July 21, 2013 6:30 pm
Enrique Peña Nieto is on a roll. In a single week Mexico’s president has boosted his credentials on domestic security with the arrest of the country’s most notorious drug lord and on the economy with a six-year 4tn peso ($316bn) infrastructure investment plan.
The arrest of Miguel Ángel Treviño Morales, brutal boss of the Zeta gang, is an unqualified victory in the war on Mexico’s mounting violence. The wins from Mexico’s infrastructure investment will take rather longer to materialise. But if fully implemented, the programme should help accelerate Mexico’s growth.
From the arterial roads leading to the US border to the ports on both coasts, Mexico’s infrastructure is in dire need of upgrade. In the past decade, government investment has picked up, particularly in the central states, helping a manufacturing boom. But other parts of the country, such as the southern states of Oaxaca and Chiapas, remain poorly connected.
Mr Peña Nieto’s wishlist – which includes new passenger train lines, ports and a plan to upgrade 13,000km of rural roads – should address this. But the president is targeting more than extra spending in transport and telecoms. He plans two new television channels. Fostering competition in television is particularly important, following years of duopoly by Televisa and TV Azteca.
Mexico’s public debt is only 35 per cent of national income. The extra borrowing required to fund the infrastructure plan will not be a problem. Yet, to guarantee the long-term sustainability of public finances, Mr Peña Nieto should ensure his government can rely on a more solid tax revenue stream than it does at the moment. The reform of value added tax, which the administration plans to unveil in the autumn, is a good way to enlarge the public purse.
Mexico’s trickiest challenge, however, is to modernise the energy sector. Since the 1938 nationalisation, foreign companies have been banned from taking oil out of the ground. Yet Pemex, the state-owned oil company, has struggled to invest in exploiting the large reserves the country is believed to host. Since 2004, oil production has fallen by about a quarter to 2.5m barrels a day.
Mr Peña Nieto is committed to energy reform. But with opposition mounting across the political spectrum, he may not enjoy the same cross-party support he has had so far. He should push on regardless. Releasing the black gold that lies buried deep underground is essential to Mexico’s future.
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