Lopez Obrador Should Learn From Lula’s Mistakes

(Bloomberg Opinion) -- The novelist and one-time Peruvian presidential candidate Mario Vargas Llosa once parsed Latin America’s political left into two broad phyla. There were the carnivores, usually strongmen, who trod on democratic institutions and liberties, while railing against foreign predators. Then there were the vegetarian leftists, social democrats at heart who respected democracy, individual freedoms and an enlightened market economy. To which species does Mexico’s President-elect Andres Manuel Lopez Obrador belong?

The answer, it seems, depends on the ecosystem. On Sunday, assured of his landslide victory, the silver-topped Lopez Obrador, known to all as AMLO, headed to Mexico City’s storied Zocalo to hail his supporters as a redeemer. Then, in a separate speech to politicians and business leaders, he dialed down, vowed to safeguard fiscal discipline, respect the autonomy of the central bank, and honor agreements with businesses at home and abroad.

Calibrating your message to fit conflicting constituencies is an honored tradition in Latin America. Consider Luiz Inacio Lula da Silva, the iconic former Brazilian leader who ran three failed elections as a leftist hothead before veering hard to the center, reaching out to business leaders and winning the day with assurances of fiscal sobriety.

Lopez Obrador would do well to study the Brazilian example — not least for its shortcomings. After surprising everyone with his pivot to temperance in 2003, Lula lost his touch. Instead of leveraging his political capital to enact vital structural reforms, he and his spendthrift successor Dilma Rousseff binged their way through the commodities boom, setting up Brazil for its worst recession on record and converting the region’s most accomplished oil company Petrobas into a trough for partisan cronies. Lula now sits in a jail cell, the biggest catch in the continent’s biggest political corruption scandal.

Can Lopez Obrador avoid the fall and convert the most sweeping mandate in recent Mexican electoral history — including a legislative majority — to solid gains for the region’s second biggest nation and its most globally connected economy? Like the early Lula, he has long been just a four-letter word to corporate Mexico. After all, he spent decades plumping for Mexico first and state intervention.

That doesn’t mean he’s fated to be a carnivore. As Occidental College Latin Americanist Jennifer Piscopo told my colleague Jonathan Bernstein, Lopez Obrador ran Mexico City as a pragmatist, not a populist, and his likely cabinet picks are technocrats, not ideologues.

There is much to fix in Mexico, but also plenty to preserve. In a region where growth has been erratic, the Mexican economy has been expanding steadily, if moderately, for years. Unemployment (below 3.3 percent) is at a 12-year low, while trade is robust. “This was not an election about crisis or changing the economic paradigm,” Goldman Sachs analyst Alberto Ramos told me. “Lopez Obrador’s main task is not to screw up.”

To his credit, Lopez Obrador has made stamping out corruption his priority, a welcome banner after the shenanigans of the outgoing Institutional Revolutionary Party, or PRI, which has presided over scandal upon scandal.

How Lopez Obrador intends to deliver the cleanup is an open question. For all his opposition to politics as usual, he cut his political teeth in the PRI before founding his own party, Morena, in 2014, and he numbers many former party higher-ups among his closest advisers. Unlike in Brazil, where fearless police and prosecutors and an independent judiciary have driven the anti-graft campaign, in Mexico investigators and courts have too often been part of the problem.

Then there’s the caudillo’s instincts. In the populist tradition, Lopez Obrador prefers referendums to working through cumbersome institutions, like the supreme court. He has an old-school politician’s hostility toward civil society groups, which have been increasingly prominent in Latin American politics and are the wheelhouse of Mexico’s anti-corruption drive. To not just curb but eradicate corruption, as he has promised, he’ll have to strengthen Mexico’s wobbly institutions, hardly the tool of choice of Latin America’s caudillos.

One big doubt is what will become of Mexico’s energy policy, one of Latin America’s biggest turnaround stories. Lopez Obrador has vowed to scour contracts for potential graft — a possibly laudable move — but also to favor national companies and reevaluate concessions to private drillers and suppliers.

That could be a mistake. Outgoing President Enrique Pena Nieto may not be missed, but one thing he got right was energy reform. In 2013, with oil production declining, he pressed lawmakers to enact a sweeping energy reform that scrapped protectionism and welcomed private drillers. Foreign investment revived Mexican oil even as Argentina, Brazil, Ecuador and Venezuela saw their industries languish due to a costly spasm of renewed resource nationalism.

Fortunately for Mexico, the reforms were written into the national constitution, and so will be difficult to repeal, as energy analyst Francisco Monaldi has noted.

Risks still loom for Mexico, not least if the trade quarrels between the U.S. and China and Europe deepen. Those problems may lie beyond Lopez Obrador’s grasp, yet they leave him even less room for error, never mind populist adventure. “You can be somewhat fiscally responsible but still create microeconomic distortions by over regulating and trying to manage the market,” Ramos said. “Look at what happened to Brazil under Rousseff.”

The landmark election has delivered Mexico a charismatic leader with an overwhelming mandate to fight corruption and injustice. Doing all that and keeping Latin America’s second largest economy on track would be hard for any incoming president. That’s why what Mexico needs now is an omnivore.

©2018 Bloomberg L.P.