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