Last updated: December 4, 2012 11:24 pm

Peña Nieto sets out reform agenda

Six years ago, as he started his presidential term, Mexico’s centre-right leader Felipe Calderón put on a military uniform and declared war on organised crime. The decision became the administration’s most visible policy, dominating its period in office.

On Sunday, just one day after becoming the country’s president, the centrist Enrique Peña Nieto declared a different sort of war – this time one that appears to have the country’s vested interests as its principal target.

In a 34-page document called the Pact for Mexico, Mr Peña Nieto, of the Institutional Revolutionary party (PRI), set out what for many observers is the most ambitious reform agenda in years.

For a start, there is a proposal to introduce greater competition into the highly protected oil and gas sector, and to make the heavily unionised Pemex, the state oil behemoth, more efficient. There is an outline to shake up the hobbled education sector, currently controlled by Elba Esther Gordillo and her mighty teachers’ union.

There is even an intention to create more competition in Mexico’s notoriously closed business sectors by beefing up the powers of the country’s antitrust body. In the case of free-to-air broadcasting, which is dominated by just two companies, the document proposes creating two new television networks.

In all, the document pledges 95 separate “commitments” ranging from political and judicial reform to a shake-up of the country’s police forces.

Analysts say that the Pact for Mexico is remarkable not only for its ambition but also because it carries the signatures of the country’s political leaders, from the leftwing Democratic Revolution party (PRD) to the conservative National Action party (PAN).

“It confirms that the political atmosphere is much better than it was,” says Marco Oviedo, chief economist for Mexico at Barclays. “It shows that you have two opposition parties that are willing to participate and co-operate.”

That certainly has not been the case since 1997, the last time a single party had a simple majority in congress. Indeed, since 2000, when Mexico embraced democracy after 71 years of one-party rule, fighting among the country’s leading parties has continually upended reform attempts.

Mr Oviedo believes that, taken together, the proposed reforms could raise Mexico’s potential growth rate from about 3-3.5 per cent now to 5 per cent by 2020. “Mexico could become one of the world’s most dynamic emerging markets.”

Unsurprisingly, perhaps, the document is short on some detail. On energy, a proposal that is scheduled for the first half of next year, the document states the goal “to increase the capacity of the oil exploration and production industry through an energy reform to maximise oil earnings for the Mexican state”.

There is even potentially disappointing news for investors who were hoping for a quick, or even partial sale of Pemex. While the aim is to pass reforms to create “an environment of competition” in refining, petrochemicals and transportation of oil and gas, the document bluntly states, “without privatising Pemex’s facilities”.

It adds: “The necessary reforms will be carried out ... to transform Pemex into a productive, public company, which will remain property of the state.” Political analysts say that such phrasing was probably a prerequisite to get the leftwing PRD on board.

But it nevertheless suggests a slower pace of reform in the oil sector than when Mr Peña Nieto told the FT last year that “different mechanisms could be explored to ensure an involvement for the private sector in its alliance with Pemex ... Brazil is one example” – an apparent hint at the idea of floating some of the company along the lines of Brazil’s Petrobras in 2010.

There is also scant detail on tax-reform proposals, scheduled for the second half of next year, beyond the intention to improve and make more efficient the state’s ability to collect taxes.

Carlos Elizondo, a professor at Mexico City’s Cide, a public institution of higher education, argues that that is a problem because the Pact also contains a raft of initiatives, such as a comprehensive and universal social security system, that imply much more spending. “Where is the money going to come from?” he asks. “We don’t know.”

Mr Elizondo points out that the Pact is also simply the latest in a long history of similar political agreements in Mexico that ultimately failed to deliver what they promised.

For now, though, there is a cautious sense that the 46-year-old Mr Peña Nieto has got off to an impressive start. Sergio Aguayo, a professor at the College of Mexico, a centre of higher education, admits to being surprised in a positive way by Mr Peña Nieto’s apparent determination to address Mexico’s age-old problems head on.

“He’s opened up a Pandora’s box,” says Mr Aguayo. “It’s going to be an intense six years.”

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