Mexico’s President Can’t Shake Cronyism Doubts After Probe

Mexican President Enrique Pena Nieto last week was cleared of wrongdoing in a six-month investigation of whether his government improperly awarded construction contracts, a development that should have been good news.

Yet because the probe was led by an auditor who Pena Nieto appointed, and who reports to him, it did little to quiet critics or quell concern about favoritism to preferred business partners by his administration.

Ricardo Anaya, head of the National Action Party, Mexico’s largest opposition bloc, called the conclusion an “offensive joke.” The Democratic Revolutionary Party, the third-largest group, said the verdict “lacks credibility, is unacceptable, inadequate and biased,” and urged congress to probe the purchase of homes that Pena Nieto, Finance Minister Luis Videgaray and First Lady Angelica Rivera bought from government contractors.

Here are some of the reasons critics remained unsatisfied with Public Comptroller Virgilio Andrade’s report:

The Conflict of Interest Question

Firms owned by businessmen Juan Armando Hinojosa and the late Roberto San Roman went on to win lucrative government business after selling homes to the politically-powerful trio. But Pena Nieto’s handpicked investigator said that wasn’t a conflict of interest under Mexican law because the houses were bought before Pena Nieto and Videgaray became federal officials.

When Pena Nieto bought the vacation home at an exclusive golf club in Ixtapan de la Sal in 2005, he was governor of Mexico’s most populous state and an aspiring politician in the nation’s long-dominant party. When Videgaray bought his home, he was leading the president’s transition team after having managed the successful 2012 election campaign, and was one month away from becoming the nation’s top financial official.

Plausible Deniability?

Andrade’s investigation found that companies tied to Hinojosa and the San Roman family have 33 contracts with the federal government, but said Pena Nieto and Videgaray played no role in awarding any of them.

Yet at least one government deal with a company controlled by Hinojosa was for a contract providing air transport services to four development banks where Videgaray, as finance minister, serves as chairman of the board.

Furthermore, a unit of Hinojosa’s company, Grupo Higa, was part of a consortium that won a $4.3 billion contract for a high-speed rail link between Mexico City and Queretaro. The contract, one of the biggest of Pena Nieto’s term, was canceled days before the revelation that the first lady bought a Mexico City mansion from Hinojosa. The government hasn’t explained the cancellation.

Videgaray, in an open letter to the Mexican public posted on his Twitter page on Friday, apologized for actions that he said contributed to increased public distrust of government, while adding that he didn’t violate any law or code of ethics. The Finance Ministry didn’t respond to a Bloomberg News request for Videgaray to provide more information on the detailed conclusions of Andrade’s report.

Art Payments

Videgaray told Andrade, the federal comptroller, that he used artwork as payment for part of the 7.5 million peso ($442,000) home that he bought on a golf course in Malinalco from Grupo Higa. He added that the artwork, which he valued at

2.45 million pesos, was a gift. Neither Videgaray nor investigators have said what the artwork was, who gave it to him or when he got it. Large sections of the artwork’s documentation released to the public were redacted.

Videgaray previously said that he paid an interest rate of

5.31 percent on a 18-year loan for the property -- about half the country’s average mortgage rate of more than 10 percent.

Where was Juan Armando Hinojosa?

The businessman who sold homes to the first lady and Videgaray wasn’t called to testify by investigators, Andrade said. Instead, Hinojosa’s lawyer handled questions about his companies. Asked about that, investigator Andrade said last week that “The most valuable evidence comes from the voice of the companies.”

An investigator with a potential conflict

Finally, Andrade’s critics say he was a poor choice to lead the investigation since he has known Videgaray, 47, for almost three decades and reports to Pena Nieto. While at the start of the probe Andrade promised impartiality, Jose Antonio Crespo, a political analyst at the Center for Economic Research and Teaching in Mexico City, said biases were inherent.

“He has his own conflict of interest because he’s investigating his boss,” Crespo said.

Andrade also said he didn’t review e-mails of public officials involved in the case or attempt to verify the value of the artwork Videgaray used to pay for his home.

In a speech Friday in Mexico City, Pena Nieto asked for the Mexican people’s forgiveness for a scandal that he said has caused public outrage, while reiterating that he acted within the law.

Andrade’s probe may be over, but the concerns about cronyism at the highest levels of Mexico’s government are likely to go on.