By RICARDO CASTILLO
Critics are screaming their throats out claiming that Mexico is in a deep crisis!
The daily answer from President Andrés Manuel López Obrador (AMLO) seems to be that Brooklyn street expression when you want to put down someone irately pointing their angry piping hot finger at you (straight out of Martin Scorsese’s 1970s classic “Taxi Driver”): “You talkin’ to me?”
Just to prove it, in his daily press conference on Wednesday, April 22, the resident kicked off the proceedings by stubbornly repeating his 40 electoral campaign projects, just to make sure that those who are desperate for significant policy changes know that he’s not going anywhere.
True to his political merchandise vendor status AMLO has often said, “this is what the majority of the people voted for, and that’s what they are getting.”
The wealthy entrepreneurs AMLO calls “conservative adversaries” are surely frustrated because they are all offering “solutions” and are demanding the president take them up, but, for sure, the answer is “you talkin’ to me?”
One of AMLO’s 40 projects is salvaging the state-owned and operated oil company Petróleos Mexicanos (Pemex), definitely the nation’s most arteriosclerotic, dollar-sucking white elephant, which is worth at current oil prices just under junk bond value. But let’s stick just to oil.
AMLO has repeatedly said that “the oil price drop does not affect us.”
This is, however, a small list of shortcomings to his claim that pop up to the undemanding naked eye:
Pemex wields a $107 billion debt, with no visible income in the near future. The debt can’t be deemed unpayable because the administration backs it up as deferrable, always at a higher cost.
Pemex has a budget overburdened by more than 110,000 employees in its six refineries and several petrochemical plants. Downsizing through either firing or furloughs is not in AMLO’s plans because they would bring protests from the mighty union, and would mean adding further unemployment to the already-taxed economy.
The company’s production output is marred by Pemex’s lack of storage capacity. which is limited at 11 million barrels per day (bpd). Pemex is currently pumping 1.7 million bpd, so tanks are full to the brim. Definitely, the plan now is to cut production to the 800,000 barrels currently being produced by matured wells which can’t easily be shut off. That’s exactly the capacity the old refineries can take to produce vehicle fuels to meet national market demands. This means that Mexican oil exports have been all but erased for the near future.
Certainly, there are a lot more shortcomings in the future of Pemex, such as the construction of the new Dos Bocas refinery in Tabasco, which is definitely part of the 40 AMLO administration projects. “Scrap it,” his adversaries claim. “No dice,” he responds.
The other side of the tortilla is that Mexico now wields considerable experience juggling oil crises. Of course, none of the previous crises has been as ugly as the current one, but in the management of Pemex survival, the 1981 monumental crisis experience must be recalled.
At that moment, the forever whimsical oil companies got engaged in another price war, which sent the Mexican heavy-grade crude tumbling to $7 a barrel. Then.Secretary of Heritage and Industrial Foment (now Energy) José Andrés de Oteyza got into a steep argument with then-Pemex Director Jorge Díaz Serrano, who suggested that Oteyza lower the price of oil.
In a rage fit for getting contradicted by a lower official, Oteyza outright refused to lower oil prices, which, as predicted by Díaz Serrano, sent customers flocking for better prices and Mexico stranded with a lot of cheap oil to sell (as low as $6 per barrel), but no customers to buy it. Then-still-President José López Portillo kept Oteyza as heritage secretary and when the next Mexican president, Miguel de la Madrid, arrived in power, he sent the disgraced Oteyza into “exile,” as said in political cant of the time, to serve as Mexico’s ambassador to Canada from 1982 to 1987. He also sent Díaz Serrano to jail for three years on accusations of corruption. Díaz Serrano, an oil engineer, was clearly the scapegoat in the scenario, but then, that’s history.
De la Madrid inherited a state-run oil company confronting a high debt and no future. He then opted to establish what AMLO calls “the neoliberal” economy from a guidebook written by University of Texas economics professor George Landau.
At the time, De la Madrid had no option but but to try to salvage Pemex because it was the “gains of the Revolution” and no president dared change the Constitution as any idea of privatization was unthinkable for the then-Institutional Revolutionary Party- (PRI) dominated congresses.
But Landau’s neoliberal ideas were admitted by the Mexican Congress and they included fine concepts that landed Mexico into the free-trade concepts of the day- Mexico joined the General Agreement on Tariffs and Trade (GATT), which constituted the first step for nation toward doing away with the monolith closed economy of those years. Pemex survived the rough seas created by Oteyza’s mistake in 1981, even with a 159 percent inflation by 1987, thanks to freewheeling money printing by De la Madrid.
Then came President Carlos Salinas de Gortari in 1988. He took an iron.fisted financial and political control of Pemex (mostly because the Pemex Union voted for presidential opponent Cuautémoc Cárdenas), and imposed “order” in the flailing company, jailing union leader Joaquín Hernández, accusing him of sedition. Hernández spent five years in jail.
The good side of the Salinas de Gortari mandate was that he struck up a friendship with George Bush, Sr. when he was the U.S. vice president. When Bush was president, he and Salinas were able to get the North American Free Trade Agreement (NAFTA) approved in November 1993.
There is an anecdote that government property divesting was one of Landau’s ideals and Salinas did divest some companies, such as Teléfonos de México, which he handed over to Carlos Slim. Hearsay has it that Salinas de Gortari tried to begin the divestment of Pemex by selling the Salina Cruz refinery to a private concern. Then Energy-Secretary Emilio Lozoya Thallman – yes, the father of now-jailed Pemex former Director Emilio Lozoya Austin – went through the divestment with a mere legality. The constitution said it would be illegal. Salinas did not fire Lozoya back then, but gossip mongers claim he never spoke to him again.
Pemex was indeed the savior table to the next four presidents, namely Ernesto Zedillo, Vicente Fox, Felipe Calderón (who enjoyed the milk and honey Pemex when it sold oil at $100 per barrel) and, finally, Enrique Peña Nieto, who got the Energy Reform passed to divest Pemex and open it up to welcome private investment.
Also as a background to another Pemex story involving AMLO recently, AMLO demanded there would be a referendum of the Energy Reform in the 2015 midterm elections. Peña Nieto refused to carry it out, but even then, it was clear that the voice of the voters was for keeping Pemex a national wealth producing asset.
Peña Nieto tried his best to divest Pemex with dire results. He claimed in 2013 the Energy Reform would bring welfare and lower fuel prices. The opposite happened, angering the Mexican people, who called him, not erroneously so, “a liar.” Also, foreign capital did not pour into Pemex projects with the anticipated speed.
Finally, here we are again, with Pemex in the eye of another financial hurricane and in its worst production position in history.
The great difference is that AMLO has picked the role of salvaging Pemex from distress and keeping it (or whatever’s left of it) as the prize poor Mexicans will enjoy – perhaps, some day – as he loves the poor and is always saying, “talk to me” to them.