In Mexico, the Makings of a Political Crisis

An alliance of governors underscores historical tensions in the country.

By: Allison Fedirka


A showdown is brewing in Mexico between the central government and a group of 10 state governors, known as the Federalist Alliance, who have closed ranks in recent weeks as they raise their demands for funding and reform. It’s tempting to see this as a garden variety tug of war over money, considering the economic downturn from the coronavirus pandemic. 

But in a country like Mexico, in which the relationship between the state and central governments is a long-standing existential issue, it has the makings of a political crisis.

2020 was always going to be an economically difficult year for Mexico. It was in recession even before the virus hit. The economy posted a weak performance in 2018 and contracted slightly in growth (from -0.2 to -0.6) in the last three quarters of 2019. 

Oil prices were low and production had fallen, there were restrictions on government spending, and there was a high GDP-to-debt ratio. 

The pandemic simply aggravated these problems. As the national health and ensuing economic crisis took hold, some state governors began to question the central government’s response, calling for additional funds and fiscal stimulus.

In some ways, it was a fairly typical display of the political tension endemic in Mexico. 

The push and pull between the capital and the states is rooted in the country’s mountainous and fractious geography, which makes it more difficult to project power the farther away you go from Mexico City. 

This has instilled a tradition of relative autonomy for Mexican state governors, and it explains why so many separatist movements and criminal organizations since the 19th century have been able to control not-insignificant amounts of territory there. 

President Andres Manuel Lopez Obrador understands as much, hence why he regularly meets with the governors to discuss national security and economic challenges.

However, as the pandemic threatened the health and economic well-being of the country, states were pressured to explore potential solutions of their own. They had already started fostering strategies to address security by creating local security cooperation agreements in 2018 and 2019. 

Doing the same for a health crisis seemed only natural. So in March, the states of Nuevo Leon, Coahuila and Tamaulipas formed a joint coordination group to act at the regional level. The coronavirus has never been a strictly medical issue, of course, so what started as a COVID-19 cooperation initiative has since morphed into a political force leading an organized challenge against the central government’s agenda. The group now boasts 10 members, who call themselves the Federalist Alliance.


The Federalist Alliance is seen by some as a dissident group of governors because they broke with the National Council of Governors, or Conago. Since its founding in 2000, Conago has served as the institutional framework for state governors to petition and work with the central government. 

Until the federalists left, Conago represented all 32 Mexican states. Alliance governors hail from five different political parties – shared geographies and economies are their common ground – reminding us that some of Mexico’s problems simply aren’t partisan.

 


In recent weeks, the Federalist Alliance has launched several initiatives meant to restructure federal funding schemes. One of its first moves was to initiate legal proceedings against the central government’s plan to extinguish 109 fideicomisos (long-term irrevocable bank trusts) worth an estimated $3.2 billion. 

This wouldn't be the first time Lopez Obrador eliminated fideicomisos; he says doing so is necessary to reduce corruption and make public funds more transparent. But the alliance objects to the government’s efforts to centralize these funds, which were previously used to finance a variety of projects involving research, health and education.

Another alliance initiative involves the fiscal pact with the federal government for the 2021 budget. (The fiscal pact is a distribution scheme for fiscal coordination between the central and state governments. The latest framework was created in 2007 by former President Felipe Calderon.) 

The governors want to make sure that states receive as much funding (or more) in real terms as they did in 2020. They also want the creation of a special fund for COVID-19 recovery efforts and economic reactivation in 2021.

The alliance understands that federal tax revenues will be slim this year, which means it understands how difficult it will be to get more money from the feds. Six members – Tamaulipas, Nuevo Leon, Jalisco, Michoacan, Aguascalientes and Guanajuato states – have gone so far as to suggest a public referendum on whether they should withdraw from the pact, a move that could upend the financial relationship between the central and state governments.

Notably, the Federalist Alliance has shown signs of longer-term objectives. Its members share a general discontent with the structure of the National System of Fiscal Coordination, which bases resource distribution by population and need. It does not take into consideration things like economic activity, potential for growth and efficient use of funds. 

They argue that this leads to a disconnect between states making large, positive contributions to economic growth, employment and tax revenue, and the receipt of federal funds. Alliance states account for 60 percent of exports by value and produce nearly 35 percent of the country’s gross domestic product, but they collectively receive only 10 percent of federal funding. They are also among the top destinations for vital foreign investment needed to spur nationwide economic growth.

The desire to restructure the broader fiscal coordination scheme also reminds us of wealth and development disparities in Mexico. Northern states are among its most developed and robust economies. 

Thanks to their proximity to the U.S. border, these states have reliable infrastructure and produce high value-added goods such as automobiles for the U.S. market. States to the south simply lag behind. 

It’s no coincidence that many of the alliance states lie in the north and are home to high-value industry and manufacturing. The restructuring they call for would very likely mean less funding for southern states.

It’s unclear how bad this budding political crisis will get. The alliance has made its agenda known and remains engaged in lobbying efforts with business, community and congressional members to gain more support for its initiatives. 

Lopez Obrador has yet to meet with the alliance but noted that the secretaries of government and finance are extensively engaged with the dissident governors. And to be clear, neither side has done anything it can’t take back. 

But it’s early yet, and Mexican history teaches us to err on the side of suspicion.

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