A Productive Term for Mexico’s Next President?

If Mexico’s next president can turn his ambition into effective policy, then his six-year term may be the most productive in the country’s recent history. 

The story is all too familiar.  A conservative president launches a disastrous war against terrorism, killing tens of thousands of combatants and civilians.  After his term, his party is swiftly swept out of office, by a charismatic centre-left junior politician.  Beyond security, the new president faces problems in unemployment and economic growth, but most of all a polarized opposition struggling to recover from defeat.

This is not the saga of George W. Bush and Barack Obama, but the tale of Mexico’s President, Felipe Calderon and President-elect Enrique Peña Nieto.  Calderon was the first leader in Mexico’s history to employ the military against the country’s monolithic drug trafficking organizations.  The result has killed well over 60,000 people, a number that some expect will double over the next few years without drastic changes in security policy.  Rising insecurity combined with a stagnate economy drove voters away from the conservative Nation Action Party (PAN) and ushered in the election of Peña Nieto, the 46-year-old one-term governor of Mexico’s Federal District who promises to rethink Mexico’s policies in hopes of a brighter future.

But there’s a twist from the US version.  Mexico’s democracy is a three party system and the formidable opposition to the new president comes from the left.  Moreover, where president Obama’s moderate agenda in the face of grave national crises was met with strong conservative opposition, the agenda of Peña Nieto is likely to receive support.  If he is able to show effective leadership, his six-year term may just be one of the most productive in recent history.

Mexico’s Democracy

Peña Nieto’s party, the Revolutionary Institutional Party (PRI) ruled Mexico for 71 years before they were defeated in 2000 by Vicente Fox of the PAN.  Though no longer in the presidency, the PRI all but blocked the agenda of the new president who failed to gain the support of the leftist Democratic Revolutionary Party (PRD), which lay at the opposite end of the political spectrum.

Though the next president, Felipe Calderon was more successful at reaching across the aisle to the PRI, his presidency quickly became marred by the drug war.  And while violence soared, the stagnating economy became a marginal issue and his administration failed to ignite the same progress seen throughout the rest of Latin America.

Now with the PRI back in power, perhaps the new president will have the support he needs to aggressively modernize Mexico’s economy.  As a party at the center of Mexico’s political spectrum, it is more likely that he will be able to reach across both aisles.

Oil on the Agenda

Mexico sells more oil to the US than Saudi Arabia.  And as the Middle East becomes increasingly more chaotic and US politicians advocate for energy independence, it is ever more crucial for the US to continue building upon this petro-partnership with its southern neighbor.  In Mexico, maintaining its status as a petroleum exporting country is even more important to its national income and its domestic energy supply. 

But since 2004 falling production has caused output to fall by 25% from a peak of 3.4mn barrels a day.  If production continues to decline, there are worries that Mexico could soon become a net petroleum importer.  The main problem is a lack of credit available to expand oil exploration due to the government’s tight control over the state oil company PEMEX.  Mexico’s 1937 constitution nationalized the company as means of protecting the country’s resource sovereignty, following decades of social turmoil.  As a result, allowing foreign investment in PEMEX requires a referendum to the constitution through approval from 2/3 of the legislature.  Since the PRI – the party that originally authored the constitution – was voted out of power in 2000, there has not been enough support for opening up the company.

By contrast, Brazil opened its state enterprise, PETROBRAS to foreign investment and gave the company more than twice the amount to capital available to its Mexican counterpart.  Combined with technical assistance, these investments have allowed Brazil to begin a massive oil exploration project off its coast that may make this South American country among the world’s largest petroleum producers.

As president, Peña Nieto has promised to open up PEMEX to foreign investment.  If he can muster support from the PAN, perhaps he can succeed in reinvigorating the country’s national petroleum profile.

Workers & Corporations

Mexico’s economy suffers from two major internal problems.  Powerful unions advocating job killing labor laws and almighty private monopolies that control entire sectors of the economy, preventing innovation and competition.

During the PRI years, a few powerful unions dominated through intimidation and support from the government.  Their leaders became wealthy, while they failed to properly represent the interests of the workers that paid their dues.

Their domination prevented labor reforms that would have made it easier for businesses to hire new workers and fire ineffective ones.  On average 900,000 young people enter the labor force every year.  Yet there are only 250,000 new jobs created annually.  The result pushes more than 2/3 of those in need of work into the informal economy, across the border or into organized crime. 

A new labor law under discussion in congress promises to cut through these archaic restrictions and create 400,000 new jobs every year.  In addition, it will allow for secret voting in major unions and the creation of independent unions.  Protests against the new bill rages on the left and among the PRI unions.  Perhaps, Pena Nieto will be able to effective stand up to the autocratic unions of his own party. If Mexico wants to become a powerful economic player it must make its unions more democratic and allow independent representation organizations. 

The new labor bill will include some of these reforms and make work more flexible by instituting hourly pay, rather than a daily rate based on an 8-hour work day.  Many Mexicans work more than 8-hours a day or hold several partime jobs.  The current system allows employers to avoid paying overtime and de-legitimizes part time work, forcing much of it into the informal economy.  The new bill will essentially put more pressure on employers to pay fair wages for these workers and place many back into the protections of the formal economy.

In addition to greater wage garuntees and more democratic worker representation, Mexico desperately needs to reform its monopolistic business climate.  When the country privatized its state enterprise following its 1982 financial crisis, state owned monopolies were mearly converted into privately owned monopolies.  The world’s richest man, Carlos Slim, is the CEO of Telmex and América Móvil, two companies that control almost all of Mexico’s telecommunication industry.  His immense wealth is testament to the country’s monopolistic private sector and the cronyism required for new businesses to enter the market.

Pena Nieto will have to pass a variety of strong anti-trust laws capable to breaking up the control of single corporations over entire sectors of the economy if he wants to foster the competitiveness of the country’s firms and protect the quality of services for consumers.

Conclusion

Pena Nieto has a lot on his plate in the six-year term ahead.  An ongoing drug war, the monopolization of the private sector, slow economic growth, a corrupt political system and inefficient bureaucracy stand in the way of Mexico’s future prosperity.  Reforming the oil sector, protecting the rights of workers and changing the way business is conducted will provide some crucial steps towards achieving future progress.  His party controls the most seats in the legislature and if he is able to secure the support of the PAN, perhaps he can help Mexico succeed in passing an ambitious agenda.

The views expressed in this article are the author's own and do not necessarily reflect Fair Observer’s editorial policy.

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