How Mexico Reengineers Reality to Lure Foreign Investors

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Local governments fail the people, Peña Nieto’s government does nothing to address the problem

By Don Quijones, Spain & Mexico, editor at WOLF STREET. His blog: Raging Bull-Shit.

Everybody, it seems, loves Mexico’s young president, Enrique Peña Nieto – at least everyone outside Mexico, that is. In February of this year he appeared on the front cover of Time magazine alongside the brazen headline “Saving Mexico.” In other English-language media outlets he has been described as “historic,” “bold” and “audacious.”

It’s not just the media that’s lapping him up. On September 23, Peña Nieto was guest of honor at the United States’ most powerful think tank, the Council on Foreign Relations, where he was treated to 60 minutes of fawning praise and predominantly softball questions. The event’s moderator was Robert Rubin who, as U.S. treasury secretary and chief deregulator under President Clinton, sowed the seeds of the 2008 global financial crisis. Ironically, Rubin also played a frontline role in the Treasury Department’s covert bail out of Wall Street banks during the 1994 Tequila Crisis – banks that included Goldman Sachs, of which Rubin was a former co-chairman, and Citigroup, the bank that Rubin would later go on to serve as director and senior counselor.

Given their agenda, it’s not hard to see why the likes of Rubin and the think tank he now co-chairs would be fully behind Mexico’s young leader. As I explained in Why the Market’s Sudden Love for Mexico?, EPN’s government is spearheading arguably the most ambitious reform program of the last 50 years – a program aimed at prying open what remains of Mexico’s state-owned enterprises, including its huge publicly owned oil monopoly, Pemex. The opportunities for foreign investors, including the world’s oil majors and fracking giants, will be irresistible.

Another reason for the sudden interest in Mexico is its membership – together with Colombia, Chile and Peru – of the Pacific Alliance, a free trade agreement that many see as a precursor either to the Trans Pacific Partnership or, if that fails, a broader NAFTA agreement binding together the economies of aligned nations of both North and South America. The name of the game is to reconfigure the geo-economic chessboard of the American continent by fusing together a whole new bloc of countries that, as luck would have it, are perfectly aligned with U.S. economic interests.

Of the four Alliance partners, Mexico has by far the largest, most developed economy and is clearly an enticing prospect for international investors. But while opportunities may abound, so too do the risks. The problem is no one seems to be talking about them.

Conflicting Realities

During a recent visit to Mexico, the general impression I got from the people I met – mainly middle and upper-middle class professionals of all ages – could not have clashed more wildly with the rose-tinted fantasy being peddled by the international financial media. For starters, most people seem just as concerned, if not more so, about crime and insecurity than they were two years ago.

In light of recent events, their fears seem perfectly warranted. Just in the last ten days the country has witnessed a horrific student massacre by local police in the city of Iguala, Guerrero State, one of the most violent in the country. Three trainee teachers and three bystanders were killed, 25 were injured, and 43 remain unaccounted for and are feared to have been “disappeared” by the police. Yet, at the time, the event elicited barely a whisper from the international press. The New York Times, one of the few overseas media outlets to actually cover the story, published a tiny, one-paragraph item innocently titled “Mexico: Students Missing After Protest.”

Meanwhile, over 30 people were arrested, most of them local police officers. State governor Ángel Aguirre Rivero explained that the police force in Iguala, among others, had been corrupted, and that many of the officers belonged to the gang Guerreros Unidos. On Saturday, following a tip, a mass grave was found near the town though authorities refused to disclose how many bodies it contained. DNA analyses will be conducted to identify them.

The last 10 days also saw the assassination of two politicians as well as revelations that Quintana Roo, one of Mexico’s richest and until now safest states, is under the thumb of two rival narco gangs, the Zetas and the Gulf Cartel.

According to Lydia Cacho, the journalist who broke the story in the Mexican daily El Universal, the local authorities in Quintana Roo are turning a blind eye to the cartels’ ongoing power grab in return for under-the-table kickbacks. As in so many other parts of Mexico, local government is completely failing local people, and intelligence experts fear that Quintana Roo could soon descend into the sort of spiral of violence and chaos that has ripped communities apart in the Northern border regions as well as states strategically located on Mexico’s drug routes, such as Guerrero, Michoacan and Morelos.

People living in those communities are between a rock (the narcos) and a hard place (the local authorities and police, often barely distinguishable from the criminals). Despite promising to fight corruption from Day One of his presidency, Peña Nieto’s government has, to date, done next to nothing to address the problem. Indeed, a few weeks ago he called corruption a “cultural phenomenon” in Mexico, a comment that hardly went down well with analysts or voters.

“If corruption is a ‘cultural problem,’ then how the hell are we going to get rid of it?” quipped Gil Gamés, a columnist for the El Financiero newspaper. “It would be awful to make it disappear, because it would mean losing a part of our culture.”

Managing Perceptions, Reengineering Reality

Despite such missteps and faux pas, Nieto continues to be courted and lavishly praised beyond Mexican borders. Meanwhile, back at home things are not so great. Despite all the talk of economic growth, the numbers continue to disappoint. Job creation is lagging, GDP has risen by roughly 2.5% this year, and inflation is close to double that figure.

Just 51% of Mexicans think the president is doing a good job, down 6 percentage points from last year, according to the Pew Hispanic Center. During the same period, negative opinions of him climbed 9 points to 47%. As such, less than two years into his first term, Peña Nieto is even less popular than his two predecessors, Vicente Fox and Felipe Calderón, were at the same stage of their presidency.

All of which flies in the face of the whole “saving Mexico” narrative. That’s where the government’s Department of Perception Management comes in. “Peña Nieto’s government has been very good at selling its message abroad,” Manuel Molano, the deputy director of the Mexican Institute for Competitiveness told Vocativ. “The government firmly controls its PR, a lot better than previous governments were able to.”

With the international media more than happy to comply, a whole new narrative is fabricated, and one that bears scant resemblance to the on-the-ground reality facing most Mexicans. Instead of telling a story, the media are selling one, and the target audience is the international investment community who need convincing that Mexico is not only a promising place to store your money (which is true), but a safe, secure and stable place (which is not).

Now that the media has a whole new agenda to follow and a whole new tale to sell, it expunged from its pages the dark underbelly of Mexico’s reality: the escalating drug war, political corruption, police brutality, breakdown of law and order, rise of vigilante movements, wretched poverty and crippling inequality. They have become just silent noise. By Don Quijones. An exclusive for Wolf Street.

Mexico is subject to the whims of oligopolies run by a small coterie of hyper-connected individuals who now effectively own the country. Read…. “Slimlandia”: Mexico in the Grip of Oligarchs

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