Luis Madrazo Lajous, former Chief Economist of Mexico’s Ministry of Finance: Exclusive Interview

By on 27/06/2018
Luis Madrazo Lajous, former Chief Economist of Mexico’s Ministry of Finance

Until earlier this year, Luis Madrazo Lajous ran Mexico’s economic and fiscal policies; then he quit to join the presidential campaign of José Antonio Meade. In the run-up to next week’s election, he tells Matt Ross why the threat of populism – both in Mexico, and across the border in the USA – have prompted him to abandon his civil service career

Luis Madrazo Lajous has a nice line in black humour. “I see a lot of investors, and I joke a lot,” he says. “I tell them: ‘Don’t worry, everything’s under control. We only have two small issues: Trump is president; and he’s completely unpredictable!’”

Until earlier this year Madrazo was Mexico’s Chief Economist, responsible for economic and fiscal policy in the Ministry of Finance. But after 20 years as a public servant, he’s now left the civil service to join the presidential campaign of José Antonio Meade – a politician of the ruling PRI party, appointed Secretary of Finance and Public Credit in 2016, with whom Madrazo has worked over several years. Serving as Meade’s economic and public affairs adviser throughout a long campaign running up to the crunch presidential poll on 1 July, says Madrazo, he’s had to learn a new way of getting his messages across.

“When I was Chief Economist, every word I uttered to the media came under a lot of scrutiny – and what I most wanted was not to generate uncertainty,” he recalls. “When you go into politics, you realise it’s hard to get people to listen; so you need to come up with ideas that are understandable and attractive. You need to scream out loud! It’s a very different way of speaking to the public.”

As Madrazo’s Trump soundbite suggests, he seems to have settled into the more dramatic, punchy style required in political communication: both ways of talking “are nerve-wracking, but this one is probably a lot more fun,” he says with a grin. And he’s also become used to operating with a tiny support team – a far cry from the days when he could call on the support of hundreds of officials. “I have a great group of staff, but we’re just a tiny subset of the group that was in the Ministry of Finance,” he says. “It’s a little scary not having the cavalry behind you!”

An inflection point for Mexico

In part, Madrazo explains, he’s chosen to make the leap into politics now because this is a crucial period for Mexico: he’s deeply sceptical about the current presidential front-runner, Andrés Manuel López Obrador, and worries that “the combination of having a bad president and Trump on the other side of the border is a big threat for Mexico.”

He emphasises, though, that Trump himself may not be as dangerous for Mexico as the American president’s hyperbolic rhetoric suggests. The Mexican economy, says Madrazo, has proved resilient through a series of economic shocks since 2014, when a halving of the global oil price hit growth and tax revenues.

A recession in the US industrial sector followed – hitting Mexico’s biggest markets – and “Latin America as a whole underwent a recession,” he recalls: the region’s GDP stagnated in 2015, and dropped by 1% in 2016. “But Mexico was fortunate enough to have just put our fiscal and structural reforms in place; and even though people were not terribly happy, if you look at the numbers our economic and fiscal performance were outstanding.” During Madrazo’s 2015-2018 stint as Chief Economist, Mexico kept on growing – with quarterly GDP growth rates ranging from 1.7-4.0%.

This resilience, Madrazo believes, reflects the rapid development of Mexico’s economy in recent years: “We have a much more complex and diversified economy now, and thus a more robust one,” he says. And the changing shape of its economy, he argues, has its roots in the structural reforms and liberalisation programmes pursued by Meade and President Enrique Peña Nieto – including breaking the long monopoly of state oil business Pemex, opening the industry up to private and foreign investors.

Looking north

Mexico’s economy remains closely linked to that of the States, notes Madrazo – but he believes that the depth and breadth of his country’s links with American cities, institutions and businesses could steer Trump towards a workable renegotiation of the crucial North American Free Trade Association (NAFTA) deal. “We plug into almost every aspect of US political life, be it the economy, trade, immigration, social issues, crime, water security,” he says. “So Mexico is embedded into most issues of US domestic policy, and that’s where the counterweights to President Trump lie.”

California and Texas are Mexico’s biggest trading partners, Madrazo notes: “They don’t want to blow up the relationship with Mexico, both socially and economically; and whoever’s in the White House, they have to listen to their two biggest states.” He points out that of the many international deals noisily denounced by Trump – the Trans-Pacific Partnership EU trade talks, the Iranian nuclear deal, the Paris climate change accord and NAFTA – “the only one that’s being negotiated with a good chance of success is NAFTA. There are strong structural reasons for that within US politics.”

A NAFTA renegotiation could produce “a big win for both countries,” he adds, if it brings in industries left out of the original deal two decades ago. And he says that if NAFTA did fall, the WTO framework would pick up most areas of commerce bar light trucks – whose Mexican producers have already acted to protect themselves. Nonetheless, “it would still be a significant psychological blow – big from an investor protection and market access perspective,” he says. “So the objective impact might not be that great. The psychological and confidence impact, I don’t want to find out!”

Asked about risks in the global financial system, Madrazo picks out another threat visible over the border. After the 2008 financial crisis, he says, the US was faster and more effective in recapitalising its banks and strengthening financial regulation than the EU. But as the US economy grows, the financial sector is “re-leveraging quite fast. And a lot of the controls and protections that were put in place after the crisis are coming off or are under threat. So I think they are probably starting the next phase of the cycle by relaxing regulation and increasing leverage very fast. I hope they don’t make the same mistakes again.”

The power of populism

Taken in the round, these risks emerging from Trump’s America make this a dangerous period for Mexico. And in Meade’s opponent Lopez Obrador, Madrazo sees a populist agenda that could derail Mexico’s economic liberalisation and diversification. “One of our rival’s emblematic proposals is to cancel the [planned] airport in Mexico City,” he says, arguing that Obrador is engineering a clash between “the people who use planes and those who don’t; the people of Mexico City and those who live outside it. But the new airport is very important not only for Mexico City dwellers, but also for people all around the country; it will bring investment and tourism to Mexico.”

Like Trump’s protectionist policies, Madrazo argues, Obrador’s solutions will only harm those he claims to speak for: “It’s not that we don’t see the anger in Mexico; it’s that we think the answers being given, from a policy perspective, are terrible for trying to solve the problems that people have.”

Hence his jumping the fence into politics – but Madrazo has left a strong legacy inside government, where he reformed Mexico’s development banks, energy market, and civil service pensions scheme.

Raising pay, squeezing pensions

His pensions reforms – like those in so many other countries – have resulted in a less generous system; but one that, Madrazo says, is much fairer. “We had a system that was prone to abuse: a lot of people were getting a pension with practically no contributions into the system,” he says. “The new system is basically an individual account mechanism, where there’s a very high correlation between the pension you’ll get, the time you’ve spent [in the civil service], and the contributions you’ve made.”

On civil service pay, however, Madrazo takes a very different line. For nearly 20 years, senior civil servants have endured a legislated pay freeze – and with inflation averaging 4% a year, shrinking real wages are now severely damaging departments’ ability to hold onto experienced staff. “People who have acquired some experience [in government] are highly in demand from the private sector, and we have a very difficult time retaining them,” he says.

Long-serving officials “probably already have a career they like, and they’ve reached a level they want to stay at,” Madrazo adds, “but those incentives are not there for recruitment. And for people who have between five and ten years in the civil service, the system is breaking down; the level of pay they can acquire outside is so much better.”

The formal pay freeze has now been abolished, but wages still haven’t risen – leaving departments facing what Madrazo says is “becoming at the margins a very significant problem”. Now, he believes, politicians will have to find the courage to raise salaries: “It will depend on future policy makers to go ahead and face the political backlash for increasing wages.”

The future for economic reforms

Pay restraints have, though, had one positive effect: to get pay rises, officials have had to seek promotion – and that’s fostered much more movement between the departments, strengthening officials’ skills and broadening their perspectives. What’s more, Madrazo adds, the presence of former Ministry of Finance economists in Mexico’s energy regulators has helped ensure that energy reforms and the accompanying concession auctions have been implemented professionally. “Mexico has had problems with corruption throughout its history,” he says. “But the system was extremely robust: it’s come under a lot of scrutiny, and there haven’t been any problems. The auctions have been carried out in an impeccable manner.”

These energy reforms have already had a major impact on the Mexican economy, says Madrazo – stimulating other sectors. “The non-oil economy is growing 1.5-2% per year faster than it was before structural reforms,” he says. But whilst most of these reforms have been “legislated at the constitutional level,” making them hard to overturn, Madrazo warns that “bad implementation is a big risk.” Obrador “calls mostly for a closed economy; he talks about self-sufficiency,” he adds. Like liberal economists in so many parts of the world, Madrazo worries that the populist politicians and the economic protectionists are on the rise.

Mexico’s electoral system is not on his side. Madrazo argues that most of the country “wants to go ahead with education reforms, with structural reforms; they want to keep the open economy.” But the presidential election is a single-round affair, won by the candidate receiving most votes – and Obrador’s polling numbers have risen during the campaign, now averaging nearly 50%. Unless there’s a dramatic reversal, the left-leaning former Mexico City mayor looks set to win the presidency next week.

After the poll

If Obrador does win, Madrazo will have to start thinking about what to do next. For, having nailed his colours so firmly to Meade’s mast, it could be difficult for him to return to his civil service career. As Madrazo says, he’s not only Meade’s policy adviser but also his spokesman, “so I have taken a very frontal position in the campaign, and that has certainly burnt a lot of bridges for me within the public service.”

“So I think this has taken me from the civil service into politics,” he concludes. “But if I can’t go back to the civil service because of my political activities, it’s not the end of the world for the country and I’ll have to look for something else.”

Like most civil servants, Luis Madrazo Lajous first entered public service in order to support his fellow citizens and improve the operation of their government. And he did so – helping the country to maintain economic growth through the series of economic and political blows it suffered during his period as Chief Economist. Jumping the fence into politics, he knew, was a risky move; and it may prove to have been a one-way trip. Whatever he ends up doing, though, he’ll carry with him the public service ethos developed over 20 years in the civil service. “I think I could contribute to improving Mexico,” he says. By 2 July, he’ll know whether he’ll be pursuing that aim within government, or outside it.

Global Government Forum: Five Thoughts for Better Government

Luis Madrazo Lajous on learning from overseas

To help our readers get the best out of Global Government Forum, we ask interviewees five standard questions – four seeking practical advice and opinions, and one to reveal something a little more personal. This is an edited version of Madrazo’s answers.

Can you name a lesson or idea from abroad that helped you or your colleagues during your civil service career?

“When I attended the Global Government Finance Summit in 2017, the big take-home for me was the value of talking directly to other policy makers about the detail of big policy solutions. The session I remember very well was on how to go about recruiting top-notch talent for the civil service. It goes beyond institutional arrangements: it was really helpful to understand the human experience of making progress.”

Are there any projects or innovations developed by Mexican civil servants that might be valuable to their peers overseas?

“Going all out and trying to do all our structural reforms at the same time sounded extremely risky to some people. But we were ambitious and put all of our cards on the table at once, trying to build a broad coalition rather than making a deal in a smoke-filled room with the minimum coalition needed to get reforms though.

“And it was very successful. I think, if the conditions are right, it’s something you should at least try at the beginning of an administration. We tried to bring everybody on board – the left-wing and right-wing parties – and all the big parties of the time participated; so they all had part of their agenda enacted. I think that should give the reforms some stability.”

How can we improve the ways in which senior public officials work with and learn from their colleagues overseas?

“In-person seminars are very different from sharing policy proposals and the jobs that multinational organisations do. I’m very fond of the exchanges of documentation that the OECD, the World Bank and the IMF manage, but having peer-to-peer conversations can be much more enriching and enlightening.”

What are the biggest global challenges for government economists in the next few years?

“It’s very clear that it’s inclusion. Looking at today’s global tendencies, in the future we’ll have a much more divided world. There’s obviously progress in bringing some poor countries forward, but within those countries and throughout the world the process of globalisation is creating inequality – not only in incomes, but also in wealth.

“We don’t need to go for radical options that would destabilise the world economy, but we need to be clear-headed and realise that extreme wealth asymmetries will lead to political instability. And we need to be very strong in our policies around inclusion, particularly on education: bringing people forward so that they can make a good living for themselves and their families is the key to stability and further growth.”

Finally, what’s your favourite book?

“I spend most of my time reading policy papers and news, but I’d have to choose a novel: something that allows you to expand your imagination, and to go beyond the things you discuss with your peers and others who think like you. So I’d say Love in the Time of Cholera by Gabriel García Márquez.

“It’s a fantastic book, and it talks about lots of things that I can relate to from Latin America’s history. But underlying all of the romantic and political and dramatic issues, there’s a big policy issue: it’s about how making the drainage pipes work in a city has a huge impact on people’s lives and health, supporting progress and equality. So it allows me to go into the fantasy and imagination worlds, but it also relates to an issue that is very dear to me: that of trying to make the world a little better for people.”

About Matt Ross

Matt is a journalist and editor specialising in public services, policymaking, government and management. He was the editor of trade title Civil Service World from 2008 to 2014, serving an audience of senior UK officials; and the features editor of weekly news magazine Regeneration & Renewal between 2002 and 2008, covering urban regeneration, economic growth and community development. He has also been a motoring and travel journalist, and now combines his role as editorial director of Global Government Forum with writing for other publications including The Guardian and Planning magazine.

One Comment

  1. ana

    28/06/2018 at

    Madrazo and Meade, as well as the PRI political Party in Mexico have demonstrated to be very corrupted politicians and aware of the damage they cause to the majorities in poverty in Mexico.

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