A Conversation With Luis Videgaray Caso

A Conversation With Luis Videgaray Caso

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Mexico

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Secretary Videgaray Caso discusses the future of U.S.-Mexican relations and the challenges facing President Peña Nieto's administration. 

ALTMAN: Good afternoon, everybody. I’m Roger Altman, and it’s my pleasure to host this afternoon’s discussion with Foreign Minister Videgaray. And I’d just like to remind you of the rules for today’s discussion. This meeting is entirely on the record. And secondly, please turn off your communications devices so that they don’t buzz or ring or otherwise disrupt our meeting.

I’m going to ask—I’m going to start by asking the minister a series of questions. And then, of course, we’re going to open it up to all of you halfway through this. And I will—I will call on as many of you as I possibly can who have questions.

But let me start by welcoming the foreign minister back to the Council. This is a particular pleasure for me because I’ve known Luis for some time and I have a very high regard for him. And I would say at the outset here that no one, in my view, other than President Pena himself, has been more at the center of Mexican governance, at least federal governance, over the past several years than Luis.

He was indispensable in the election of this administration in the first place. And then, as finance minister, he was utterly central to the historic reforms in opening up the Mexican energy sector and the telecommunications sector, both of which openings were widely seen by so many people as never going to happen. And then he also oversaw very important tax and tax-reform legislation.

And throughout this, throughout these last four and a half years, he’s been seen by everyone as the president’s closest adviser. And Luis served as finance minister for the first several years of this administration, and then, after a brief sabbatical, returned in January as foreign minister.

But before asking him any questions, I just want to say at the beginning—and I’m sure I’m speaking for everybody in this room and anybody listening to this—that we all express our most heartfelt feelings toward the victims of the earthquake and toward Mexico and Mexico City itself.

And for everybody who’s watching these heartrending scenes of so many people volunteering and rushing to help, it’s something I think that touches every American. And putting all politics aside and government issues aside, Americans are friends of Mexico. And this is a difficult moment, and our hearts go out to you.

So Luis, that’s the easy part of this discussion. (Laughs.) Let me start this way. The U.S.-Mexico relationship is by far your country’s most important one historically and right now. And arguably Mexico faces—and as foreign minister, you yourself face—one of the most difficult diplomatic challenges, if not the most difficult challenge, that Mexico has ever faced in the quite unique attitude of our current administration towards Mexico and the underlying pressure that our administration is putting on Mexico.

We all know what some of the components of this issue are—the wall, border security, DACA, NAFTA, and so forth. It’s a pretty special moment or unique moment in the U.S.-Mexican relationship.

So my beginning question is, how do you look upon this challenge? What are the messages that you yourself are carrying to this administration? How do you expect to make it through this challenge? And what’s your overall approach to it?

VIDEGARAY: Thank you very much, Roger. And thank you for—thank you to the Council for inviting me. It’s a pleasure to be back.

For sure, we are at a crossroads, at a very defining moment of the Mexico-U.S. relationship. But before I get there, let me just thank you for—thank you, thank all the people that has truly embraced Mexico at a very difficult time. We are going through a very painful, difficult moment after two earthquakes hit the country just 12 days apart. And right now the efforts are of rescuing people. We still have hopes that people can be rescued alive. Already more than 50 people have been rescued live from the—from under the rocks of fallen buildings. Unfortunately, the death counts of the second earthquake is already at 280. And so it’s been a big, difficult blow to our country.

But it’s also a time where I feel extremely proud for being a Mexican, seeing the outpouring of the Mexican people in the streets, turning themselves into spontaneous rescue crews, children, whole families. Everybody is doing something about it. And so that’s a—in a moment of pain, it’s also a moment of hope because of that.

And I should say that the response, the solidarity that we’re getting from the international community has been just outstanding, unbelievable, including the U.S. As we speak there are California Fire Department specialists working side-by-side with Mexicans, trying to recover people alive from underneath rocks in Mexico City. And you also see crews from Japan and Israel and El Salvador and Colombia. So it’s been—it’s been a—it’s been a pretty special moment to actually put in perspective the other things that—

ALTMAN: Well, and I might—I might say that for all of the issues about the border and so forth, if you step back for a moment and you recall the same type of outpouring of volunteers and just citizens responding that we saw in Houston in response to the flooding and hurricane. And then right across the border, you’re seeing it in Mexico City. It’s really the same. And it symbolizes, I think, that solidarity, because lots of Americans very much identify and feel strongly about the victims and the circumstances in Mexico City having had just this experience themselves right there in Houston.

But, again, back to you.

VIDEGARAY: Let me—let me talk a little bit about how we frame the challenge that the Trump administration means to Mexico. And I think it’s pretty much a challenge to everybody around the world, because it’s a fundamental change in many things about U.S. foreign policy. And a lot of that—a lot of those changes relate to Mexico directly. So first of all, one thing that—when we—when we look at the challenge, there are a few things that we need to keep in mind as Mexicans. And they’re very useful to keep in mind. First of all, the—to Mexico, the U.S. relationship is absolutely essential, by far the most important relationship that we have for the country. But we should not forget that, to the U.S., the Mexico relationship is quite important. Mexico is an important country for the U.S. We should not forget that.

Second, we should never forget that we are a sovereign country, and that we are—we are still—we are not as large an economy as the U.S., or we’re not half of the military power of the U.S., not even close. But we’re still a big country and we’re a sovereign country. And the decisions—we’ll make decisions based on our own interest. And the third thing is that we realize that we could achieve much more by being constructive and by approaching the relationship, looking for common ground and particularly for good negotiations, good. And this is—and it’s the same—we’ve been doing this the same in trade, in security, and in other issues like migration. We have some very well-known, public differences with the administration. But we have engaged in a very close dialogue.

And I think that by now we have an outstanding relationship with the White House and the key members of the Trump administration, which is probably closer and certainly more frequent than what we had with the previous administrations—not only the Obama administration, but some others. And the—

ALTMAN: Well, you have the benefit yourself personally, or perhaps the handicap, of having been singularly praised by President Trump. (Laughter.)

VIDEGARAY: That’s a—you know, I’ll always be thankful for that. I mean, I’ll always thank him for that. But this is not about—this is not a particular person—about a particular person. This is a relationship between two countries and the institutions of two countries. And what we’ve—I think the way both sides can be successful is in building an institutional relationship that is not based on a single person or a personal relationship. And if you look at what the bilateral relationship looks like, it’s—as compared to January, February—now it’s much more institutional. Now it’s more a relationship that is focused on the issues. And we are moving forward in that way.

On NAFTA, we don’t oppose renegotiating NAFTA. NAFTA is a relatively old agreement. The world has changed over the past 25 years. And we can make the agreement better. There are lots of things where NAFTA can be updated and upgraded. How are we going to do that? And there are other things where there’s going to be some—certainly some dispute. But we are facing the process in a professional way, in a constructive way. The renegotiation has started. There are technical things working. There’s a calendar for that. And we are working hard to make this a win-win—or, I should say, a win-win-win, because there are three countries. Canada’s a major part of this as well. And we don’t believe that trade deals are zero-sum games. There’s value to be created here. And we’re pursuing that in a very constructive way. And we hope that in the next few months we can have a very positive outcome about trade.

And that’s the same—it’s the same way we are approaching other things. In NAFTA, we will—

ALTMAN: Do you expect NAFTA to ultimately be renegotiated? Because obviously there’s been a threat of terminating it.

VIDEGARAY: Oh, we are working hard towards that. And we’re working very seriously. And we are approaching this as a professional matter. We are not—we are not renegotiating NAFTA through—on social media. We are—we are—(laughter)—but this is a professional—this is a professional process. And what we see is that the three countries are working very much in order to get a successful renegotiation. I don’t see—

ALTMAN: Do you think it’s possible that any renegotiated agreement can—will in some fashion actually address Mexican labor conditions and Mexican wages?

VIDEGARAY: Absolutely. And that’s in the best interests of Mexico. We don’t want to be a country that’s competitive because Mexican workers are being paid low wages. We’ve—the president sent—President Pena Nieto sent an initiative to Congress last year to change our constitution in order to completely transform our labor justice system, which was an old, arcane system, and that we are transforming that already, regardless of what happens in NAFTA.

And so we embrace that and we want that. We want the Mexican worker to do very well. And if companies come to Mexico, it’s got to be because of the quality of the business environment, the quality of the talent, and because we are a competitive, productive country, not because—not because wages are low. That’s not a good proposition for Mexico. So if we can use the new NAFTA framework to enhance the protection of labor rights and labor conditions and benefit the Mexican workers, we definitely want to do that.

ALTMAN: Let me ask you about the last nine or 10 months. Initially—or, perhaps a year—initially upon the—our election and then the inauguration of this administration, there was a great deal of pessimism about Mexico. You saw that in the currency. You saw it in other markets. You saw it in your stock market. And since that time, there’s been some lifting of that pessimism. But are you seeing a falloff in investment and other—investment inactivity and job creation—job creation in Mexico from the American side on account of this hostile overlay?

VIDEGARAY: Well, one of the most encouraging surprises of the year is the performance of the Mexican economy this year, and that includes investment. Most economists predicted a significant slowdown of our economy.

ALTMAN: Even a recession.

VIDEGARAY: Even a recession. And that has certainly not happened. The growth in the first two quarters of the year was relatively good, much better than expectations. And part of that story is because investment continues. But there—we have to acknowledge that there’s an uncertainty. And some types of investments in particular are perhaps not coming forward because investors and companies need certainty about the rules of the game, and the rules of—the rules of trade. But I think that many investments are happening. And investors and companies are realizing, as well as the markets are realizing, that there’s a high chance—first, there’s a very good chance that there’s going to be a good deal here. So that’s being—that was not priced in at the beginning of the year. The probability of that was very low, as people thought about it. I think that’s—the pricing of that has now gone up higher.

But also, people are starting to understand that there could be life after NAFTA, if the U.S. withdraws out of NAFTA. People now have a better understanding of our trade balance. For instance, less than—less than half of the trade that happens between Mexico and the U.S. happens through NAFTA. Most of the trade that happens between Mexico and the U.S. is actually done under WTO rules, not NAFTA rules. So if NAFTA goes away, obviously that would be something that we would strongly—we strongly want to avoid, because it wouldn’t be the best scenario. But it’s not the end of the world. And it certainly is not the end of trade between Mexico and the U.S.

So it’s a—I think that the combination, that there’s—the two governments are getting along well, it’s much less confrontational than people thought it was going to be, that there’s a real chance of having a deal, but also the fact that if there is no deal it’s not the end of the world, what is driving now business confidence, as well as asset prices.

ALTMAN: Let me turn the—turn the subject to border security, immigration, and that set of issues. There’s quite a bit of evidence—although I don’t think anybody has the precise data—to the effect that net migration from Mexico into the United States, including illegal migration, is now about zero. First of all, do you think that’s the case? And if it is the case, why do you think that’s happened?

VIDEGARAY: Well, that’s a good question. Yeah, we think that’s the case, and our data show that, that for the past—for the past 10 years it’s more the numbers of Mexicans that have returned to our country than the number of Mexicans that go—that are coming into the U.S. That’s—and the data, both from the U.S. side and the Mexican side, clearly show that. It has to do a lot with, first of all, economic conditions on both sides. Mexico is steadily growing. Job creation in Mexico, under President Peña Nieto has been quite strong. It’s the strongest it’s been in 30 years. And on the other side, we should not forget that the U.S. went through a long first—a big recession in ’09—’08 and ’09, and then the recovery was sluggish for—it took—it took a while. So the economic conditions explain a bit of that. Then I think border security improved, and that’s also—that’s also—that’s also a fact.

Let me show you—let me share with you a couple more pieces of data about people first. First, there’s more people that is trying to get into Mexico from the south than people in Mexico trying to get to the U.S. So Mexico has become more of a transit country than an origin country in terms of migration. And the other thing is that the flows of people either crossing into the U.S. or being deported into Mexico from the U.S. is significantly down this year. So under President Trump, the number of deportations, the amount of Mexicans being deported, is down about 30 percent.

ALTMAN: Well, let me ask you this. If one was to have this data in mind—which is a really profound change—and to say, well, then we don’t need something like a wall, one of the responses would be, well, this change is just temporary. It’s really a reflection of, in part, the rhetoric that we’re seeing. Do you think it’s a permanent state of affairs now, this zero migration?

VIDEGARAY: Well, let me put it this way. The Mexican government wants a secure border, and that’s regardless of the net effect of migration. It’s essential to have a secure border, to stop illegal flow of people and things both ways. We want border security to stop guns coming into Mexico, which are a lot of guns, and they end up in the hands of the cartels. And a lot of the violence wouldn’t happen in Mexico without that. We want to stop drugs from going into the U.S. that are—we want to stop cash getting across—illegally across the border. So we have an interest in securing the border regardless of what the relative flows of people are. And we don’t think that the wall—that building a wall would be particularly effective, and we—that is not part of the conversation. We never talk about building a wall with our counterparts in the U.S. This is just not part of the conversation. We obviously—and by the way, I think it follows that we’re not paying for the thing.

ALTMAN: I’m tempted to say that people at the Council on Foreign Relations don’t talk about building a wall either, but I won’t elaborate too much.

VIDEGARAY: But the—but that should not preclude that we actually engage in talks particularly with DHS, the Department of Homeland Security, and the Department of State on better ways to secure the border. And this is—this is—this is more about transnational crime organizations and disrupting the business model of transnational crime organizations and how can we use the border as a tool for that. And we are—we understand—and it’s very clear. The U.S. is a sovereign nation, and any sovereign nation has an absolute right to protect its own borders the way the citizens of that and the institutions of that country decide. So it’s for Americans to decide how to—how to—how to protect the borders. Hopefully the decisions that are made are actually useful. And obviously the concept of a wall is quite unfriendly and we—but we don’t engage in that conversation. We don’t talk about the wall.

ALTMAN: All right, let me ask you—

VIDEGARAY: If the U.S. government wants to talk about border security—which they do—we actually have that conversation.

ALTMAN: OK.

A companion question which concerns what we all call DACA, and you know—you know what that is, and there are approximately 800,000 Americans who are currently or have been covered by DACA. And as you know, President Trump has terminated it and thrown the—passed the ball, so to speak, to the Congress to address it. Do you know what percentage of that group of people would be returning to Mexico if DACA actually ended?

VIDEGARAY: We think probably more than half. Some people say that it’s two-thirds of those young people are of Mexican origin. But do you know what? That will be a big win for Mexico, if they actually returned. You’re talking about—

ALTMAN: Yeah, highly educated, training—

VIDEGARAY: —potentially a free transfer of human capital. (Laughter.) That’s what it would be. I don’t know what country’s willing to export—for free—the computer scientists, engineers, doctors. It’s hard to me to understand. We—and this is what we’ve told the U.S. government. I had a conversation with Acting Secretary Duke about DACA last week, you know, also to John Kelly. And I went to the Capitol and talked to Nancy Pelosi about it and said, you know, if DACA is gone, it would be a huge win for Mexico. Big loss for the U.S., by the way. You’d be exporting human capital for free.

But that’s not the question. The question is why do these kids want to. And I’ve spoken to DACA kids in New York, in Washington, in Florida, Texas, California, and they all want the same thing. They want to stay here, because even though they were born elsewhere, many of them in Mexico, this is the country that they call their own. This is where their lives are. This is where they work, where they go to school. And for us, our role is to support them. And we’ll do it through diplomatic ways. And again, immigration policies are—should be defined by the U.S. as a sovereign nation. So it’s about—it’s for the U.S. people and U.S. institutions—in this case, it’s going to be the Congress. Certainly, after the administration’s decision was announced, this is—this is going to be the Congress, the U.S. Congress. And we will be—we will be in front of every senator and every congressman that is willing to hear us on what our position on DACA is. But we think that regardless of who wins and who loses—and this will be a big loss for the U.S, big win for Mexico—important thing is what do these kids want to do, and they want to stay.

ALTMAN: OK, one last question for me before opening this up.

Your administration has struggled in various ways, and it has suffered like a lot of administrations do in this era with relatively low domestic political standing, but struggled over issues of corruption and internal security, or violence. Just tell us for a minute what your own point of view is as to whether Mexico actually is making any progress on these two issues, which are very central ones, or not, and what you think the medium- and long-term future on these issues is. I know your administration oversaw the passage of important legislation concerning corruption and anti-corruption protections, legally speaking. Some of those are still being implemented. But just give us a sense of these two questions.

VIDEGARAY: Well, I think these two topics, security and corruption, are perhaps the most difficult and most important issues to address, particularly after a successful economic reform agenda. So—and a lot of the debates on next year’s elections is going to be about those two topics. For sure, the Mexican—the Mexican people are demanding now an end to corruption. And this is very different from what it was 20 or 30 years ago, where even though corruption probably existed in the same—to the same degree, now, because of a very active, very plural society, very vocal, using social media and other ways, now it’s demanding change, and that’s having an effect. And to me, if you ask me, I’m optimistic that over the next few years, Mexico is going to look very different. And that’s not the merit of an administration; that’s the merit of the people that are highly focused on this and putting pressure on all political actors and all political parties and figures.

So we’re moving—we’re definitely as a country moving in the right direction. A big part of that is having better institutions where you have independent institutions that are capable of addressing the problems. And I think that, by the way, there’s an opportunity in NAFTA renegotiation to include a chapter on anticorruption and that this is something that is part of the discussion, because the NAFTA framework can provide a very powerful evidence—a tool towards fighting corruption.

I think there’s—that a lot of people are focused, as it happens everywhere in the world, very much in a short-term news cycle. But if you look—if you look at the problem with more perspective, we are certainly moving in the right direction. It’s critical that legislation that was passed is fully implemented, and that’s in process, and that we continue having the institutions and tools for fighting that. And again, NAFTA can be—NAFTA—that can be a positive outcome of the NAFTA—of the NAFTA renegotiation.

ALTMAN: All right, let’s have some questions. Before—just beginning this, please identify yourself before you ask your question, and please keep your questions as succinct as you can. And I would remind everybody, one of my former government bosses used to say there’s only one person who’s speaking—actually speaking here today, and that’s Luis. (Laughter.)

So, please.

Q: I’m Lucy Komisar, and this is a follow-up to the last question that was asked.

About—the last six years, about 20 journalists have been murdered in the state of Veracruz alone, not by drug cartels but by order of state government officials. They were killed for exposing government and political corruption. The central government is using Pegasus software now to track journalists. Journalists say a federal program that was supposed to protect them is useless.

Could you comment on that? Because it seems to me there is terror going on inside the country, there’s lack of security, and the killing of the journalists is being done by state actors.

VIDEGARAY: I cannot subscribe to some of the things that you say. I—this is an investigation that is in process, and I wouldn’t—I wouldn’t subscribe to saying who’s guilty of this. This is an ongoing investigation. And—but regardless, this is something that is completely unacceptable in a democracy. When journalists are being killed or when human rights activists are being attacked or killed, is that—that is—that is unacceptable.

What we—what we should have—and I think that the federal government is committed—is having a thorough, complete investigation and that responsible—regardless of who they are, if they are—if they are cartels or if they are government officials are they are somebody else, they should be prosecuted, and they should be punished according to the laws.

So—but this is—this is—I wouldn’t go as far as saying who was behind this. I wouldn’t subscribe to some of your statements. But the bottom line is that this is unacceptable in a democracy, and these are the things that we should move away from by institutional change and by actually—by actually implementation of the law.

And the same—the same goes to using any kind of government resources, either it be intelligence assets or police force or whatever, for a purpose that is not what they were intended. These are assets that were paid by the Mexican taxpayer for a purpose. And if they are not used accordingly, that should be also punished.

Q: This comes from a Columbia journalism review.

VIDEGARAY: I’m sorry?

ALTMAN: Yes, sir.

Q: Thank you. Jeff Laurenti.

Secretary Videgaray, could you tell us what had been Mexico’s objectives, goals, and hopes out of the negotiations for the Trans-Pacific Partnership, what your sense was of the Obama administration’s political and economic objectives that it was pursuing in those negotiations, and what you may think that the United States may be losing with the Trump administration’s walking away; and how you think the Trans-Pacific Partnership will work among with Mexico and the other states that are still adhering to it, what you see it producing economically for its members?

VIDEGARAY: Well, we always saw TPP as something that we want to be part of. In the beginning, we were not part of TPP, neither Canada or Mexico. So when we finally joined the negotiations, to us it was an opportunity.

In a way, TPP was an enlargement and an upgrade of NAFTA because it would have prevailed over NAFTA. So—

Q: You said “was.”

VIDEGARAY: Excuse me?

Q: You said “was.”

VIDEGARAY: It was, yeah. I think TPP as we knew it is gone. So we were quite enthusiastic about it. We understood that for the U.S. in particular, it was not only a good trade deal but also of geopolitical interest.

For us, it was—it was expanding market access, upgrading the roots of NAFTA, and being part of what was the most exciting trade platform that was going to happen over the next few years.

So it was an opportunity, and I think it’s a lot opportunity for everybody. I do think that it’s a lost opportunity for the U.S. And that’s—but to us, the new NAFTA renegotiation—it’s a new opportunity to bring those upgrades now into NAFTA.

So I don’t know if it’s going to be exactly the same. Probably not, but a lot of—a lot of things that you saw in improving environmental standards, intellectual property protection, e-commerce—a lot of those things are going to be based inevitably on the—on the experience of—that was—that—what could have been TPP. I’m not saying this is going to be an exact copy/paste of the—of the words of TPP, but it’s—that’s going to be a useful reference.

The other—on the other hand, as we engage in the NAFTA renegotiation, we also want to pursue the—what we call TPP 11, which is TPP without the U.S. And I think that’s moving forward. It’s not a done deal. But we are engaging in a very serious conversation about it. And certainly Japan is leading the way, and we have—we’ve been very public about it, and we want to pursue that.

So the world is moving on, and certainly Mexico is moving on, and we want to expand—or we are a firm believer in free trade, and we understand that this is better accomplished by collective agreements. We don’t have—and we’re going to continue to pursue those platforms, including TPP 11 and others like our current renegotiation and expansion of our European agreement or our current negotiation with Brazil.

ALTMAN: Yes, please.

Q: Hi, Andres Small from Partners Group.

I wanted you to go deeper into what initiatives Mexico are undertaking to tackle the challenge of automation, because I heard you don’t want cheap labor to be a competitive advantage, but Mexico does have a demographic advantage of a young, plentiful labor force in an environment where capital is—and automation is quite attractive.

VIDEGARAY: Yeah. Well, I think the challenge of automation, particularly in the face of artificial intelligence and machine learning is going to be the most important event shocking the world economy, every country of the next 20 or 30 years. And these are wonderful technologies. I think these are things that we should embrace as humanity, but the dislocation of labor is going to be significant. It’s very much what happened in the early—in the 1800s with the—with the steam engine and when industrialization started to happen. Clearly now we know that the industrialization was a good thing for humanity, but it was quite a shock.

And I was—I was reading a text by Thomas Carlyle in the—in the 1830s. And you could read the same things now. It was—it looks very much the same.

So this is a major technological shock that is going to affect every country, including Mexico. I think the key is that—is in education, that the labor force is able to move from repetitive industrial type of activities into creative decision-making activities. That’s where—that’s where opportunities will be, and that’s why it’s so important to have quality education.

In Mexico, we went through and we’re going through implementation of a major education reform that hopefully will bring better quality of education to our kids in the—in the—in the years to come. I think the biggest challenge for Mexico and for any country for existing workers, people that are already in the middle of their careers. And so they are challenged, not by the Chinese or by the Japanese, but by machines. And that’s going to increase. That’s going to happen everywhere. Just think about truck drivers. You have plenty of truck drivers here in America that are going to be probably affected if self-driving trucks continue and prevail.

So that’s going to happen everywhere. And we cannot base our competitiveness in cheap labor in such a scenario. We’ve got to move on. We’ve got to do better education, creativity, just making capabilities in young people. And at the end of the day I think we’re going to be fine, but the transition can be quite difficult. And more than ever, investing in education should be an issue—and not just basic education for kids, but education throughout life is becoming increasingly important.

ALTMAN: Yes, on the aisle.

Q: Ramon Martinez (sp).

Mr. Secretary, this morning we had President Bachelet from Chile. And there was a bit about—a lot of discussion about Venezuela. Could you give us your perspectives on it?

VIDEGARAY: Well, Mexico has had a very clear and outspoken position on Venezuela since the beginning of the year. Venezuela is a very important country in Latin America. It’s a country that has been blessed by nature with wonderful people and significant natural resources, including oil.

And it’s very hard to understand why Venezuela is going through so significant economic disruption and pain, a country whose economy is contracting. Some estimates are that over the last three years GDP contraction is 24 percent. That’s three times the great recession of the ’90s in Venezuela. Inflation is over 700 percent. Poverty—people in poverty are over 80 percent. So there’s a big economic problem in Venezuela.

But on top of that, you have a real threat and a debacle of democratic institutions. The current regime, the Maduro regime, is undermining the democracy in Venezuela. And that’s what triggered Mexico’s stance on it, because, as members of the Organization of American States, in 2001 we agreed collectively to defend democracy as a way of government in the whole continent. So we have a moral but also a legal obligation to stand against attacks on democracy. And that’s exactly what has happened in Venezuela.

When you have a government that does not—because the polls are not favorable, suspends regional elections, or because it does not like the opposition, puts him in jail, does not like losing a majority in congress, you take away the powers of congress, that is really what’s going on in Venezuela. And if that happened in Mexico, I wouldn’t want other countries to look at the (roof ?) and be different.

So we understand that it’s up to the Venezuelans, at the end of the day, to solve this. And the political responsibility is, first of all, on Nicolas Maduro. But we as a country will not be silent and will not be indifferent to something that we believe is completely unacceptable.

ALTMAN: Yes, please.

Q: Thank you. Rosemary Werrett, Observatory Group.

My question is about the earthquake. And I wonder if you have started to add up the costs of the earthquake and how this will be managed going forward. I know Mexico runs a very tight fiscal ship. So these expenditures, I assume, will be quite large in the months ahead to repair infrastructure and repair the loss that many people have suffered.

So how do you envision that being worked out budget-wise? And will you be borrowing money to finance that? Will you be raising taxes? Or is there a plan yet to address this enormous tragedy that you’ve just suffered?

VIDEGARAY: That’s a very good question.

Our initial estimates is that there will be no significant macroeconomic consequences of the earthquake, fortunately. We should talk about two earthquakes, and the first one that killed about a hundred people. About 60,000 houses were lost and some infrastructure, roads, some public business.

The second one, that clearly has a bigger impact on the loss of life; 280 right now. It’s about 50 buildings collapsing and a couple of thousand buildings that are probably damaged, structurally damaged. Most of the buildings that were affected are relatively old, older than 30 years—most of them—and are fortunately not big buildings in Mexico, in Mexico City.

So there’s going to be naturally some public spending needed. We do have precautionary structures for these issues. We do have our disaster fund, and we also have catastrophic bonds, cat bonds, that we have issued. So the ministry of finance will be looking to that parameters to see how much we can get out of those resources that are meant to be for circumstances like this.

Nowadays you cannot foresee when a disaster will happen. But from a probability standpoint, it’s very clear that some disasters will happen. So we need to have those in place. And that’s best practice, and we do that. So we don’t expect this to have a meaningful macroeconomic impact, at least with the information that we have. This has to be updated day to day. But it’s not most likely to have a significant macroeconomic impact or a public-finance disruption. But certainly we’ll devote assets and we’ll take a lot of effort to address that.

Right now, as you say, all the efforts are on finding people. So there’s no—we don’t have that assessment yet. So everything that I said here is very preliminary.

ALTMAN: Yes, sir.

Q: Good afternoon, Mr. Minister.

Please forgive me if my question is redundant, because I got here a little bit late due to the traffic outside.

ALTMAN: Well, that’s the U.N.

Q: (Laughs.) I live downtown, so it’s a real long trek to get up here.

I’ve spent more years than I care to count in helping our country counter the forces of extremism. And one of the big border issues, beyond the issue of illegal immigration, is whether or not a radiological device could be smuggled across the border from Mexico into the United States under the auspices of these extremist groups that want to attack us.

What steps is Mexico taking to ensure that these kinds of problems don’t come to our border, and to yours, for that matter, as well? Thank you.

VIDEGARAY: Well, anti-terrorism is one of the areas of—one of the strongest areas of cooperation between Mexican and U.S. agencies. By definition, we do it quietly. This is not something that we publicize, because we shouldn’t, you know, to be effective. But we share—we not only share information, but we do things together. We’re constantly monitoring people and things flowing from our risk-assessment tools.

It’s not that infrequent that international agencies, either the U.S. or other countries, make us aware of people that may present a risk and that they arrive in Mexico and are immediately either sent back or, if there’s (a cost ?), are sent into U.S. law enforcement, if that’s the case and the procedures are fulfilled.

This is a very strong area of cooperation. And I won’t get into the details because, as I say, by nature this has got to be—this has to be confidential. But one—this is a cooperation that did not stop with the Trump inauguration. On the contrary, actually, we are continuing to strengthen our cooperation towards that. It’s in the best interest of Mexico. It’s in the best interest of the region and, of course, of America. And we will continue—we will continue to do that.

For people who don’t value—who don’t think highly of the Mexico-U.S. relationship, it’s very important to look at every other—at the broad range of elements of that relationship. And the value that you mentioned is a very important one. It’s one of the reasons—not the only one, but one of the reasons why I think it’s in the best interest of both sides to have a good relationship with very active cooperation.

ALTMAN: Shannon (sp).

Q: Thank you.

When your president came here—I believe three years ago—to talk with us here, and when you’ve come here, one of the big things that we’ve talked about in Mexico over the last few years are the big structural reforms that happened, that you—the administration passed in the first 18 months. Now we talk a lot about energy, but there were financial reforms, telecom reforms, education reforms, labor reforms, and a whole host of others. But as we look at Mexico’s growth over the last few years, it has been continuing, but fairly modest. And I think many people here who watch Mexico closely wonder when are all these good changes, these big reforms going to kick in and really change the underlying economic growth.

So could you talk a big about the reform package? You got through the constitutional side, but talk a bit about the implementation, and so what has and hasn’t happened, whether in the secondary reform side what has gone through or still needs to go through, or also in the basic restructuring in the economy to provide some of that competition that would be needed to open up Mexico. And particularly as we think about Mexico going through an election in the next year, a new president coming in in a bit over a year, how many of those reforms are really locked in for the permanent future of Mexico, and how many actually still have a lot of work to actually become a real part of the landscape?

VIDEGARAY: Yeah, well, I strongly believe that the reform package has been fully implemented, and successfully implemented, and I’ll share some reasons why I think that. Let me—let me speak briefly about growth—the Mexican growth rate, because when you look at the Mexican growth rate, it’s in the neighborhood of 2 (percent), 2 ½ percent, very consistent over the past five years or so.

And—but people forget that if you look at one particular sector, which is oil production, crude oil production, that has been declining steadily since it peaked around 2003, and it’s been declining. And even though oil is about only 4 percent of the—of the economy, it’s been taking growth from the top line, from the top figure. It’s been subtracted. If you look at economic growth other than oil—crude oil production, actually the growth rate is consistently over 3 percent, which looks very different. And so I think the rest of the economy—and it matches job creation, by the way—if you take away oil production and you see job creation and growth, they match. The—and job creation has been quite robust.

That brings us so what will we do—what should we do with oil production, because it’s been declining. And I think that the oil—the energy reform was exactly what was needed. It was probably done 10 years later, but it finally got done. And the projections of oil production not only by Pemex—and perhaps not by Pemex but by other companies—is very encouraging for the next five and 10 years. If you look at the degree—the amounts that have been invested and committed, you’re talking about over $60 billion that are going to be—have been committed and are going to be invested in the crude oil sector in Mexico through contracts that have been signed in very transparent auctions. And that’s a direct result of the energy reform, which was—previously, it would have been completely unthinkable. So we have in the pipeline what is going to be a rebound of oil production that is going to be totally different. It’s not going to be Pemex. It’s not going to be the government. It’s going to be private companies doing it both offshore, shallow water, deep water, and that is going to happen over the next—over the next 10 years. So as the oil sector recovers, oil production recovers, that is going to stop subtracting from the topline growth figure that we all care about.

But the rest of the economy is becoming more competitive, and you see it, and it’s also more—competition is more intense. A big driver of growth, looking forward, is going to be telecommunications, and telecommunications are now better, cheaper, and investment continues. And we see that, and it’s benefiting the companies, that is benefiting the people. The average cost of a cellular phone, a mobile phone in Mexico dropped in two years 40 percent. So now you see everybody on the—on the wireless internet. And mobile—smartphones are in the neighborhood of 80 million in Mexico, which is—it’s a big difference from the 30 million that we had four years ago. And as you go sector by sector, you see there are changes. The financial reform, outstanding credit in the private sector as a share of GDP was 24 percent. Now it’s 35 percent in just four years. And by the way, bank balances are more robust now, so this is not bad lending. This is just best practices, and introducing competition. And this was one of the drags on growth.

Let me just say a word as the previous finance minister that is guilty of doing tax reform—didn’t bring me any friends—but we accomplished something very important. Back in 2012, 40 percent of government revenues were oil revenues. Today that figure is 15 percent. So we very quickly, very quickly were able to eliminate one of the biggest risk factors of the Mexican economy. So the reforms were not only—were not only about releasing competition. It was also about making the Mexican economy more resilient. And it’s—I think it’s remarkable that we went through an oil shock, a significant oil shock, and the Mexican economy went into an economic crisis. Every time the price of oil dropped, if you look at the economic history over the past 40 years, there was a recession in Mexico. This time it didn’t happen, and it was because of the reforms and because we are attracting FDI. Even this year, FDI flows in the first quarter—after Trump was elected and inaugurated, we have the highest FDI flows in history, in the first—in the first quarter. It means that there’s something more appealing about the Mexican—about the Mexican economy. So, you know, when you do reforms, if they’re for real, there’s going to be some time for them to have an effect. And—but I think these reforms, they were deep, they were structural, will create a lot of benefits in the years to come for growth and for the well-being of people.

ALTMAN: One last question, please. A brief one.

Yes, sir. No, the gentleman in the back, gentleman in the back.

Q: Thank you. You mentioned—sorry, Dion Rabouin from Reuters.

You mentioned the catastrophe bonds that your government had issued paying out. I was wondering if you think that they were well-timed when you issued them in August, and if you anticipate—if you have an idea of what those are going to pay out and, you know, if you’ll be working with the World Bank in the future on further catastrophe bonds and maybe some work with the Pacific Alliance on, you know, opening them up to the entire region, or getting another catastrophe bond for the alliance.

VIDEGARAY: Well, the cat bond was renewed in August, but it’s been practice—it’s been regular practice for several years. When I was at the ministry we did it, and before my time the cat bond was in place already. So this is—yeah, absolutely, it was very timely that it was renewed and that we entered into a new transaction as such. And the support by the World Bank has been outstanding. It’s been great, great advisory from the World Bank, and we look forward to continue that. And we want to expand those risk management tools. One way to expand that is to not make them national but make them regional so that through the Pacific Alliance, with Colombia, Chile, and Peru, our ministers of finance are well advanced into doing a multi-country cat bond, particularly for earthquakes. It—this is just from a pure risk diversification strategy and cost effectiveness, it makes sense. And we’re doing that alongside—with a lot of support from the World Bank. So we think it’s best practice and is one of the many benefits of having a very, very practical alliance with like-minded countries that believe in the markets, believe in democracy and—but also want to innovate and do better governance policies. And that’s what we’re doing. We’re still not sure if the—if these two earthquakes, how they fit the parameters. So it’s early—it’s still early to tell how much of the cat bonds are going to be withdrawn after the earthquakes, but certainly these are the tools that you want when you’re facing these challenges.

ALTMAN: Well, one final question from me, Luis. Wasn’t it much more fun being finance minister? (Laughter.)

VIDEGARAY: I can tell you, this year, being a foreign minister at this particular year, I’m not bored. (Laughter.)

ALTMAN: Let’s please thank Minister Videgaray. (Applause.)

(END)

This is an uncorrected transcript.

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