June 17, 2013 6:15 pm

Peña Nieto pledges transformational reform of Pemex

Mexico's President in a meeting©Getty

Enrique Peña Nieto: expectations that he can push through change are higher than they have been for 25 years

Enrique Peña Nieto, the Mexican president, vowed to press ahead with what he claimed would be a “transformational” reform of Pemex, the state-owned oil monopoly, a controversial move widely expected to unleash billions of dollars of foreign investment.

Mr Peña Nieto said the need to liberalise Pemex was already agreed under the so-called Pact for Mexico, a coalition between the country’s three main political parties, and that a more detailed proposal would be forthcoming within “two to three months.”

“There are different options on what the reform should be, but I am confident . . . It will be transformational,” he told the Financial Times. Mr Peña Nieto added the reform would include “the constitutional changes needed to give private investors certainty”.

Oil majors such as ExxonMobil and Royal Dutch Shell, which have been shut out by Mexico’s protectionist energy policies, have said they are ready to invest if Congress passes the measure, a keystone of Mr Peña Nieto’s ambitious reform agenda. Pemex, with annual sales of more than $100bn, is the world’s seventh-largest oil producer but the government’s high tax take has left it struggling to fund investment.

Since taking office in December, Mr Peña Nieto has already pushed through education, competition and labour reforms. But liberalising Pemex and possibly allowing for profit-sharing with international companies would be the most politically charged change of all, given that the industry’s nationalisation in 1938 remains a point of national pride for many in Latin America’s second-biggest economy.

“Democracy is about respecting the majority, it’s not about unanimity,” Mr Peña Nieto said, commenting on potential opposition to the measure. “Although the pact does not include everybody, it includes the most important parties. And there will always be dissident voices – as happens in any country that is liberal and free.”

The importance of “inclusiveness” is often repeated by Mr Peña Nieto, 46, a former state governor with the looks and easy charm of a matinee idol. On a visit to the Financial Times – although accompanied by a phalanx of dark-suited ministers and aides – he spoke fluently and candidly without notes.

State elections set for July 7, “have caused political tensions,” Mr Peña Nieto admitted, tacitly acknowledging a recent scandal about the misuse of federal funds by members of his Institutional Revolutionary party (PRI) in Veracruz state. “But we [in the pact] have also agreed that occasional differences should not jeopardise the reforms we have agreed to work on.”

Meanwhile, faster economic growth was a central priority he said, “as that is the best way to address poverty and inequality”. The central purpose of a financial reform bill, he added, “is to generate more and cheaper credit for all”. Tougher competition policy is about generating a “more democratic economy.” Ever tactful, though, he said a fiscal reform expected this summer “is still being worked out: I don’t want to put it at risk by discussing particular variables”.

Mr Peña Nieto’s reform success has lately made Mexico an investors’ favourite – although the prospect of higher US interest rates has walloped the peso this month. The economy grew just 0.8 per cent in the first quarter, but Mr Peña Nieto said the slowdown was partly due to his new government coming to grips with budget execution. “The drop in public spending will be temporary. We expect growth of 3.1 per cent this year,” he said.

Mr Peña Nieto shows a similar inclusive spirit in international affairs. Commenting on the recent visit by Xi Jinping, the Chinese premier, he said: “The primacy of Mexico’s relationship with the US is historic and obvious, nonetheless we recognise China as a global power. That’s why Mexico will give China special attention, without ignoring the US or Latin America of course.”

Even on thorny issues, Mr Peña Nieto plays down differences. On drug legalisation, he said: “Mexico is not in favour . . . But if, following a comprehensive hemispheric debate, that is what is decided, then Mexico would comply.”

Meanwhile, a new approach to organised crime that focuses more on bringing down violence rather than drug kingpins may have started to yield results. Around 70,000 people have died since his predecessor, Felipe Calderón, opened an all-out assault on drug-traffickers seven years ago.

“There was a drop in homicides in February and May. I don’t want to be triumphalist, though,” Mr Peña Nieto said. “It will take a year to see really how the new approach is working.”

Critics say Mr Peña Nieto’s inclusive approach is mere smooth-talking spin and comes at a price: diluted reforms. The president’s response is that the process is strengthened by cross-party input. “The pact is not just about government initiatives,” he says. “It is fed by others.”

“This environment of plurality and inclusiveness goes beyond politics,” said Mr Peña Nieto. “I hope we can maintain this spirit.”

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