”. The US and Canada are already locked in a trade dispute with Mexico over AMLO’s energy reforms. It also means that wherever the US economy goes — and signs are that it is heading toward a recession — Mexico will quickly follow. And what was this year a blessing could quickly become a curse.
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