Mexico, according to the World Bank (WB), is one of the most important emerging economies anywhere and is renewing its efforts to become a leader in the region by joining the Pacific Alliance. As the WB published on their website, Mexico has agreed on an ambitious and comprehensive National Development Plan. The Plan also guides the structural reform agenda to enhance productivity.
A year after Enrique Peña Nieto returned the official residence of Los Pinos to the Institutional Revolutionary Party (PRI), his administration is characterized by a reformist crusade that seeks to “transform Mexico”.
President Enrique Peña Nieto has arrived at his first State of the Union address after nine months with an unbelievable management-approval rating of 56 percent. It is lower than that recorded at the same interval by other presidents according to a Consulta Mitofsky political poll as seen in Exhibit 1.
According to Consulta Mitofsky who have made an analysis of approvals and disapprovals of the last five presidents at the nine month point in their respective administrations, and just prior to the delivery of their first governmental address, Carlos Salinas Gortari (PRI) was the best with an approval rating of 70%. He is followed by Felipe Calderón with 66%. Next in the ranking was Vicente Fox with 62% and Peña Nieto placed at 56%. Finally, according to the data, there was Ernesto Zedillo who just managed 44%. Zedillo was the only one with a greater disapproval approval amid the economic disaster in 1995. All this is detailed in the study.
The Economist published this prediction: “President Peña Nieto, though his first year in office has had many “downs”, it has had many more “ups” so far. If he can bring home the raft of reforms that he has launched, he could transform Mexico.”
Educational, telecommunications, tax and financial reforms have provided a glimpse of the way Peña Nieto wants to go to modernize the country. These initiatives have been praised by international institutions like the International Monetary Fund (IMF).
The change, however, has not gone down well in areas such as education. This sector opposes the reform providing teacher professionalization and rejects the proposed system of national educational assessment. On the left side of the political spectrum, there are parties like the PRD and Morena, representing groups who actively oppose the government’s initiative on energy reform and efforts to open the sector to private investment.
Most of the reforms promoted by the government have been approved through the Pact for Mexico. The Pact was signed by Peña Nieto on his second day in office with key parties in the country. The Pact is aimed at promoting initiatives to promote national development.
The Pact for Mexico began tracking fissures mainly over disagreements with energy reform. In this area each party, including the PRI, the ruling party, and the conservative National Action Party (PAN), as well as the leftist Party of the Democratic Revolution (PRD), each introduced their own specific proposals to the Mexican Congress.
According to The Economist in its report “The Year of Leading from Behind”, with the formal backing of the two main opposition parties in the “Pact for Mexico”, Peña Nieto has set out to rewrite parts of the constitution to weaken entrenched interests. The aim, he says, is to boost Mexico’s lackluster economic growth and productivity and reduce the poverty which still afflicts about half the population. The legislative agenda is not yet complete, although Congress is expected to wrap up the main reforms by December 15th, 2013. The challenge in 2014 will be to enforce the plethora of new rules.
Enrique Peña Nieto spent his first year in office in Mexico promoting structural reforms, with the greatest resistance encountered in the most contentious areas of education and energy. Here is a summary of his main initiatives and their current status:
EDUCATION REFORM: His was the first to be completely approved and this generated strong union protests in the streets. It establishes new rules for entry, retention and promotion in the teaching profession. It subtracts some of the decision power wielded by the unions. It also eliminates practices like the sale/inheritance of teaching positions. It also creates a National Institute for Educational Evaluation and initiates programs for all full-time schools.
TELECOMMUNICATIONS AND COMPETITION REFORM: Although it was enacted in June, as of yet there hasn’t been any discussion of the proposed laws being promoted. It refines the power of the two great empires of Mexican telecommunications. There is America Movil phone run by magnate Carlos Slim and Televisa, the largest Spanish speaking media network anywhere. The reform increases opportunity from 49 to 100 percent for foreign direct investment in the sector. It also opens the door for two new broadcast televisions. It also created the Federal Competition Commission to combat monopolies.
FISCAL REFORM: It was recently approved this week by Congress. Amendment 34 legalizes systems to facilitate credit thereby avoiding predatory interests. It also aims to increase competition among banks, in addition to reinforcing the guarantees for banks to get their money back. This will be done by tightening-up the anti-avoidance rules and defaults. It strengthens credit development banks ability to support small and medium business enterprises.
ENERGY REFORM: The big battle ahead. The government expected and passed the Reform in mid-December 2013. Peña Nieto proposed to amend the Constitution to open the strategic oil sector to private capital. It was nationalized in 1938. It means authorization for sharing contracts with private utility companies in the oil sector and increases the Mexican government’s share in power generation, refining, petrochemical, transportation and storage. The political parties on the left rejected the notion of “privatization”. Meanwhile the conservative opposition, which depends on Peña Nieto to provide the leadership to achieve widespread reform, calls for greater openness in the sector.
President Peña’s biggest test is energy reform. The immediate task is to secure passage of historic constitutional amendments stripping away the Pemex state oil company monopoly. Another is the Federal Electricity Commission (CFE). Whether or not energy firms flock to Mexico will depend on the fine print of the contracts and the fairness of regulators. That may not become apparent until after a year or so has passed, The Economist has pointed out.
President Peña Nieto said that political reform has already been discussed in Congress. Mr. Nieto is certain it will strengthen Mexican democracy in all spheres of the government. Meanwhile, he believes that energy reform will allow the country to maintain ownership of its energy resources, while taking advantage of having access to the latest technology and private investment that will maximize and take full advantage of Mexico’s valuable resources.
The six most controversial issues faced by President Peña Nieto in his first year of the Presidency include the following: Energy reform; fiscal (tax) reform; The Pact for Mexico; domestic security, economic growth and development and the teachers’ movement.
Businessmen are furious about a tax reform approved last month that simultaneously tightens their belts and loosens the government’s purse strings. They complain privately that many of their gripes about the reform did not make it to the President’s ear. Only a bold energy reform is likely to mollify them. The economy has all but stagnated this year. Critics from The Economist say that it is partly because Luis Videgaray, the Finance Minister, has been occupied too much with all the reforms and not enough with the day-to-day job of managing the economy. The government’s promises of a growth rate of 3.5% per year have simply not been met.
Manifestations of the National Coordination of Education Workers (CNTE) represented a real challenge to the federal government. This was because it threatened the passage of the proposed reform of education. However, the efforts of the Ministry of the Interior with the union leadership eventually ended the stand-off after an alarming period conflict.
Undoubtedly, security is a pending issue for the new PRI administration, because they have not reported substantial progress ensuring the welfare of the population. Given the differences between parties and their own internal instability, the PRD chose to leave the Pact for Mexico within a year after it was signed. Thus, one of the main strengths of the new government was violated because it ended as a unified body that had been consolidated as a faithful promoter of mutual federal initiatives in the Congress.
According to a study presented by Consulta Mitofski, Enrique Peña Nieto has enjoyed his greatest approval in the following actions that include educative reform, more support for third age people, and energetic transformation. This is shown in Exhibit 2.
Regarding the economy, the Ministry of the Treasure has reduced four times this year its growth estimate for 2013. Initially it was 3.5 and it currently stands at 1.3 percent. “The PAN left the federal government with an expected 3.5 in economic growth but it has now fallen to 1.5. And there was a drop in employment as well. Why has this happened?” This is a queston Senator Ernesto Cordero asked recently.
Despite the changes in the estimate of growth, the Treasury reported a record foreign direct investment (FDI) figure of US$28.2 billion in the first nine months of the year. This was boosted by the sale of the brewer Modelo to the Belgian AB Inbev.
The way we will compare the beginning of the administration of Enrique Peña Nieto with Vicente Fox and Felipe Calderon is by presenting the main economic indicators and their evolution during the first semester of the year.
The Overall Indicator of Economic Activity shows that Mexico presented higher stability in the first months of the Government of Felipe Calderon. The opposite situation happened in the Governments of Vicente Fox and Enrique Peña Nieto. This is illustrated in Exhibit 3.
In regard to unemployment, Exhibit 4. shows that with each of the three presidents the situation lacked solutions during their first semester of activity. Unemployment, as we can see, has grown over 1.5 times during a 12 year time span.
As we said earlier, Enrique Peña Nieto is associated with the best figures in Foreign Direct Investment. But this is mostly boosted by the sale of Grupo Modelo to foreign investors. This being said, analysts say that the best performance was under Felipe Calderon. The figures from the FDI during the first six months are for Presidents Fox, Calderon and Peña. These are shown inExhibit 5.
Mexico’s trade balance has registered a deficit in almost every period analyzed. Under Enrique Peña Nieto it is the only time when Mexico had months with a positive trade balance. This can be seen in Exhibit 6.
President Enrique Peña Nieto stressed that during the second year he will try to be more effective in implementing the reforms adopted during his first 12 months in office. “This year has been dedicated to structural reforms,” he said, “which will stand out with improved effectiveness in their implementation. With greater efficiency and speed we must keep transforming the initial impulse of our first year. These have to be propagated throughout the bureaucratic structure and then projected onto society as a whole.” according to President Peña Nieto.
Leo Zuckerman, a political columnist, had this observation. He reported: “Peña came to power in an excellent economic environment. Objectively, the first year of Peña has been very bad for the economy. The federal government is not the only culprit in this. But at the same time it had the responsibility for exacerbating a downturn that was about to become recession. Today the optimism after 12 months of “Mexican Time” has become something akin to skepticism.”
“I think that during a year of Peña it has had a lot to do with politics and poor management. A high achievement, however, is the Pact for Mexico,” opined Sabino Bastidas, a political analyst.
“We are seeing a ‘bittersweet’ year in the government of Peña Nieto. The sweet part was that some promises were kept and the Pact for Mexico gave us all hope. But two recent issues have undermined the mandate of the PRI, e.g. the (sour) economic issue and the (failed) security issue.
Because of the state of things we fail to see any clear differences with the previous (PAN) government”, said Rossana Source-Berain, editorial voice for the Expansion Group.
Paul Makhlouf is a journalist and teacher in Communication from the University of Sydney. He made his analysis public. He said: “Peña Nieto is a big political chess player. He really knows who to give instructions to, how to organize the chain of command and above all, he has the great discipline needed to materialize all the decisions.”
At the closing of the first year of Enrique Peña Nieto’s government constitutional reforms can be pointed to and are now a reality. The President can also boast of the “unprecedented” laying of the groundwork “for a modern state”. And, in his second annual cycle, his government initiated the “take-off toward developing”, something that was so well expressed by Emilio Gamboa Patrón, coordinator of the PRI in the Senate.
From his first day in office Nieto has been driven by an agreement that allowed overcoming political differences between parties. Today, because of this, the country has reforms that will help consolidate not only this administration, but work to facilitate decades of exponential growth.” This is what Francisco Funtanet Mange thinks. He is currently President of the Confederation of Industrial Chambers (CONCAMIN).
“Fiscal reform will allow us to increase loan penetration among businesses and individuals. Meanwhile tax reform (i.e. higher taxes) provides tax obligations in accordance to the international median and it also provides mechanisms for the formalization of employment,” according to Jorge Davila Flores, President of Chamber of Commerce (CANACO).
Gerardo Gutierrez Candiani, President of the Business Coordinating Council (CCE), put it this way. He said: “Economic growth this year was insufficient for a formal production system that had the ability to create the jobs that are used by the Mexicans … and we’re talking about the fact that every year we are required to create at least a million jobs. But in order to reach this important goal the Country needs to grow at least five percent in its economy.”