CHAPTER 3
Corruption isn’t limited to the handover of public goods to lobbyists and those who employ them; it’s also at play in the allocation of public works contracts and the taking over of state functions. Cronyism is a hallmark of a corrupt state. It has plagued Mexico since the rule of Porfirio Díaz. Back then, the Englishman Weetman Pearson was awarded generous contracts to build the Grand Canal of Mexico City, the ports of Veracruz, Coatzacoalcos and Salina Cruz, and the train tracks for Istmo de Tehuantepec; he was also granted rights to extract oil throughout the country. In return, the dictator’s son, Porfirio Díaz Ortega, handled petroleum and asphalt sales for the company, and the “honest tyrant” lived comfortably in exile from the stocks he owned in Pearson’s company, among his many other sources of income.
After the fall of the dictatorship, conducting business at the expense of the state became standard practice. There were honorable exceptions, such as General Francisco J. Múgica, who governed Tabasco for a mere ten months and twenty days in 1915; he received “the treasury at a deficit of 126,000 pesos and left it with a surplus of 120,582 pesos.” This general from Michoacán, who had been a seminarian before becoming a military man, reflected: “From whence this boon of relative prosperity from a bankrupt treasury? Through sheer morality and a few minor reforms.”15
Around the same time, Múgica sent an emotive letter to Salvador Alvarado, governor of Yucatan whom he admired greatly. “Please give me your guidance, general.” A few lines below, he lamented the “dreadful cabals” that obtained contracts through friendships with the men close to Venustiano Carranza.
In 1923, during the corrupt rule of Álvaro Obregon,16 one revolutionary noted that of Mexico’s twenty-eight governors, only two were honest. He reasoned: “The best one can hope for is not a governor who won’t enrich himself through the position, since they nearly all do. What we hope for is one who does something for his state in between bouts of ransacking. Most take everything they can and leave nothing behind.”17
The historian John W. F. Dulles opens his book Yesterday in Mexico with a reference to Obregon’s tale of how he lost his arm in the battle of Celaya facing down Villa’s troops: his men scoured the area searching for his severed arm, until a close friend who “knew him intimately” took from his bag a glittering piece of gold, after which they “witnessed a miracle: the arm came flying out from its hiding place and lovingly took the coin between its fingertips. It was the only way to find my missing arm.”18
In his great 1958 novel, Where the Air is Clear, Carlos Fuentes writes of a northern revolutionary named Robles who arrives in Mexico City and, armed with insider information, buys up plots of land that will soon benefit from urban investments in infrastructure. Selling the land at a profit, Robles goes from speculator to banker and amasses a large fortune. More recently, Gonzalo N. Santos, Lord of San Luis Potosí, writes in his autobiography that “the fruit of the tree of ‘morals’ is worth jack shit.”19 Meanwhile, Carlos Hank González popularized the phrase “A poor politician is a poor politician.”
The scope of today’s corruption is wholly unprecedented. The brazen politicians of the past don’t hold a candle to Carlos Salinas20 and his ilk. Enrique Peña Nieto outdoes them all. His cozy relationships with government contractors are numerous, although he does have his favorites: one example is Juan Armando Hinojosa’s Grupo Higa company, in Reynosa, Tamaulipas.
Hinojosa was first linked to Peña Nieto when the latter governed the State of Mexico. Ever since, he’s been Peña Nieto’s favorite contractor. Here’s an anecdote: when I was mayor of Mexico City, in 2004, we built the Dr. Belisario Domínguez Specialist Hospital in the borough of Iztapalapa. It had 150 beds and cost 350 million pesos (US$18.8 million). At around the same time, during Peña Nieto’s term as governor of the State of Mexico, he contracted Grupo Higa to build a hospital in the municipality of Zumpango. A facility with 125 beds ended up costing 7 billion pesos (US$377 million); that is to say, twenty times more than the facility in Iztapalapa. Beyond this staggering discrepancy, the facility was more expensive still due to the financing plan selected. The State of Mexico’s secretary of finance, Luis Videgaray, approved a contract granting Hinojosa 282 million pesos (US$15 million) per year in interest for a period of twenty-five years. This scheme, known as PPS (Projects to Provide Services) was an initiative of the Calderón government.21 These public-private partnerships have led to the bankruptcy of multiple local governments.
Corruption and cronyism were again evident in the construction of a 225-bed hospital in Ixtapaluca, Mexico that cost 7.5 billion pesos (US$404 million). The company that built it is owned by Hipólito Gerard Rivero, the brother-in-law of both Carlos Salinas and José Antonio González Anaya.22 It’s important to note that at the time of this business arrangement—during Calderón’s rule—Salinas’s brother-in-law was serving as Ernesto Cordero’s operator in his role as deputy finance minister. Under Peña Nieto’s rule, his political connections secured him a position first as director of the Social Security Institute, and now as a director of Pemex. Calderón’s reign was a highly profitable one for Cordero, González Anaya, and the secretary of finance, José Antonio Meade, all three of whom were intimately involved in engineering this funding mechanism.
Under Peña Nieto, the State of Mexico assigned Hinojosa contracts worth 23 billion pesos (US$1.2 billion) with the complicity of then public works minister Gerardo Ruiz Esparza, who today serves as the secretary of communications and transport. When Peña Nieto came to power, Ruiz Esparza quickly became a man of influence, and the contracts granted to Hinojosa grew exponentially. Among the most notorious was the planned construction of the express train from Querétaro to Mexico City, with an estimated budget of 58 billion pesos (US$3.1 billion). The absence of a competitive bidding process (there were no other bidders for this project) and the widespread allegations of cronyism created such outrage that the construction project was canceled.
Through the same PPS model, Grupo Higa was granted a contract by Rafael Moreno Valle, a governor of Puebla from the PAN Party, for the construction of the International Museum of the Baroque, with a budget of 12 billion pesos (US$647 million). Another project, still embroiled in controversy, is the aqueduct from Monterrey, Nuevo León, through the Pánuco River that flows into the Gulf of Mexico, to Tamaulipas and Veracruz. This project, originally budgeted at 55 billion pesos (US$3 billion), has yet to be canceled because the new governor of Nuevo León accepted Peña Nieto and Videgaray’s undesirable plan. As others have remarked, only collusion between the federal government and its contractors could explain such a high price tag. This comes as little surprise, as it is the federal government, not the state, that will foot the bill. One more brazen act of cronyism in service to Higa was the contract to expand the hangar housing José María Morelos y Pavón, the presidential airplane. The job, which was budgeted at 1 billion pesos (US$53.9 billion), was not tendered for, as per legal convention, but instead awarded to a contractor without any bidding process.
Peña Nieto has close ties to Hinojosa. It’s a matter of public record that the businessman rented planes and helicopters to the State of Mexico, and now does so for the presidential staff. When he was governor, Peña Nieto made frequent weekend trips to Miami using the most luxurious planes in the fleet. It was against this backdrop that Peña Nieto’s wife, Angélica Rivera, purchased from Hinojosa what is now known as the White House,23 a mansion in Mexico City valued at 120 million pesos (US$6 million). Many believe that these transactions are simply moches, or bribes. The release of the Panama Papers revealed that Hinojosa has hoarded US$100 million in offshore bank accounts.
Peña Nieto’s other favorite business is the Spanish company OHL. Until recently, the director of Mexico’s branch, also under Gerardo Ruiz Esparza’s patronage, was José Andrés de Oteyza, who was secretary of state for national heritage under President José López Portillo. Another politician with close ties to Salinas, Emilio Lozoya Austin, ex-director of Pemex, also sat on the board of directors of OHL. As with his investments in Higa, once Peña Nieto became governor of Mexico, OHL received public funding to build highways and transport networks. At present, the vast majority of these roads are owned by OHL, and traveling on them costs more than in any other part of the country. Businesses such as OHL thrive in Mexico’s climate of cronyism. Audio recordings exist in which OHL representatives can be heard bribing elected officials for publicly funded construction projects. Following Peña Nieto’s ascendancy to the presidency, OHL spread its tentacles far and wide, winning contracts all across Mexico, from trains and highway networks to the construction of power plants for the Federal Electricity Commission (CFE). Their modus operandi consists in receiving treasury subsidies and, simultaneously, a commission for subsequent use of the facilities. One example is the multilevel Mexico-Puebla highway, a stretch of road fourteen kilometers long between the Volkswagen plant and the Cuauhtémoc football stadium. The government disbursed 5 billion pesos (US$269 million) for construction and OHL ostensibly put up another 5 billion, at a cost of 650 million pesos (US$35 million) per kilometer. The true cost was less than half of that; and in reality the Spanish firm hardly put up a penny, yet still were granted the right to charge a toll for use of the road for the next twenty-five years.
The same lack of transparency characterized the construction of the new airport in the Valley of Mexico, a pharaonic, costly endeavor riddled with structural flaws. While it is true that Mexico City’s Benito Juárez airport has insufficient capacity and required expansion, this could have been achieved, as we proposed, at the military air base of Santa Lucía. Whereas the new airport, Peña Nieto’s latest caprice, would require the closing of Benito Juárez and Santa Lucía due to airspace interference. We’re talking about billions and billions of pesos going down the drain. Terminal Two of the capital city airport was barely constructed in 2007, and the presidential hangar was expanded. If we add to the cost of these projects and the loss of the closing of the Santa Lucía airfield, we’re talking about a staggering waste that would mean huge profits for property speculators, but no social utility whatsoever, to say nothing of the grave environmental costs. Instead of spending 180 billion pesos (US$9.7 billion) on the construction of this new airport, our alternate proposal is to invest 65 billion (US$3.5 billion) in two additional air strips in Santa Lucía. This alternative plan would save the country over 100 billion pesos (US$5.3 billion). Within our proposed budget we could expand Santa Lucía to accommodate international and cargo flights, designate Benito Juárez for flights within Mexico, and create a direct route between the two terminals.
Building the new airport in Lake Texcoco also carries risks of subsidence, as the region rests on a layer of compacted mud. The solid ground lies some fifty meters below the surface. It is possible, as Dutch technicians and business magnate Carlos Slim’s company have proposed, that the danger can be reduced by installing a floating platform that would mitigate the risks. However, the proposed costs would be extortionately high. There is no reason, after all, to insist on pursuing the current plan, save for the apparent necessity of brokering morally dubious contracts.