December 13, 2019 / 11:09 AM / a month ago

How Mexico's leftist president quietly made peace with big business

MEXICO CITY (Reuters) - Barely a day goes by without Mexican President Andres Manuel Lopez Obrador berating business and political elites, whom he blames for fueling the country’s poverty and corruption.

FILE PHOTO: Mexico’s President Andres Manuel Lopez Obrador attends the AMLO Fest at Zocalo square in Mexico City, Mexico December 1, 2018. REUTERS/Edgard Garrido

But behind the scenes, the leftist is proving more accommodating to Mexico’s top tycoons during his first year in office than his language often suggests.

Meeting regularly with Lopez Obrador, corporate bosses have steered him toward more business-friendly policies, according to more than two dozen senior executives and government officials who spoke to Reuters. Quietly, they have also urged the president to soften some of his rhetoric.

What some business heavyweights describe as an improving relationship yielded fruit in August, when Lopez Obrador backed off a threat to tear up several government contracts awarded to private companies to build and operate natural gas pipelines. The president said the deals ripped off taxpayers. But business leaders warned him the cancellations would spook foreign investors and could disrupt ongoing trade negotiations with the United States, the executives and officials said.

They also told him the infrastructure would help deliver cheap energy to his top priority: Mexico’s poorest.

“We used all means of persuasion,” said Carlos Salazar, head of Mexico’s top private sector association, the Business Coordinating Council (CCE), and one of the main mediators on the pipeline dispute.

Elected in July 2018 as Mexico’s first left-wing president in over three decades, Lopez Obrador has promised to transform the country by putting the neediest first and slashing inequality.

A firm believer in the reforming power of government, Lopez Obrador has pledged to strengthen Mexico’s leading state-run enterprises - oil firm Petroleos Mexicanos (Pemex) and power utility the Comision Federal de Electricidad (CFE).

His clashes with institutions that check presidential power, from market regulators to the Supreme Court, have unsettled investors. So has his often incendiary rhetoric. He has described money as the “mother or father of the Devil” and pilloried “neo-liberal” free market economics as the source of Mexico’s woes hundreds of times.

Still, he has acknowledged publicly that he cannot create jobs, spread wealth and realize his goal of 4% annual economic growth without private capital. Since his term began in December 2018, domestic investment has sagged and the economy has stalled.

The private sector has been largely supportive in public, for fear of antagonizing the 66-year-old president. But in private, many leading executives are still wary of his economic stewardship, said Andres Rozental, a business consultant and former deputy foreign minister.

“They’re worried to death about what’s going on,” Rozental said. “The uncertainty, the disincentivization of private sector involvement in the economy.”

Lopez Obrador says his approach will take time to deliver results. Responding to a question from Reuters, he described his relationship with Mexico’s business leaders as “very good,” but said some differences of opinion were inevitable.

“Policy has changed, and now they’re adapting,” he said, without elaborating.

AIRPORT BLUES

Five weeks before taking office, Lopez Obrador stunned investors by canceling a new Mexico City airport, ignoring a plea to keep it going by billionaire Carlos Slim, whose Grupo Carso SAB was a principal contractor.

Lopez Obrador said the $13 billion project was geologically unsound and tainted by corruption; prosecutors have not charged anyone with wrongdoing. The cancellation hammered Mexican financial markets and angered top business groups. Grupo Carso declined to comment on his criticism of the project.

Concerns flared again in late June when power utility CFE said it would renegotiate the seven pipeline contracts signed under the previous government, whose record was marred by graft allegations. The CFE said the $12 billion in contracts were too expensive and imposed harsh terms on the cash-strapped company.

As one of the contractors, Slim’s Grupo Carso was once again in the firing line. So were Canada’s TC Energy Corp; IEnova, a Mexican unit of U.S. company Sempra Energy; and Fermaca, a local gas pipeline operator owned by Swiss private equity firm Partners Group AG.

Canada’s ambassador complained. U.S. lawmakers and business groups warned the dispute could jeopardize the United States-Mexico-Canada Agreement, the successor of the North American Free Trade Agreement (NAFTA), which has yet to be approved by U.S. or Canadian lawmakers.

As talks between the pipeline firms and the CFE dragged on, CCE boss Salazar and Antonio del Valle, head of the Mexican Business Council, which represents the country’s top magnates, held meetings with Lopez Obrador to break the impasse.

Using a map, they explained how the new infrastructure - including a marine pipeline from Texas - would bring affordable gas to Mexico’s underdeveloped south, according to a person familiar with the matter. Salazar and del Valle confirmed the map.

In late August, Lopez Obrador announced the CFE had reached a deal with the companies that would realize savings for taxpayers and avoid a messy legal dispute. He thanked Salazar, del Valle and Slim for helping make it happen.

Describing the pipeline accord as a “watershed,” del Valle said the talks helped create a mechanism for Mexico’s business leaders to address economic matters with the government.

“Now we have the opportunity to participate,” he said.

Others saw the pipeline settlement not as a breakthrough, but as an example of business leaders saving the president and his allies from their worst instincts.

“They have no idea how close they were to a nuclear disaster in terms of financial markets, in terms of trade talks,” said one person involved in the pipeline negotiations. 

Lopez Obrador has publicly acknowledged the dispute risked souring investor confidence, but he said the previous contract terms were “damaging” to Mexico’s interests.

GOODBYE ‘FIFI’

Another challenge emerged in late May, when U.S. President Donald Trump threatened to slap tariffs on all Mexican goods if Lopez Obrador did not curb a surge in migrants trying to cross the U.S. border from Mexico.

Within a week, Foreign Minister Marcelo Ebrard had struck a deal. Salazar and other executives accompanied him to Washington and helped defuse the crisis by working with U.S. business allies who had fought to defend NAFTA from Trump in 2018, people familiar with the matter said. In the end, Trump called off the tariff threat after Mexico agreed to tighten its borders.

That evening, Salazar told local media he had been part of a joint effort and urged business and government to tackle Mexico’s problems together. Lopez Obrador publicly thanked Salazar for his efforts.

Slideshow (2 Images)

After the U.S. meetings, business leaders pressed the president to tone down his divisive language, particularly his use of the word “fifi,” a derogatory term for privileged elites that some bosses found needlessly provocative, a senior executive told Reuters.

Since then, Lopez Obrador has publicly said he wants to avoid the word; his use of it has dropped dramatically. Asked by Reuters if the change in tone was the result of pressure from corporate bosses, the president denied it.

“I only have one master, just one,” he said. “It’s the Mexican people.”

Reporting by Dave Graham; Additional reporting by Ana Isabel Martinez; Editing by Marla Dickerson and Jason Szep

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