World Citizen: At Long Last, Mexico's Bright Future

By Frida Ghitis, on 03 Jan 2013
worldpoliticsreviwe.com

When the world thinks of up-and-coming economies, the only non-Asian country that readily comes to mind is Brazil. That, however, may soon change. The stars are aligning, presaging what could prove to be a brilliant future for Mexico.

Latin America’s second-largest economy has long suffered from a combination of problems, some of which produced gruesomely bad press along with a hard-to-erase negative image. The problems, to be sure, have been real. But the image has been anything but balanced. Pictures of brutal killings in the country’s drug wars and high-pitched debates in the U.S. about waves of impoverished Mexican immigrants crossing the border have combined to sketch the portrait of a dangerous country in continuing turmoil.

The reality is more nuanced, and much less dark. In fact, Mexico is doing rather well in many areas, and today it stands poised to take a leap of prosperity -- as long as its new president, Enrique Peña Nieto, manages to harness the favorable conditions the country currently enjoys.

The Mexican economy is already growing faster than Brazil’s, and there are a number of reasons to expect that it will continue to accelerate.

Rapid economic growth in China is causing wages in that country to rise, making Mexico more competitive. And geographic proximity to major markets in the U.S., Europe and Latin America give Mexico a built-in advantage over its Asian rivals.

But the most important reason for cautious optimism has to do with the internal political balance at home. In order for Mexico to truly unleash its economic potential, it needs major reforms that, until now, had seemed politically out of reach.

Economists have known for a long time that before Mexico can enter an era of strong, sustainable economic growth, it needed to enact significant changes to laws governing labor, taxes and, most important of all, the constitutionally mandated state monopoly in the oil industry. The political cost of the reforms, however, meant that no legislature was up to the challenge.

Peña Nieto, a photogenic 46-year-old, assumed the presidency on Dec. 1, marking the return to power of the Institutional Revolutionary Party (PRI). The party had ruled the country for 71 years until 2000, when it was booted out of the presidency by a country fed up with its corruption and cronyism.

For the past 12 years, presidents from the National Action Party (PAN) sought to bring fundamental reforms that would enable Mexico to grow to its full potential. But PRI legislators blocked every move in Congress.

Peña Nieto will likewise face stiff opposition for important reforms, particularly from the labor unions that have built close, ethically questionable ties to the PRI. But the opportunity for change is now better than it has ever been. Indeed, some of the change has already started.

In November, outgoing President Felipe Calderón successfully ushered through Congress key reforms to the country’s archaic labor laws. PRI legislators, beholden to the country’s unions, resisted the reforms and managed to weaken a law that makes it easier to hire and fire workers. Tellingly, they tried to remove changes that would have required more financial and electoral transparency from the unions.

The biggest and most consequential test, however, will center on oil. The PRI nationalized the oil industry in 1938, and the constitution says only the state can exploit Mexico’s vast oil wealth. But the state oil company, Pemex, urgently needs to step up exploration and extraction if it is to reverse production declines that have lasted for seven years in a row. For this, it needs foreign help, which the constitution bans.

Adding to the problem, Pemex revenues fund one-third of the national budget. That means the oil company has to part with needed funds, and the government is too badly dependent on what amounts to easy money to forego the windfall.

To solve the twin oil and revenue problem, Peña Nieto will have to push through constitutional reforms to allow more foreign participation in the oil business, and tax reform to find new sources of revenue. Both efforts will meet stiff resistance, and not everyone is convinced the young president will be up to the task.

Once again, the entrenched unions, with more than 170,000 members working at Pemex alone, will surely be one of the top enemies of reform. With their close links to PRI, they will seek to turn the party’s legislators against the president’s reform efforts.

Previous presidents have tried and failed, but the new administration may just pull it off. PRI legislators blocked Calderón and PAN’s efforts, but Peña Nieto now enjoys a majority in both houses of Congress. Constitutional reform would require a two-thirds vote in Congress. If he can maintain party discipline and join forces with PAN, Peña Nieto and his party could muster the required votes to bring the long-awaited change. On the oil law, unions will have support from leftist parties, which enjoy passionate backing and will undoubtedly fight efforts to allow foreign firms to exploit Mexico’s oil wealth. But the president holds the stronger hand.

Even with all the needed reforms, Mexico still faces other difficult challenges. The drug war and vast levels of corruption remain hard to solve and enormously costly.

And yet, Mexico has managed to move forward despite those stiff headwinds. While global attention in recent years focused on impressive growth rates in Brazil and China, and Mexico’s image was tarnished by its other difficulties, the country achieved impressive results. The World Bank reported that 17 percent of Mexicans entered the middle class between 2000 and 2010, and inequality was reduced significantly, even more than in Brazil. Now Mexico has a clear agenda and a realistic chance of bringing more of its citizens into the middle class and turning the economy into a bigger player on the global stage.

The road ahead is steep, but the path is clear: 2013 could be Mexico’s year.