Trump Found Guilty | Mexican Elections on Sunday | Milei’s First Six Months

Dear all,

We welcome you to the Greater Caribbean Monitor (GCaM). In this issue, you will find:

•Sheinbaum will be elected president—and Morena may become the new PRI

•Six months after taking office, where does Milei stand?

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•Sheinbaum will be elected president—and Morena may become the new PRI
746 words | 4 minutes reading time

Two days before the elections in Mexico, everything points towards a victory for Claudia Sheinbaum, current President Andrés Manuel López Obrador’s (AMLO) protégé. Sheinbaum and AMLO’s party, left-leaning Morena, appears well on its way to becoming the next incarnation of the PRI, the party that ruled Mexico for much of the 20th century.

News. With polls suggesting 55% of Mexicans support her, Sheinbaum is virtually guaranteed a victory, becoming Mexico’s first female president. Mexico, alongside four other countries in Latin America, has no run-off; a plurality of the vote would suffice to hand Sheinbaum the presidency.

• This significantly limits the chances of Sheinbaum’s leading opponent, Xóchitl Gálvez (Strength and Heart for Mexico, big-tent), who trails by around 20%, although there is some talk of the real figure being smaller. 

Why Does It Matter? Sheinbaum is not, at least by her own merits, the most popular figure in Mexican politics. Much of her popularity is explained by the fact that AMLO specifically chose her as his successor. A victory for Sheinbaum would thus ensure the continuity of AMLO’s political legacy. 

• Indeed, Sheinbaum has shown her support for AMLO’s 18 proposals for constitutional reform. These controversial proposals have been interpreted as AMLO’s political last will and testament.

• Their content is quite varied, providing for the popular election of Mexican Supreme Court justices, above-inflation hikes to the minimum wage, and a ban on fracking and open-pit mining.

• A new Congress will also be elected on Sunday. With Sheinbaum’s victory in the presidential elections almost assured, those 628 seats (500 in the House of Representatives and 128 in the Senate) will be vital to these reforms’ political viability.

Between the Lines. AMLO has become Mexico’s most influential 21st century politician, transforming his party into a near-perfect political machine. However, his six-year term has plunged Mexico into violence like never before. During his presidency, the country has suffered more than 180,000 homicides and his “hugs, not bullets” policy is at least partly responsible. Mexican states like Chiapas have fallen to drug traffickers, experiencing a 60% increase in homicides in the first months of 2024.

• AMLO attributes most violence to poverty. However, widespread reductions in the poverty rate during his term have not led to a fall in crime.

• Drug trafficking has expanded throughout the country. The president has ordered the army to take to the streets, albeit with no power to combat crime.

• AMLO dismantled the Federal Police and replaced it with a poorly trained National Guard. In 2018, the now-defunct Federal Police reported 21,700 arrests. In 2022, the National Guard reported a mere 2,814 arrest.

Yes, But. AMLO has an approval rating of almost 68%, the third-highest in Latin America. The explanation lies in the economy. The president has increased poorer Mexicans’ purchasing power with a minimum wage hike 120% above inflation. Government-funded “monetary transfers” rose by 55%, and labor income grew 24% above inflation. The latest measurements indicate that some five million Mexicans rose out of poverty during his six-year term.

• Despite his leftist credentials, AMLO was formerly considered a fiscal conservative. He has since turned towards grandiose infrastructure projects and expanded entitlement payments, but the first years of his presidency were characterized by budget cuts to federal agencies.

• Additionally, he has known how to put ideology aside and negotiate with Mexico’s powerful business elites. He avoided raising taxes on the rich; did not eliminate inherited oil contracts; and managed to strengthen the Mexican peso, mostly as a consequence of enormous nearshoring-related capital inflows.

The Balance. With unemployment at 2.7%, the election comes down to a truism: “It’s the economy, stupid.” Morena, like the PRI in its heyday, has become a dominant political force in Mexico. It has risen rapidly, being founded by AMLO in 2014, winning the presidency in 2018, and securing majorities in both houses of Congress. Its victory is 2024 is practically guaranteed, too.

• The PRI maintained its power through an inordinately centralized leadership structure, under which the president exercised considerable influence over the party and had the informal right to designate to designate his succesor via the so-called dedazo.

• AMLO’s populist model has consolidated territorial power through a clientelistic model of conditional transfers from the Mexican government. This control of the federal purse is what allows Morena to aspire to be the new PRI.

• AMLO’s leadership is a central element of Morena’s identity and electoral strategy. Mexicans appear willing to trust his hand-picked successor, surmising that she will merely continue AMLO’s program. This, of course, remains to be seen: Latin America’s hand-picked successors have recently exhibited a trend to disobey their former patrons. 

•Six months after taking office, where does Milei stand?
693 words | 3 minutes reading time

Last Monday brought the resignation of Nicolás Posse, Argentina’s cabinet chief and one of the discreet, cautious businessmen—he famously avoided the press—who endowed Milei’s government with structure and bourgeois respectability. Government sources state he will soon be appointed to another post.

• There is talk of acrimony between Posse and Milei, even between Posse and Karina Milei, the president’s sister. Posse was regarded as a competent figure and part of Milei’s inner circle, but he struggled managing the labyrinthine Argentine state apparatus.

• Posse was replaced by former interior minister Guillermo Francos, whose appointment will turn the cabinet chief’s post into a more political role. In a first in Argentine history, Francos’ office will absorb the Ministry of the Interior, which has been demoted to a state secretariat.

• Francos, also a member of Milei’s inner circle, is regarded as an able negotiator and savvy political operator. His immediate priority will be to get provincial governors to agree to Milei’s Pact of May, which will now not be concluded until at least June or July.

Data. Javier Milei has been Argentine president for almost seven months. The state and the Central Bank still exist. Milei, the president who once called himself an “anarcho-capitalist,” has moderated in practical terms, but his demeanor remains much the same. He is still erratic and eccentric, yet he has essentially mandated an exceedingly orthodox austerity program. 

• Milei has managed to reduce inflation, which remains stratospheric. In December, the month he took office, inflation stood at 25.5%, falling to 8.8% last April. Such numbers are in line with figures from early 2023, before the previous left-leaning government unleashed the money printers in time for the presidential campaign.

• Milei also left Argentina with a budget surplus of 0.2% of GDP in the first quarter of the year. This surplus, the first since 2008, is due to the 29.7% reduction in spending, only allowed by cuts to civil servant salaries, pensions, and energy and transportation subsidies.

• A crawling peg has been imposed so that the official rate of the Argentine peso can eventually match the black-market rate, known as the blue dollar. In other words, the Argentine peso has been allowed to fall 2% per month.

Financial Engineering. Milei’s “blender,” as he has taken to calling it, is effective in curtailing government expenditures. However, in an economy like Argentina’s, devastated by decades of mismanagement, such a policy inevitably has pitfalls. Milei faces not only political problems—little power over Congress and the provincial governors—but the competing, countervailing effects of several of his economic policies.

• The Central Bank’s benchmark rate serves as an example. In normal countries, among which Argentina is not included, interest rate cuts act as stimulus. They encourage credit expansion, facilitating investment and normally raising inflation.

• Argentina is different. In just over a month, the Central Bank cut rates from 70% to 40%. This rate does not even come close to compensating for the country’s inflation, so liquidity is withdrawn from the economy. The aim is to destroy demand and mitigate inflation, with the unfortunate, albeit ineluctable, consequence of decreasing purchasing power.

• The plan went well at first, allowing the blue dollar to stabilize in recent months. It faltered last week, when the market rate—not the official rate—plummeted by 15%. The reason is clear: given the reduction in interest rates, Argentines have sought to protect their savings by buying dollars.

The Balance. As mentioned before, Milei has not changed his personality; he has essentially remained in campaign mode, attacking the political “caste” and promising profound structural reforms. Deep down, however, his management has been technocratic, and his weakness in Congress has forced him to negotiate and moderate.

• So far, Argentines seem to support their president, who still enjoys an approval rating of around 50%. For Milei, it is key to ensure that the economy begins to improve before his approval falls.

• Pacts with Congress and provincial governors have proved elusive, but they seem increasingly likely. The issue should be solved in the next two months.

• With this domestic problem resolved, or at least mitigated, Milei’s focus will shift to the IMF, which agreed to disburse the last $792 million left on a previous loan, but has been reluctant to lend more to Argentina, by far its largest debtor.