When US Republican presidential hopeful Donald Trump met with Mexican President Enrique Peña Nieto last month, the overriding question was “Why?” Many observers assumed this was Trump’s attempt to woo Latino voters by softening his antagonistic stance against Mexico. (For those who may have lost track, Trump has vowed to deport an estimated 11 million undocumented Mexicans living in the US, should he become president.)
But why did the Mexican president, who had characterized Trump’s position as a “threat” to Mexico, invite the latter to meet? And perhaps more importantly, is Trump a real threat to the Mexican economy?
As criticisms against Peña Nieto mounted, it became apparent that if the meeting was meant to boost approval ratings for the Mexican president, currently at 23%, it had the opposite effect. It is also evident that the real threats to Mexico’s economy are not Trump-related.
Indeed, endemic corruption, the government’s failure to curb crime, and Peña Nieto’s inability to push through education reform as promised during his 2012 presidential campaign are bigger threats. Peña Nieto currently has the lowest approval rating of any Mexican president since the mid-1990s.
Scandals in the administrations of three outgoing governors are a prime example of the corruption facing Mexico. Exiting governors of the states of Chihuahua, Quintana Roo, and Veracruz — all members of the ruling Partido Revolucionario Institucional (PRI) party — have recently attempted to indemnify themselves from prosecution for financial mismanagement and other alleged crimes when they leave office in November; they all lost gubernatorial elections last June. Such events highlight the enormity of the challenge facing the Mexican president in rooting out corruption in public office.
On July 18 President Peña Nieto approved wide-ranging reforms to Mexico’s anticorruption laws, but it remains to be seen how effective these will eventually be. Endemic corruption poses a high degree of risks to foreign firms and economic growth and development. As such, Dun & Bradstreet continues to encourage clients to enforce regularly updated anticorruption policies and procedures to reduce their reputational risk.
Troublingly, corruption in public office also has been linked to violent drug-related crimes, as in the case of the 43 missing student teachers in the province of Guerrero. The students were reportedly abducted by a drug gang and corrupt local police in 2014, and the government has been accused of lying about it and attempting to cover it up. The students’ relatives led a major protest march through Mexico City in 2015 to mark the anniversary of the disappearance.
Another major threat to unlocking Mexico’s medium to long-term growth potential is the government’s inability to implement crucial structural reforms on which the president campaigned in 2012. While there has been moderate success in opening up the country’s energy and telecommunications sectors, education reform has been far less successful. Mexico’s education system is significantly behind most of its peers, but it is apparent that the government is likely to dilute crucial changes to the education system despite public support for proposed reforms.
Teachers in the country are disputing the government’s education policies. The CNTE teachers union has led a number of protests, which turned deadly in June. So far there has been no sign of letting up — in early August protesting teachers in Oaxaca set up road blocks that led to the closure of around 3,000 businesses in the area. The teachers are against mandatory teacher testing, which is a key element of education reform. The state is also seeking to weaken the teachers’ unions to clear the way for state-controlled impartial evaluations of teachers for recruitment, promotion, and termination.
Moreover, the ruling PRI appears to be facing a growing challenge from Andrés Manuel López Obrador of the left-leaning National Regeneration Party (MORENA). López Obrador, who has alternatively been dubbed “Mexico’s Trump” and “Mexico’s Bernie Sanders,” is tapping into the current tide of antiestablishment sentiment sweeping the globe as well as the Mexican president’s poor ratings.
MORENA at this time does not pose a significant threat to PRI or to Mexico’s thrust to implement market-friendly reforms. However, it would not be wise to ignore PRI’s diminishing voter appeal, which could present growing opportunities for political opponents.
PRI suffered heavy losses in regional elections held in June, when it won only five of the 12 gubernatorial seats (out of 31) that were being contested; PRI held nine seats before the elections. The opposition National Action Party (PAN) won the remaining seven seats, including three via an alliance with the Democratic Revolutionary Party. Significantly, PRI lost seats in two strongholds (where it has never lost before): Veracruz and Tamaulipas. Nevertheless, PRI continues to hold 16 seats, a majority of the total governors’ seats across the country.
In short, “Trump’s Threat” is the least of Mexico’s worries. More credible threats — stalled reforms, corruption, and crime — will continue to impact the commercial environment in the near term, and impede growth and development in the long term.
Michelle Campbell is a Senior Economist on D&B’s Global Data, Insight & Analytics team. Based in the UK, she covers the Latin American region for D&B Macro Market Country Insight Products. In addition to her experience in the financial services sector, Campbell has worked as a visiting lecturer in the UK and in the Caribbean. Michelle holds a master of science degree in economics from the University of the West Indies in Trinidad.