Mexico's president touts austerity on his way out of office but lavishes largesse on friends

Mexico’s outgoing president has always taken pride in his reputation as a penny-pincher but on Friday, three days before leaving office, Andrés Manuel López Obrador announced generous cash giveaways for his allies in a radical union movement.

It was part of what analysts call López Obrador's contradictory policies of cutting some government services to the bone while handing out vast amounts for his own pet projects and to political supporters.

He granted an electrical workers' union about $95 million a year in unearned pension benefits, describing it as “an act of justice.”

In 2009, some 7,000 of the unionized workers from the debt-ridden, corrupt and overstaffed government power company were laid off. Still, they spent the next decade supporting López Obrador's two subsequent presidential campaigns.

At the time they were sacked, the workers had not accumulated enough years to retire, under policies allowing retirement after 25 years of service. On Friday, López Obrador gave them pensions anyway.

The action was in line with his generosity to those who support him.

Last year, he gave about $45 million to former workers of a defunct government-owned airline, Mexicana, in order to acquire the trademark rights to the airline's name, Mexicana de Aviacion.

Experts say the name had essentially no commercial value after the airline went bankrupt in 2010, but the workers — whose pensions were wiped out by the company's collapse — had been been strong supporters of López Obrador in his presidential bids. He has since spent hundreds of millions of dollars more to revive a smaller version of the government airline.

The lavish giveaways contrast sharply with the image of extreme austerity that López Obrador has sought to project since taking office in 2018 — he sold off the presidential jet and flew around the country on commercial airline flights, in tourist class. Later, he switched to using military aircraft for trips.

He largely eliminated federal oversight and regulatory agencies, claiming they cost too much and arguing that one “cannot have a rich government with poor people.” Federal revenues sharing for state governments and funding local police forces has been slashed to the bone.

That austerity has meant less money for basic projects, including building infrastructure, road construction and maintenance and policing.

Meanwhile, in a rush to finish López Obrador's pet projects — mostly rail and refinery projects of questionable profitability — the government went on a borrowing spree, running a deficit equivalent to 5% of GDP. That has undermined the central bank's attempts to control the 5% annual inflation with domestic interest rates of 10.5%.

Gabriela Siller, director of economic analysis of the local financial group Banco Base, said the contradictory policies have hurt Mexico.

There has been less "physical investment,” Siller said. “Paradoxically, this administration is ending up with more debt and a very high budget deficit.”

In his final days in office, López Obrador has been harsh to his enemies.

Late on Monday, he essentially expropriated the $1.9 billion property on the Caribbean coast owned by a U.S. firm that operates a stone quarry and seaport just south of the resort of Playa del Carmen. He declared the land a nature reserve — despite previously granted permits for a quarry and a dock there.

López Obrador had previously threatened to expropriate the property and later offered to buy it for about $385 million, saying at the time he wanted to turn it into a tourist attraction. The company has estimated the land's value at about $1.9 billion.

The U.S. company that owned the property — Alabama-based Vulcan Materials — said Tuesday the expropriation violates the U.S.-Mexico-Canada free trade agreement and was part of “a series of threats and actions by the current administration against our operations."

The outgoing Mexican leader has also engaged in very public and nasty disputes with retail, TV and banking magnate Ricardo Salinas Pliego, claiming the tycoon owes over $1 billion in back taxes.

Then, López Obrador claimed he had tried to offer Salinas Pliego a deal to forgive late charges on the back taxes but met with the magnate's refusal out of "arrogance."

Salinas Pliego punched back, accusing allies of López Obrador's son Andy — a top leader in the president's Morena party — of trying to extort money from businessmen with back tax audits against them.