Why the Markets’ Sudden Love for Mexico?

By Don Quijones, Spain & Mexico, editor at WOLF STREET.

If there’s one word that has dominated the post-crisis vernacular of policy makers, central bankers, economists, think tanks and establishment journalists worldwide, it is the word “reform.” In the last six years of centrally planned post-crisis crisis, scores of countries have been subjected to “ambitious” reform programs, largely at the insistence of reform-obsessed institutions such as the IMF.

The programs have included health reform and education reform (in both cases with a heavy emphasis on privatization and increased costs); pension reform (cuts to public pensions, hikes to the entitlement age); fiscal reform (less spending on public services, more spending on deadbeat banks – all funded, of course, by higher taxes on the middle class); and, last but not least, labor reform (making it easier for corporations to hire and fire but mainly fire). In fact, we’ve had just about every kind of reform one can possibly imagine, with one glaring exception: meaningful banking reform, for the simple reason that by now the banks are far beyond reform.

The Great Reformer

One country that has recently taken reform to an art form is Mexico. Since taking office in late 2012, President Enrique Peña Nieto has made it his mission to transform Mexico beyond all recognition. And judging by the first 21 months of his six-year mandate, he means business.

So far, Peña’s government has passed four sweeping reform bills, on energy, telecommunications, education and taxes. In the first two bills the government has sought, with varying degrees of success, to break up the monopolies held by publicly owned PEMEX and Carlos Slim-owned Americá Movíl, thereby opening up the oil and telecommunications markets to domestic and foreign competitors.

Such sweeping, radical change would have been unthinkable just ten years ago. At that time Peña’s party, the Institutional Revolutionary Party (PRI) was blocking every attempt by the PAN-controlled government to launch almost identical reforms. Now back in power, the PRI, is drawing upon all the lessons and dirty tricks it learned from over 70 years of institutionalized governance to buy off and/or silence the opposition. This includes blatant horse trading and pork barrel politics. When that doesn’t work, the government resorts to paying the senators and congressmen directly from the public purse, as José María Martínez, a member of the opposition party PAN, recently revealed.

Despite employing such dubious means to achieve across-the-isle consensus, Peña’s party continues to receive a free pass by the country’s media, which isn’t a surprise, given that two companies, Televisa and TV Azteca, control 96 percent of the total viewing share. As the author and political commentator Denise Dresser notes, Mexicans live “in a society that only believes in what appears on television. Politicians need the support of that media in order to gain power, but the media also need the politicians in order to maintain their level of control.”

The Role of International Media

But it’s not just the government-friendly Mexican media that can’t get enough of Peña Nieto’s reformist agenda. Just about every international media outlet of note is on board, including the FT, El País, The Economist and Time Magazine. At times the coverage is shamelessly, almost embarrassingly gushing. As Daniel Hernandez points out in Vice Magazine, some portions of a piece published in a December 2013 issue of Time sound strikingly similar to a paid advertorial about Mexico.

Sure, the story breezily avoids delving into the kind of shitty shit that most Mexicans confront every day – poverty, violence, impunity, stagnant wages, lack of social mobility, and the utter lack of a rule of law. Yet, the cover shows Peña Nieto in a suit, a red tie, and a stern frown, which is meant to demonstrate how he is “Saving Mexico.”

Now that the Mexican economy is once again attracting the attention of global investors, such problems as uncontrollable gang violence and the ongoing breakdown in law and order are no longer newsworthy. This, despite the fact that Mexico continues to boast more kidnappings than any other nation on the planet, while some of the states on the frontline of the eight-year Drugs War – such as Michoacán and Guerrero – are now seeing the rise of public vigilante groups as local communities lose faith in the ability of the state to combat the culture of lawlessness.

All the while, the silence of the international mainstream media is deafening. There is no longer room for stories of doom, just a simplistic narrative exclusively composed of promise, hope and change.

The question is: why the markets’ sudden love for Mexico? And just as importantly, why now?

The “New China?”

There are, I believe, two main reasons for the international financial community’s newfound interest in Mexico.

1. With Europe back in the economic doldrums, the BRICs slowing, and the U.S. barely able to get out of first gear, international investors desperately need somewhere new to park their money and generate new asset bubbles. To help them pick the right destination, Jim Neil, the Goldman Sachs economist that first coined the BRICs term to describe Brazil, Russia, India and China, has come up with another nifty-sounding acronym, MINTs, to denote the next generation of fast-growing emerging economies (Mexico, Indonesia, Nigeria and Turkey).

Neil’s MINTs, just like his BRICs before them, have captured the minds and imaginations of the international investment community. And with the financial press dutifully cheering on from the sidelines, overseas money is once again pouring into Mexico.

2. Mexico offers the world’s biggest value chasers a great deal. It boasts essential resources, including vast tracts of affordable land, large oil and gas deposits, a mostly unconquered agricultural sector (hence Monsanto’s keen interest), and precious metals. It also has a massive pool of untapped cheap labor. According to Neil – and a host of other economists and business leaders, including Donald Trump – Mexico’s work force has the potential to turn Mexico into the “new China.”

Selling Mexico Up the Rio Grande

Should such a transformation occur (a hefty “if” judging by recent Mexican history), the biggest beneficiary would almost certainly be U.S. transnational corporations. Mexico is doing everything it can to accommodate the needs of U.S. businesses – including selling off most of what remains of its family silver – and trade between Mexico and the U.S. could well explode in the coming years.

But don’t bank on it: Mexico has already been here many times before. The last time, in the early ’90s, the country’s then-great reformer, Carlos Salinas de Gortari, liberalized the financial markets and signed up to the North American Free Trade Agreement (NAFTA). What would follow, the country was promised (just as now), would be a golden era of unprecedented growth. But it was not to be: what followed instead was the 1994 Tequila Crisis and an explosion of debt that would cripple the Mexican economy and middle classes for well over a decade – all for the sake of saving a handful of Wall Street banks from the consequences of some badly placed bets.

Mexico’s economic growth has been anemic most of the years since. In 2013, Peña Nieto’s first year in power, the Mexican economy practically stagnated, growing 1.3%. As for this year, the perpetually self-correcting IMF has already downgraded its forecasts for Mexican growth from 3.9% to 2.7% after the economy expanded by an unconvincing 1.8% in the first quarter.

Even more serious than the economy’s stagnant growth is the brutal and now almost universally ignored on-the-ground reality with which most Mexicans have to contend. Poverty and inequality remain rife, and corruption – the ultimate enemy of economic development and good governance – reaches from the highest levels of government, business and finance to the lowest levels of public service.

Yet for all the government’s lofty talk of tackling the scourge of corruption, not a single reform bill has been passed to address the problem. The more the figures and the on-the-ground reality clash with the fantasies being sold by Peña Nieto’s government and Mexico’s compliant media, the more the government doubles down on its campaign of perception management. As the political analyst Sergio Aguayo notes, Peña Nieto is, if nothing else, an excellent salesman. What he and his bosses are selling, however, is not just tall stories; it’s an entire country. Don Quijones for Wolf Street.

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  3 comments for “Why the Markets’ Sudden Love for Mexico?

  1. mick says:

    Mexico has one fatal flaw. Although hospitable and kind, Mexicans are lazy, lax, and lack ambition. You won’t get the kind of production out of Mexicans that you will many other cultures.

    Maybe the proximity to the US compensates for this though.

    • Wolf Richter says:

      Not sure where you’re getting your silly ideas. It seems you’ve never watched Mexicans at work (in Mexico or in the US). And it seems you’ve never been in Mexico – or you wouldn’t say this kind of nonsense.

      Just to let you know, Mexico already beats China in terms of cost of production, especially when you figure in the other costs, including transportation. That’s why automakers from Japan, Europe, and the US are in a rush to build new plants there.

  2. Shankar Char says:

    I visited the US after a gap of 20 years in 2012 and was amazed to see how much the country had changed in terms of work force. Drove up the east coast from Orlando to NY via Niagara and most entry level jobs were taken by Hispanics. These are extremely hard working people who scrimp and save to better the lives of their children. Their society demands that they collectively look after each other’s kids so that both parents can work and bring home the bacon. Many of my friends indicated that their help at home and in the yard always were on time and finished the job on schedule, it’s a work ethic to be mimicked if not copied. In as far as corruption is concerned, the problem that many countries like Mexico ( my India included) experience is that it is endemic and very visible, unlike in the US where it happens at the very top, hidden from general view..but it is there.

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