For Mexican President-elect Claudia Sheinbaum, continuity may not be an option

Sheinbaum won election promising to stick with the policies of her predecessor, President Andrés Manuel López Obrador, particularly on energy and migration. But staying the course may not be possible for long.

By Andrew Schneider, Houston Public MediaJune 13, 2024 9:45 am, ,

From Houston Public Media:

Mexico’s President-elect Claudia Sheinbaum ran for office on a platform of continuity with her predecessor, President Andrés Manuel López Obrador – both of them members of the left-wing National Regeneration Movement (MORENA) Party. That approach was popular enough to guarantee her a landslide victory over her two main competitors.

But the Mexican economy is already responding negatively, out of concern for what a Sheinbaum administration will mean for the country’s economic and political stability. Since Sheinbaum’s election, the peso has slumped more than 10% to roughly 18.7 pesos to the dollar.

Sheinbaum’s economic quandary

“I think reality is going to be much, much harsher to her than it was to Mr. López Obrador,” said Tony Payan, director of the Center for the U.S. and Mexico at Rice University’s Baker Institute.

How harsh? Sheinbaum will enter office facing a 6% budget deficit. GDP growth is at zero, which means she won’t be able to count on an expansion of the tax base to close the gap.

“Mr. López Obrador inherited an economy that was doing fairly well — not great, but well. He inherited some challenges like public safety and security, a relatively good relationship with the United States and on and on, and, of course, very healthy finances of fiscal policy that had been very disciplined for many years,” Payan said. “Ms. Sheinbaum will have to understand that today, the Mexican economy depends much, much more on the U.S. than it did six years ago.”

That dependency takes several forms. One of the main sources of hard cash keeping Mexican consumption afloat is the annual remittances that Mexican migrants to the U.S. are sending back to their families, which topped $58 billion in 2022. U.S. direct investment in Mexico, despite the strictures placed on it by the López Obrador government, tops $130 billion.

And 40% of the Mexican economy depends on exports, roughly 80% of which go to the U.S. The weak peso will make those exports cheaper for American consumers. But it’ll also make Mexico’s imports from the U.S. more expensive – particularly Texas-produced natural gas.

“We really rely on gas from the U.S.,” said Veronica Irastorza, senior managing director of FTI Consulting and former Mexican undersecretary of energy planning and transition. Irastorza said Sheinbaum is determined to continue the nationalization of Mexican energy production, “Mexico’s natural gas production is maybe half of what it was in 2010. And it now serves just about a third of the demand, and the rest is gas from Texas, mostly. So, I don’t think that Mexico can change that anytime soon.”

Trade isn’t the only way the Texas and Houston economies are linked with Mexico. President López Obrador reversed the energy reforms of his predecessor that allowed private investment in Mexico’s oil and gas industry and its electricity grid. The Baker Institute’s Tony Payan says both are suffering as a result.

“The energy sector in Mexico is really a devastated landscape,” Payan said. “Texas can certainly help a lot. But will Mexico allow itself to be helped by Texans and Texas investment? Who knows? It depends on which Claudia Sheinbaum really shows up to govern.”

Specifically, he says, Claudia Sheinbaum is ideologically committed to the left, but she’s also known for being a more disciplined leader focused on producing results.

Then there’s Claudia Sheinbaum the scientist. The president-elect has a PhD in energy engineering and previously contributed to the UN’s Intergovernmental Panel on Climate Change.

“She has also spoken about Mexico’s need to increase renewables,” said Mariana Campero, a senior associate at the Center for Strategic and International Studies and the host of the center’s Mexico Matters podcast. “There are even some numbers that she has mentioned that she wants Mexico to increase renewables to 50%.” Campero said it would be hard to accomplish that without reopening Mexico’s energy sector to private investment.

Tony Payan is skeptical that the green Sheinbaum will be the one to show up. That would be another reason for concern. “Mexico is now essentially missing in action when it comes to climate change, which is a priority of the U.S. government,” he said. “It’s burning fuel oil to generate power, for example.”

All of these factors could come to a head two years from now when the United States-Mexico-Canada Agreement (USMCA, formerly NAFTA) comes up for review and renewal. Regardless of whether Joe Biden or Donald Trump is reelected as U.S. president, Washington is likely to take a tougher line with Mexico City about trade and direct investment.

Even sooner, Sheinbaum will have to reckon with her country’s debt to the United States when it comes to providing water. A 1944 international treaty obliges Mexico to provide the U.S. with 1.75 million acre-feet of water – more than 570 billion gallons – every five years.

“In 2025,” Payan said, “Mexico will have to bring its water debt to Texas back down to zero. It’s in arrears.” That water is badly needed by farmers in the Rio Grande Valley, now in the midst of a crippling drought.

The immigration issue

Then there’s the crux of tensions between the U.S. and Mexico – and particularly Texas and Mexico – on immigration. Sheinbaum also said she’ll continue López Obrador’s policies on migration. Under López Obrador, Mexico has stepped up economic aid to Guatemala, Honduras, and El Salvador to address what his administration terms the “root causes” of migration. It also heavily militarized its southern border. But it has done little to address drug crime or gang violence in Central America.

“Mexico hasn’t been willing to politically and openly acknowledge that a lot of these people are fleeing because of unsafety,” said Isabel Gil Everaert, a professor at the Center for International Relationships at the National Autonomous University of Mexico (UNAM) in Mexico City.

Nor, she said, has the López Obrador administration been willing to deal with how Mexico’s war with its own cartels has led to massive internal displacement of its own population.

“What we’re seeing is that these people might have started their internal displacement trajectory years ago and may have moved within Mexico many, many times,” Gil Everaert said. “But as the country has become more unsafe, then it seems like for many, the only option is to leave Mexico.”

Rice University’s Tony Payan agreed adding economic instability will also drive migration. He said Texas may benefit strongly from at least some of the new arrivals.

“They’re professionals. They’re investors. They’re middle-class Mexicans who really just can’t be in Mexico. They find it very difficult to live there. And Texas can be an enormous beneficiary. So, we have to think about the good side of immigration too,” Payan said.

But others, Payan acknowledged, will be undocumented, lower-class migrants who have no viable path to a visa, let alone U.S. citizenship. The resulting increase in cross-border migration will almost certainly lead to further pressure from Governor Greg Abbott and other conservative Republican leaders to tighten border security, further aggravating existing tensions between Texas and Mexico.

Payan said he agrees with Abbott that Mexico has essentially ignored its role in allowing drug trafficking, and he argues that the López Obrador administration has used the immigration issue to distract attention from Mexico’s shortfalls there and on other issues. But he doesn’t approve of Abbott’s tactics, which have included a wide-scale deployment of state troopers and Texas National Guard troops and the deployment of a barrier on the Rio Grande that is under legal challenge from the Biden administration.

“His tactics on the border, I think, are not conducive to a cooperating relationship,” Payan said. “But I think at the end of the day, Ms. Sheinbaum will have to understand that part of the relationship will run through Austin. She will have to come to Austin. It’s not enough that the governors of Tamaulipas, Nuevo Léon, Coahuila, and Chihuahua, the four states that border Texas, often go to Austin, communicate with Austin. And then of course, (Abbott) will also have to understand that what he does sometimes irritates Mexico, and it’s not going to help in cooperation.”

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