How Peña Nieto's House of Cards Crumbled

BORDERLAND BEAT Posted by DD Republished from Huffington Post.

Written by Rodrigo Aguilera Editor/Economist (Latin America), Economist Intelligence Unit

Image Source: telesurtv.net

The speed in which the foreign media bubble surrounding Mexico's government has deflated in recent weeks has been stunning, although hardly surprising for those of us who suspected it was only a matter of time. Admittedly, even the pessimists had been caught off guard at the speed in which Enrique Peña Nieto and his party, the PRI, managed to push through an ambitious structural reform agenda during its first two years in power. From the start, however, there were lingering doubts over the government's capacity for effective policymaking since this would be undertaken in the context of significant political-administrative shortcomings. Now that these have - tragically - become apparent, a re-evaluation of the outlook for the successful implementation of the reforms into the medium- and long-term (that is, beyond the short-term goal of negotiating and approving them) is undeniably in order. It is also worth understanding why many of these shortcomings were painfully aware to many Mexicans from the very start, but thoroughly missed abroad.

A history of failed reformists

Anyone thinking that the government of Enrique Peña Nieto represents a fundamental shift from the way Mexican politics is done is grossly mistaken. He is neither a "reformist" nor a "modernizer", two words that are frequently misused by foreign observers when labelling a statesman who is believed to be steering country in the direction of liberal democracy and free market policies. Not coincidentally, the last Mexican head of state to have been bestowed such praise was Carlos Salinas de Gortari (1988-94) who despite having successfully negotiated NAFTA and gained Mexico a seat at the OECD, ended his presidency with an indigenous uprising in the state of Chiapas and handed off to his successor an economy that was just days from plunging into a massive balance of payments crisis (the so-called Tequila Crisis of 1994/95). With this in mind it should not be surprising why many Mexicans have remained broadly sceptical of Peña Nieto's achievements: it wouldn't be the first time in their lifetimes that the country was tipped for success only for hopes to come crashing down.

For all his telegenic appearance suggests, it may come as a shock to those abroad that Peña Nieto is neither the driving force of his own government, nor that his inner circle is a radical departure from the old PRI that it has dissociated itself with (his political mentor, Arturo Montiel Rojas, is as old guard as it gets). If there is a parallel to how the Peña Nieto government likely operates in practice, it is perhaps as a modern Camelot: one where the president does not generate the ideas that drive the government's policymaking, but chooses those that are best put forward to him by his closest aides. 

Unfortunately what Peña Nieto lacks in initiative he also lacks in zeal (something that his two predecessors, Vicente Fox and Felipe Calderón, had in abundance - and to a fault). The result is a government that flounders whenever it requires its leader to take the helm himself. Until recently, it had encountered no situation in which it needed to do so but the manner in which Mexico's political crisis has intensified over the past two months is the direct consequence of this meek individual leadership that has been all too obvious even before he was elected.

Three months of getting it all wrong

Perhaps the first warning shot of things to come was the long delayed introduction of the National Gendarmerie. This 40,000-strong unit was originally designed to mirror their European equivalents and was seen as ideal for fighting the drug cartels: trained in policing duties but with the firepower of a military force. In the event, the Gendarmerie that was finally deployed with as much aplomb as disappointment in late August was barely 5,000-strong and constituted as a division of the Federal Police due to the impracticalities of such a small force being independent. The idea that soldiers and marines would be part of it was also shot down due to the intransigence of the military establishment in serving under civilian command. The government has quietly played down the fiasco, despite this being lauded since Peña Nieto's campaign days as the flagship security policy that his government would bring to the table. No further change to the security strategy has been proposed since.

Almost a month to the day that the Gendarmerie was introduced came the most shocking tragedy in a drug war that has had no shortage of them: the disappearance and likely murder in Iguala, Guerrero of 43 students from a rural teacher training school in Ayotzinapa with a long history of left-wing activism. The blatant complicity between the municipal government, the local police, and the hitherto little-known drug cartel known as Guerreros Unidos has since sparked a national outrage without precedent in decades and the PRI has borne the brunt of it even despite the fact that its left-wing rival, the PRD, governed both the municipality and the state in which it happened (not to say that the PRD has escaped unscathed; if anything it is facing its most severe internal strife since its formation in 1989). Every week since has seen countless vigils, marches and protests, many of which have turned violent and which despite an initially tepid foreign media coverage, has by now shattered the view held abroad that Mexico's drug war had somehow been contained; a view which of course, few Mexicans have been duped into believing.

Meanwhile, the administration's response has been clumsy and late: it took nearly a month before Mr. Peña Nieto met in person with the families of the disappeared students, and his government's ten-point list of commitments reads like every other failed promise to fight crime and strengthen institutions before it. To add insult to injury has been the disastrous press conference held on November 7th by the general attorney, Jesús Murillo Karám, which was perceived to be inconsistent and  capped by an untimely comment of "I've had enough", which in turn sparked a deluge of scorn from social media. The massive march held on November 20th, symbolically chosen for being the anniversary of the Mexican Revolution of 1910, suggests that the social pressure is far from subsiding, which is probably what the government has been banking on all along. At its climax, a large effigy of Peña Nieto was burned in the middle of the Zócalo, Mexico City's main square. 

There's more. On the same day as the attorney's press conference, a tender for a high-speed train (Latin America's first) between Mexico City and Queretaro was cancelled after receiving just one bid, from a Chinese construction company (China Railway) allied with various Mexican partners. News of the single bid was met with concern from industry experts: the CEO of Bombardier (a major Canadian aerospace and transport firm which had expressed early interest) stated that the tender's two-month deadline was unrealistically short since a project so "technically challenging" would require around a year. But as one local commentator noted, there were only two possible causes for this fiasco: either the bidding process was indeed fraudulent and the government was pre-empting any scandal, or the process had been legit but the government was simply not willing or able to defend it in the face of expected criticism and scrutiny. Either case represents shocking incompetence in handling a project of this magnitude.

photo from "we are the way. org on twitter

Like every scandal in Mexico, this story would come with an encore: an investigation into the $7 million home (nicknamed the "white house" by the local media) of the first lady, former telenovela actress Angélica Rivera, revealed that the house was listed under the name of one of the Mexican companies involved in the rail bid, Grupo Higa, which had coincidentally received numerous projects during Peña Nieto's time as governor of the State of Mexico (2006-12).

 Later it was alleged by Rivera herself that the house had been "transferred" to her in 2010 by media giant Televisa, which has long been accused of wielding undue political influence in light of its uncomfortably cosy relationship with the PRI.

By next day over 200,000 twitter and over million views of video

 As this article is written, there has been no convincing answer to who actually paid for the house, and how, or if Rivera's statements are to be believed (her patronizing television address on November 18th was cringe-worthy even by telenovela acting standards), why effectively gifting a multi-million dollar home to the wife of a state governor with presidential aspirations is not a shamefully blatant conflict of interest even under the narrowest definition.

What this means for the reforms

In the short run, the legal implications of the "white house" scandal may give added impetus for the protesters to intensify the pressure over the coming weeks: it is hard to believe that a situation like this would not lead to calls for impeachment in the US or a vote of no-confidence in a European parliamentary system. But in the longer run, the government's recent string of failures matter enormously if they serve as early warning signs of deficiencies in the implementation of its structural reforms. For example, the energy reform, by far the biggest economic game-changer since NAFTA, calls for the creation of numerous new regulatory entities, and a tight schedule for both the transformation of Pemex into a "productive state firm" as well as for the liberalization of the sector to private competition. As was the case with the high speed rail tender, cutting corners in a rush to get things done may prove critical if these new markets open before they are ready to operate efficiently.

The success of nearly all reforms therefore rests on the same things that Mexican governments have consistently failed to get right in the past: establishing effective, transparent, uncorrupted institutions and preventing the conflicts of political and private interests from eroding the reforms' social benefits. More so, to spread these benefits - when and if they materialize - across the general population (particularly the poor) requires well-defined channels of redistribution across the three levels of government which at least in their lower levels (state and municipal) are mired in frightening levels of incompetence and corruption, as the incidents in Iguala have highlighted. 

A veritable revolution in how the government administers and distributes its revenues is long overdue but old habits die hard: the past two budgets have seen an increase in federal transfers and little effort to strengthen the capacity of states and municipalities to finance themselves. Additionally, these budgets see a massive rise in infrastructure spending which although arguably needed, is typically the sector most prone to corruption. These are not the signs of a truly "reformist" government, when the rotten edifice in which Mexican policymaking rests is left intact.

Can this government still deliver?

Time will tell if the Peña Nieto government recovers from its recent failures and delivers on its promise of bringing prosperity and peace to millions of Mexicans. But for foreigners accustomed to having been served an undeservedly rosy picture of the country's state of affairs over the past few years, the honeymoon has to be over: a more realistic appraisal of the challenges that Mexico faces should frame any discussion of its outlook from now on. Despite the success of passing the structural reforms, this is a government that has faced serious deficiencies in achieving its immediate policy objectives (not least has been the anaemic state of GDP growth since Peña Nieto came to power), and has not shown signs that it is willing to change the decision-making environment in Mexico.

Ultimately, political capacity matters and it is a prelude to development, not a consequence of it as many people seem to believe. In a recent article,  economist Dani Rodrik summed up the pros and cons of NAFTA 20 years on, noting that "for too long, Mexico's economic policies have reflected the view that the real economy will take care of itself once the 'fundamentals' (macroeconomic stability, openness, and basic regulations) are in place." To some extent, depending on the reform agenda to bring about economic success is not so much different: unlock the bottlenecks to growth, and growth will magically come. It won't, without absence of a radical transformation of how Mexican politics works. If there is any positive legacy from the Iguala tragedy as well as the scandals and failures that have erupted around it, is that the government and the Mexican political establishment as a whole can finally realize they are the ones in more dire need of reform.