AMLO’s Austerity

Mexico’s distinctive brand of left-populism through fiscal discipline.

In Mexico as elsewhere in Latin America, yawning inequalities and a fragile public healthcare system have exacerbated the effects of the Covid-19 pandemic. But one area where Mexico clearly stands out is in the limited scale of the government’s economic response. While other countries in the region rolled out substantial stimulus measures last spring – ranging in size from 7 per cent of GDP in Chile and Peru to 2 per cent in Argentina – the administration of Andrés Manuel López Obrador announced additional spending totalling only 0.7 per cent of GDP. Long decried by the Western establishment press as a dangerous ‘populist’, the Mexican president has now earned the rare distinction of being taken to task in the same circles for not spending enough money.

López Obrador’s fiscal restraint may seem surprising, but it is entirely in keeping with his government’s policies: since taking office just over two years ago, he has implemented one austerity measure after another. In summer 2018, AMLO – he is universally known by his initials – won the Mexican presidency in a landslide, and the coalition led by his party, the National Regeneration Movement (MORENA), secured comfortable majorities in both chambers of Congress. The result signified not only the defeat of the ruling Institutional Revolutionary Party (PRI), but a broader collapse in support for the country’s established political forces. AMLO’s ascent also seemed to promise a dramatic overhaul of Mexican politics – an ambition summed up in his vow to bring about what he dubbed the ‘Fourth Transformation’ (‘4T’): a twenty-first-century refashioning comparable to the Independence struggle, the mid-nineteenth-century liberal reforms overseen by Benito Juárez, and the Mexican Revolution.

Yet the methods for achieving this have come as a shock to many. They range from mass layoffs to swingeing cutbacks in education and healthcare; from slashed arts and science funding to raffling off the presidential plane. When AMLO announced the ‘end of neoliberalism’ in March 2019, he was implementing cuts of a kind not seen under his most neoliberal predecessors. That November, the Mexican Congress approved a ‘Federal Republican Austerity Law’, legally enshrining fiscal discipline as a cornerstone of state administration. This agenda has raised many hackles domestically, and prompted concerns about whether such a government can be deemed remotely progressive. His actions in other areas – an embrace of the army, conservative rhetoric around the family, hostility towards recent feminist mobilizations, deployment of troops against migrants at the behest of US – have deepened the widespread sense of disappointment, even betrayal, created by his economic programme.

This obsessive pursuit of austerity seems to conform to the disastrous pattern of ‘consolidations’ that followed the global financial crisis of 2008–09. Yet AMLO’s brand differs from the global model of the 2010s in three intertwined respects. Firstly, la austeridad republicana has long been a part of AMLO’s political project, which itself needs to be understood as an attempt to revive the energies of Mexico’s long-lost revolutionary nationalism. Secondly, AMLO’s austerity aims to remake the Mexican state in a way that distinguishes it from the neoliberal variant. Thirdly, however, the horizons for that ambition are limited by the tightening constraints of Mexico’s fiscal framework over the past forty years. As well as creating turbulence for his administration in the short term, his commitment to austerity should prompt more searching questions about just what kind of transformation is being carried out.

While the 4T is in many respects novel, its character owes much to the formative matrix for AMLO’s political career. A native of the oil-rich coastal state of Tabasco, AMLO once proudly described its politicians as products of its abundant tropical environment. ‘Here everything blossoms and overflows’, he wrote in El poder en el trópico (2015), a four-volume history of the state’s politics, observing that ‘in line with our surroundings, we Tabascans don’t know how to pretend.’ A combative campaigner, AMLO has a reputation for single-mindedness as well as a stubborn, contrarian streak. Though he went to university in Mexico City, he was raised in Tabasco, and his political baptism came when he returned there to work on the 1976 senatorial campaign of the poet Carlos Pellicer. By this time he had joined the PRI, and served in various state-level government posts over the following years. While AMLO’s pride in his patria chica is not unusual, it isn’t complemented by the kind of internationalism that shaped much of the Mexican organized left; nor does he share the Mexican elite’s attachment to the US. He is a politician with resolutely national horizons.

The conjuncture of the late 1970s is crucial for understanding AMLO’s outlook. This was a moment when the PRI, flush with petrodollars, expanded spending and made rhetorical gestures towards the radical reforms carried out under Lázaro Cárdenas in the 1930s. But the pile-up of debt left the country vulnerable to external shocks, and the combination of collapsing global oil prices and the US hike in interest rates provoked a downward economic spiral. The peso crisis of 1982 ushered in a new era of macroeconomic sobriety, and simultaneously laid bare the hollowness of the PRI’s promises. These developments set down some important parameters for AMLO’s subsequent political evolution. On the one hand, they only deepened his aversion to debt, seen as undermining sovereignty and paving the way to national humiliation; on the other, they bequeathed a desire to make good on the many failures of the PRI’s developmentalism. In the aftermath of the peso crisis Mexican policymakers adopted a fiscal discipline that has remained largely in place under every subsequent administration.

If the late 1970s and early 1980s were formative for AMLO, it was only in the new century that his political project really took shape, after he was elected jefe de gobierno of Mexico City in 2000. In the interim, the country’s political economy had been entirely remade: in the 1990s Mexico underwent one of the most accelerated downsizings of the state’s economic role ever enacted. The PRI’s Carlos Salinas sold off 150 state-owned firms from 1988 to 1994. This eradicated the final vestiges of developmentalism, bringing a spike in inequality along with a new class of oligarchs. It also meant a drastic reduction in the state’s revenue base, without any compensating efforts to increase the tax take. This combination – low public investment and limited powers of taxation – has hamstrung the Mexican state ever since, making investment programmes more difficult to envisage and further tightening the noose of fiscal discipline.

During his tenure as the capital’s jefe de gobierno from 2000 to 2005, AMLO presented himself as an alternative to the reigning neoliberal consensus. He implemented a number of social programmes that drew comparisons with the then-nascent Pink Tide, and displayed a taste for mega-projects in an older priísta mould: most notably the construction of a second storey for the vast concrete motorway ringing Mexico City. Both the redistributive measures and the showy infrastructure were also a form of publicity for his presidential ambitions. What kind of agenda would AMLO seek to implement on a national scale?

In 2004, AMLO laid out a blueprint for government in Un proyecto alternativo de nación: hacia un cambio verdadero. While such documents are often forgettable, in this case there are remarkable continuities between the AMLO of the 2000s and that of the present. Many of the motifs of the 4T were already formed in 2004, including ‘the poor first’ – itself an echo of Liberation Theology’s ‘preferential option for the poor’ – and the conception of the oil sector as the ‘lever of national development’. Also present was the conviction that ‘it would not make sense to change the macroeconomic framework’, with an accompanying call for low inflation and fiscal discipline.

Yet more striking still is the emphasis AMLO laid on ‘republican austerity’, defined here as ‘not only an administrative issue but one of principles’. Harking back to the personal probity of Benito Juárez, AMLO insisted that ‘it is impossible to imagine a rich government with a poor people’ – words that have now become one of the catchphrases of the 4T. While stressing the need for honest and committed public servants, he outlined measures designed to ‘reduce the cost of government for the benefit of society’: trimming bureaucratic excess to make state spending more efficient. In Mexico City, he claimed, public works and anti-poverty measures were achieved without adding to the cost of debt servicing. For AMLO, austeridad was a way of squaring the circle of fiscal discipline and state-led social and economic development – not a narrow budgetary policy, but a whole philosophy that combined honesty, equity and sovereignty in a virtuous cycle.

Central to the idea of austeridad republicana was an impulse to reshape the Mexican state. While neither the attachment to fiscal discipline nor the expansive anti-poverty agenda were new, the idea of furthering both goals at the same time through a slimming down of the bureaucratic apparatus was. Although AMLO’s project might be termed neo-Cardenista – in particular his obsession with reviving the fortunes of PEMEX, the company formed when Cárdenas nationalized oil in 1938 – his plan for the state ran in the opposite direction: not an expansion, but a contraction. He believed that the Mexican state as currently constituted was geared neither to promoting national growth nor serving the poor, and that these goals would be better served by streamlining its apparatus. While such a programme might fit with neoliberal moves to prune back the state, it is important to note the difference in motives: whereas ‘structural reforms’ have generally been part of a class project to redistribute incomes upwards, AMLO’s austeridad avowedly aims to transfer more resources directly to the poor.

AMLO’s presidential ambitions were thwarted in 2006 when the country’s electoral authorities awarded a fraudulent victory to Felipe Calderón of the National Action Party (PAN), and blocked again in 2012 when he finished a clear second to the PRI’s Enrique Peña Nieto. By the time the avalanche of 2018 finally took him to the presidency, the country had been shattered by the ‘War on Drugs’ and demoralized by widespread corruption and deepening inequalities. But while much has changed in Mexico since 2004, AMLO’s approach remains consistent, as evidenced by his continued attachment to daily 7am press conferences and colossal infrastructure projects such as the ‘Tren Maya’, whose plan to cut through indigenous lands has drawn vociferous opposition.

The cutbacks AMLO has enacted since taking office are also consonant with his earlier blueprint. They have not simply taken the form of budgetary reductions – though there have been plenty of those, including ‘voluntary’ pay cuts of up to 25 per cent for state functionaries. He has also assailed the bureaucratic apparatus, announcing in April 2020 that he would abolish ten sub-Secretariats within different government ministries. At the same time, he removed many of the conditions previously attached to Conditional Cash Transfer programmes, preferring to pay recipients directly. While education spending has been slashed, a larger proportion of it now goes to programmes giving cash grants to families with children in school. The goal here is both to reduce spending and to remove layers of bureaucratic mediation between state and populace. AMLO’s fiscal policy has also been framed as a campaign against corruption, turning off the financial taps in much the same way as he clamped down on huachicoleros, thieves siphoning petrol from PEMEX pipelines, at the beginning of his presidency.

The contours of austerity AMLO-style help to explain the gap in domestic responses to it. The establishment media, intelligentsia and cultural elites have condemned the cuts from several angles (and with varying degrees of bad faith), joined by swathes of the middle classes in the capital and elsewhere. But AMLO’s overall approval ratings remain at around 60 per cent, despite his erratic handling of the Covid-19 pandemic. (Lack of testing has obscured its true scale in Mexico, but the toll is undoubtedly among the most severe in the region. In June 2020 AMLO announced that a ‘clean conscience’ was the best defence against the virus; on 24 January, he revealed that he himself had contracted it.) Some of his sustained popularity is due to his administration’s early economic success: in its first year, labour incomes rose by close to 6 per cent, more than double the increase achieved in the whole of Peña Nieto’s presidency, with a still more marked rise of 24 per cent among the poorest 20 per cent of workers. It also seems plausible that the cutbacks have not (or not yet) affected the broad mass of the population. And while budget reductions continue, the number of beneficiaries of government social programmes has increased, from 13 million under Peña Nieto to 21 million now.

In historical perspective, what is perhaps most distinctive about AMLO’s project is his total disinterest in courting the Mexican middle class, the cultural elite and intelligentsia, whom he has at times actively goaded. Where previous administrations would have carried out comparable cutbacks, neither the PRI nor the PAN would have antagonized these constituencies, who after all included their social peers as well as the media arbiters of their political fortunes. The same is not true of AMLO, who is confident – perhaps overly so – that his power base lies elsewhere.

Yet AMLO’s austerity is a fragile keystone on which to build a politics with transformative ambitions. Firstly, and most obviously, his room for manoeuvre is tightly delimited by the framework he has carried over from previous administrations. Committed to a balanced budget, and reluctant to increase the debt burden, he began his term by promising there would be no tax increases in the first half of his sexenio. Though this leaves open the possibility of a tax hike after 2021, it’s unlikely he will overhaul the tax system to significantly alter the country’s fiscal parameters. Though AMLO has succeeded in getting several large corporations to pay overdue taxes, Mexico’s overall tax-to-GDP ratio of 17 per cent is the lowest of any OECD member-state. Wrapped in the same fiscal straitjacket as his predecessors, AMLO has promised much more than them. Amid global economic slowdown and sluggish growth within Mexico itself, reallocations from one part of the budget to another will not be enough to deliver on even a fraction of his agenda. What is needed is a huge increase in investment – in productive capacity, infrastructure, health, education. Yet with AMLO’s current approach, and with PEMEX bonds downgraded to junk, it will be difficult to obtain the necessary revenue.

In paring back the Mexican state, AMLO is wagering that a slimmer version can reduce poverty and more directly serve the people. But as the global record of austerity demonstrates, a downsized state seems more likely to become a mechanism for even greater neglect, and balanced budgets an alibi for abdication of responsibility. Above all, the shrinkage AMLO envisages seems to involve a relinquishment of the activist state that has been one of the key instruments for radical social change in Latin America and elsewhere. Dispiriting lessons lie close at hand. In a broad sense, Pink Tide governments were undone by the persistence of structural obstacles that they could not remove while they held state power. Is AMLO’s austerity kicking away the only props that might give his project a chance of transforming Mexico at all?

Read on: Tony Wood on the historic struggles of central Mexico’s campesinos.