by Luis Rubio

MND

The advent of populist movements, from the left and the right, has been accompanied by a rejection of globalization and a systematic call for the reappearance of an all-powerful government, aimed at correcting the ills that afflict humanity.

This populist narrative does not deny the extraordinary progress in terms of prosperity and poverty reduction that has characterized the world in recent decades, but it argues that “savage” or unfettered capitalism has caused extreme income inequality, benefiting mainly the rich.

The narrative is appealing, but it has served less to improve the welfare of the population than to consolidate new interests in power. This poses a clear dilemma in the context of electing Mexico’s next president: Closing the country’s doors to the world, or finding ways for the entire population to reap the benefits of the enormous opportunities that come with proximity to our two northern neighbors.

The economic liberalization that Mexico embarked on since the 1980s was little more than an acceptance that global technological change opened opportunities the country couldn’t seize without significantly changing its economic strategy and institutional framework. Today, the Mexican economy is much larger and more productive than it was half a century ago, and citizens enjoy political freedoms previously unimaginable.

The election of a new president, regardless of the winner, will determine the state’s willingness to chart a course that allows the entire population to live in an environment of security and certainty, or to persist in the institutional and economic destruction initiated by the outgoing government of President Andrés Manuel López Obrador.

The key point for those seeking progress for Mexico has to be accepting that globalization is an inexorable reality that has been extraordinarily beneficial for the country. The ills often associated with it — such as violence, inequality and poor-quality education — have been the result of what has not been done. The country can only attempt to isolate itself from globalization if it is willing to pay the price in terms of low growth, increased poverty and more inequality, losing out on the technological change upon which future progress depends.

The outgoing administration has attempted to play two contradictory games. On the one hand, it has allowed the continuation of integration with our northern neighbors, but did nothing to improve infrastructure or opportunities for the population to participate in that economic space. On the other hand, the administration has undermined the country’s security, hindered the development of energy capacity and created an environment of enormous uncertainty regarding the future, including the conditions necessary for the USMCA to continue after the review in 2026.

All of this calls into question the sustainability of current sources of growth. The winner of the election in June will have to define policy on this matter immediately.

Nations that, in recent decades, chose to face up to these challenges share very similar characteristics: They focused on improving the quality of their educational systems, built the necessary infrastructure and modified legislation to facilitate the transition of their economies. Above all, they changed their way of understanding development and embarked on a crusade to ensure that all of society could join the process.

By observing nations that thrive and those that lag behind, the path is evident. The successful countries embraced globalization and continue to do so, in parallel with adjusting and adapting their strategies and policies to ensure that their populations have access to every possible opportunity.

Mexico has followed a less consistent and more uncertain path. While there was a clear and consistent vision in the first iteration of Mexican reforms in the 1980s and 90s, the truth is that this did not last long. The liberalization of the economy was inconsistent with the way companies and banks were privatized, and many of the reforms, especially those undertaken in the previous administration of Enrique Peña Nieto (extraordinarily ambitious in themselves), were executed in such a way that they never gained legitimacy, and were therefore politically vulnerable.

The crucial point is that Mexico has spent decades pretending to reform when, in reality, it has only adapted at the lowest possible cost, preventing more successful and attractive results from being achieved for the population. That is the real dilemma for the next government.

Mexico has not embraced the need to be successful, has not accepted the imperative (and inevitable) nature of the new reality, all of which has made possible the attacks the country is now experiencing against its own future.

Globalization has not ceased to exist; the question is whether Mexico will eventually make it its own, or continue to pretend that its economic and political impoverishment is merely a matter of chance.

Luis Rubio is the president of México Evalúa-CIDAC and former president of the Mexican Council on International Affairs (COMEXI). He is a prolific columnist on international relations and on politics and the economy, writing weekly for Reforma newspaper, and regularly for The Washington Post, The Wall Street Journal and The Financial Times.

Disclaimer: The views expressed in this article are solely those of the author and do not necessarily reflect the views of Mexico News Daily, its owner or its employees.

by Mexico Institute/Wilson Center

April 24, 202 – President Andrés Manuel López Obrador’s battle against neoliberalism continues as the June elections approach and his days as president dwindle. The most recent effort entails a significant proposed reform to Mexico’s pension system — one that he hopes will take effect on May 1, International Workers’ Day.

The reform bill aligns with AMLO’s increased public spending and extension of social programs but carries serious long-term implications. The president’s most well-known, and perhaps most efficacious, policy approach has been that of increasing public spending to strengthen the social safety net for Mexico’s most vulnerable populations — groups which have historically been underrepresented and overlooked in the Mexican political sphere.

From Jóvenes Construyendo El Futuro (Youth Building the Future) to a standard universal pension, AMLO and his government have raised the stakes in support of these groups, tripling welfare spending from US $8 billion at the start of the AMLO administration to $24 billion in 2024.

AMLO has doubled down further, promising a 25 percent increase in social spending for 2024, totaling US $30 billion during the election year. A coincidence? Probably not.

The support from the highest levels of Mexico’s government for these historically marginalized groups has reaped significant benefits for AMLO himself and for his party’s electoral success. Though Morena became an official political party only in 2014, it won Mexico’s highest elected office just four years later with AMLO’s presidential victory in 2018.

Today, 22 state governments out of Mexico’s 32 states are ruled by Morena. It’s hard to imagine Morena’s skyrocketing success without AMLO’s strategic use of social programs to get out the vote, especially among these underrepresented groups.

AMLO’s first mention of the pension reform occurred in 2020, but it was not formally announced until February 2024, alongside 20 additional reforms varying in terms of scope and significance. The topic of pension reform came to the forefront last week as the Chamber of Deputies’ Committee on Social Security voted on the proposal.

Put simply, the proposed reform seeks to amend Article 123 of the Mexican Constitution so that workers aged 65 and over who have contributed to the current retirement pension system (which went into effect in 1997) can receive a pension upon retiring that is equal to the employee’s most recent monthly salary but no higher than the average monthly salary of a Mexican Social Security Institute (IMSS) worker (around 16,777 Mexican pesos or US $983).

These pensions are for workers in the formal sector, meaning that retired workers must have some form of social security coverage — either from IMSS or from the Social Services and Security for State Employees Institute (ISSTE).

It’s important to note that only workers in the formal economy are eligible to receive pension funds, thus excluding a significant swath of Mexico’s population. According to data published in January, 53.6 percent of the economically active population nationwide is employed in the informal sector. However, in states in south and southeast Mexico, the rates of informal employment are substantially higher than the national average, such as in Oaxaca (73.7 percent), Guerrero (73.2 percent) and Tlaxcala (69.8 percent).

Mexico’s retirement savings system has undergone a significant shift in the past 30 years, in part due to the reform put forth in 1997 during Ernesto Zedillo’s term as president and into the subsequent presidential term of Felipe Calderón.

According to Interior Minister Luisa María Alcalde, prior to 1997, retirees received a monthly pension equal to their average salary for the previous five years before retiring. For example, if a formal worker averaged a 10,000-peso salary per month, their retirement pension equaled 10,000 pesos monthly. Presently, however, with the implementation of the 1997 reforms, a worker who earns 10,000 pesos per month will only receive a $2,700-peso monthly pension.

To fund this new pension scheme, AMLO’s administration has proposed the creation of a new public fund, the Fondo de Pensiones del Bienestar (Well-Being Pension Fund). The controversy is over where its money will come from.

These pension funds will be paid from accounts that have remained untouched for at least three years — meaning no withdrawals or deposits — and that belong to retirees aged 70 and over. These funds are currently held by the Administradora de Fondos para el Retiro (Retirement Funds Administration), more commonly referred to as Afore, and total around 40 billion Mexican pesos, equivalent to US $2.3 billion.

According to Alcalde, 0.4 percent of these accounts have been untouched for more than 10 years. AMLO did note, however, that protections will be in place so that workers or dependents who later claim their retirement funds after they have been seized will still be able to access them.

The Well-Being Pension Fund will also be funded by money saved by the government from reductions to expenses, the sale of unused government real estate and the collection of debts. The approval of this reform requires a two-thirds majority vote in both chambers of Congress.

The opposition in Mexico has argued that the direct transfer of money into a new fideicomiso (trust) without judicial approval violates Article 14 of the Constitution.

AMLO contends that the current pension system is a monopoly, with 10 or so banks serving as the primary administrators of the funds. AMLO went so far as to say that these financial corporations are so powerful that they control Mexican media and are leading smear campaigns against the implementation of the reform, equating it to theft.

According to the president, these criticisms arise because the reform would harm the banks themselves, not the pension beneficiaries. The AMLO administration said that those opposing this reform and creating a “campaign of lies” against it are the same people who approved the “neoliberal reforms of Zedillo and Calderón.”

The reform was approved in committee on April 15, with 19 votes in favor and 10 votes against. The legislation was then sent to Mexico’s Chamber of Deputies for a vote two days later, when it was discovered that the legislation received differed substantially from the original legislation’s text.

For example, the legislation presented on April 17 stipulated that all individual accounts with Afore could be transferred to the new pension fund — not just those that have been inactive — a significant departure from the original legislation. The AMLO administration has significantly downplayed the error.

It is undeniable that Mexico’s pension system needs updating, but the reform must strike a balance “between social responsibility and fiscal sustainability,” must account for restrictions in the Mexican economy and must promote a structure that “supports macro stability and financial market development in Mexico.” AMLO is rushing to complete a campaign promise of reforming the pension system without fully considering the long-term implications and challenges that this reform will pose.

According to national statistics agency INEGI, in 2020, there were nearly 10 million people aged 65 and older in Mexico, constituting 7.7 percent of the country’s population. This number is expected to more than double by 2050 to 16.5 percent — which presents a significant challenge in providing retirement pensions, especially given the proposed reform.

AMLO’s priority seems to be on the short-term benefit: increasing the pension for the population of retirement age and thus securing their vote in the upcoming elections without adequately addressing the fact that this demographic will continue to grow substantially. The proposed reform is rushed, with some analysts arguing that it is a final push to ensure Morena’s victory come June.

But perhaps the real reason for the rush is to limit public discussion and scrutiny. Only a few weeks remain to determine the success of AMLO’s most recent effort at dismantling the neoliberal reforms of his predecessors and the consequences left in its wake.

Alexandra Helfgott works in the Office of Strategies at the Wilson Center, researching and writing about supply chains and energy. She also leads the Mexico Institute’s Elections Guide. Prior to joining the Wilson Center, Alexandra was a Fulbright García-Robles grantee in Mexico.

Disclaimer: The views expressed in this article are solely those of the author and do not necessarily reflect the views of Mexico News Daily, its owner or its employees.

This article was originally published by the Mexico Institute at the Wilson Center.