Adam Thomson, the FT’s Mexico City bureau chief, spoke with Felipe Calderón in the first published interview Mexico’s president has given to the foreign media since he assumed power on December 1. The interview was conducted at Los Pinos, the president’s official residence in Mexico City, on Wednesday January 17.

FINANCIAL TIMES: Mr Calderón, one of the dominating issues since you took power has been the war against drugs. How would you describe the situation in Mexico in terms of that war at the moment you took office?

FELIPE CALDERÓN: I was very concerned about the growth of drugs-related violence and the existence of criminal groups trying to take over control of entire regions. In that sense, a central objective we set ourselves from the first day in power was to recover full control of government in those affected regions. We have managed to do that with the operations we have launched as well as to calm people’s fears and to let them know that the government is here for them.

The underlying strategy is, in general, to emphasise not just the issue of security but also that of the rule of law and legality. For me, those things constitute a fundamental priority for the benefit of the people in addition to an indispensable element for broadening confidence in Mexico and generating much greater investment.

FT: And how are those operations going and what have the specific results been so far?

MR CALDERÓN: We know that it is a very complex and difficult objective to confront and that it will take time, money and human lives. Nor is it going to go away entirely but in the few weeks since we started these operations we have received very encouraging results. In the state of Michoacán, for example, the murder rate has fallen almost 40 per cent compared with the average over the last six months. People’s support in the regions where we are operating has grown, and that has been very important. Opinion polls have confirmed that, and I think we have made it clear to everyone that this issue is a priority for us.

I have laid down three priorities: security, and with the operations I think people understand that we are working very hard; combating poverty and strengthening public policy in this area; and generating employment, which we started to work on this week with the My First Job programme. So this is only the beginning but the first few weeks have brought uplifting results.

FT: You say that the war against drugs is going to be a long one, that is will cost a lot of money and even lives. But so far all these operations you are conducting have been financed 100 per cent by the Mexican state.

MR CALDERÓN: Yes, totally.

FT: Don’t you think that there should be a financial contribution from the US?

MR CALDERÓN: I don’t rule it out. The truth is that the US is jointly responsible for what is happening to us…this is an economic and mathematical equation. I cannot reduce significantly the supply of drugs if there is no reduction in the demand for drugs from the world’s biggest consumer, which is the US.

So in that joint responsibility the American government has a lot of work to do. We cannot confront this problem alone and we will need help. We have to work out a mechanism that implies that, without giving up or ceding an inch of Mexican sovereignty, we have the understanding and the collaboration of intelligence and sufficient resources from the country that, at the end of the day, is a fundamental cause of the problem.

FT: How much does Mexico spend on the war against drugs each year?

MR CALDERÓN: I would not venture a figure because that would involve looking at the whole gamut of our security budget and maintenance of the armed forces, which have a huge role to play in all of this. But the budgetary increase for the Ministry of Public Security this year has been in the order of 60 per cent.

FT: And how much more could the US contribute to the war?

MR CALDERÓN: Well a lot more, in equipment…this has been a very polemical issue with the Mexican people, I have to take a lot of care here. In general, there has been a tendency in the past to reject this kind of assistance. But I think that what Mexico is throwing at this problem…what is required to confront this problem is beyond the reach of the Mexican government.

FT: And as head of the Mexican state have you discussed this issue with President George W. Bush or with the US government?

MR CALDERÓN: Yes, we have mentioned it but so far we have not presented a more concrete proposal. I don’t rule out that we will do so in the future because US has to make a much clearer commitment on the issue.

FT: Have you talked about specific amounts of assistance?

MR CALDERÓN: No, nor specific programmes either.

FT: But we are talking about millions of dollars obviously?

MR CALDERÓN: Of course, maybe hundreds of millions or even billions.

FT: Of assistence from them?

MR CALDERÓN: Simply of what we need to confront the problem.

FT: And in general terms would you say the war against drugs is being won?

MR CALDERÓN: It’s a very long battle. What is clear is that we have been clawing back government control in Mexico and, something that may appear trivial but is not, is that we have passed from the defensive to the offensive and now we are the ones setting the pace. We are no longer just waiting to take the punches from organised crime. We are actively going after it and we are disrupting its operations, we are trying to hit its operative structure, its finances.

For example, the operations we have carried out have, among other things, tried to destroy drugs plantations of marijuana and poppy, which is something Mexico had not done in a long time. In Michoacán alone, we have erradicted 100,000 hectares of illicit crops. And in Guerrero state, we are eradicating huge amounts of crops and we are doing the same in Sinaloa. So all of this is helping to affect the structure of the drugs traffickers in Mexico.

FT: And I understand that the production from all those plantations was destined for the US market.

MR CALDERÓN: Yes, of course.

FT: A clear sign of that shift to the offensive that you talk about in the war against drugs were embodied in the images of you dressed in battle fatigues. Why did you decide to do that?

MR CALDERÓN: It is not the first time and I am not the only president to have put on military uniform. The president is the supreme commander of the armed forces and I have tried to get closer to the armed forces. In general, they have always been loyal but in my opinion they need much more attention from, and proximity to, the president.

At New Year, I decided to visit them at an operation they were carrying out and that is when I put on the military cap and jacket that they had given me. So yes, I take the role that the president has in relation to the armed forces with the utmost seriousness.

FT: What has been the effect of the decision to launch these counter-narcotics operations on your popularity?

MR CALDERÓN: From the comments I have received it has gone down very well with the military and the soldiers. And there is another thing: in this year’s budget we proposed, successfully, a substantial increase in the pay of lower-ranking soldiers. The income of the lowest-paid soldier was something dramatic like 2,500 or 3,000 pesos, which is less than $300 a month. That is really incredibly low for the work they do. So we pushed for an increase of 80 per cent for the lowest paid and that has been very well received by the troops.

The Mexican army is much loved by the Mexican people. It’s a people’s army in contrast, perhaps, to other armies or armed forces in Latin America. It is not an aristocratic army, it’s a people’s army made up of truly working-class people who are really loved by the people and, as an institution, it is respected even more than the government, the Federal Electoral Institute (IFE), judges, political parties, almost in the same category as the Catholic church.

FT: But the image of the military uniform appeared to have the aim of sending a clear message to the Mexican people that the boss had finally arrived and that he was prepared personally to take on the great challenges this country faces…

MR CALDERÓN: Yes, a little. The message we wanted to put out, not specifically with that image but in general, was that we were taking control of the presidency, with all the consequences that that implied, including the control of the public forces.

FT: Recently you described the political atmosphere at the time of last year’s presidential election as one of anxiety. How would you describe it today?

MR CALDERÓN: Of course, it is very challenging but I sense a very constructive attitude among the political parties in Congress. An attitude that, without sounding victory bells, is calmer. Above all, there is greater certainty among economic circles and the people compared with just a few months ago.

FT: And in that sense are you confident that you can form the necessary alliances in Congress to push through your reform agenda?

MR CALDERÓN: I hope so. I mean I don’t want to sound over optimistic, no. But the conditions exist to believe that we can form the alliances. There is, at the very least, willingness on the part of the parties. There is an awareness of the most serious problems. For example, there is a clear awareness that we have to increase government income. We will discuss very thoroughly what is the best way to do so and, of course, we will have our differences. I don’t want to say it is a given but I would dare to say that there is an atmosphere that allows us to think about agreements.

FT: Is it possible to talk about a specific timetable for the planned fiscal reform?

MR CALDERÓN: I prefer to work to the rhythm of Congress rather than hand in a proposal that would be condemned to failure for the simple reason that I presented it. No. I prefer to follow the debate closely and contribute our ideas and to form a majority that supports clear fiscal reform. What I am absolutely clear about is that 2007 might be one of the last opportunities we have to make real progress on fiscal reform.

FT: Can’t you elaborate a little on what the reform should contain?

MR CALDERÓN: In very broad terms it has to be a reform that allows companies based in Mexico to be more competitive. Second, it has to be a reform clearly aimed at increasing government income and closes as much as possible the exemptions that have been formed over many decades, often because of political interests, because of the ability of many big companies to exert pressure. The idea is to eliminate all those exemptions and have a much wider tax base with lower tax rates.

FT: Does eliminating all those exemptions mean that big companies will have to pay more taxes?

MR CALDERÓN: Yes. In fact, for the 2007 fiscal year the finance minister already included a tax reform on assets. Many companies and big corporations didn’t pay taxes thanks to various systems of rebates and exemptions and now they are going to have to pay them in a substantial way. It’s a reform that will probably give the government about $1bn extra in revenue a year. So the idea is that in Mexico everybody pays fairly and in a timely way so that we can be competitive.

FT: Is there enough competition in Mexico at the moment?

MR CALDERÓN: No. I would say that we have an increasingly open economy but that there is still margin for improvement in terms of market structures.

FT: To pick one of many examples, telephone charges are very expensive here and experts say that for businesses they are the highest of all OECD countries. Do you agree that telephone charges are too expensive?

MR CALDERÓN: Yes, I think so. And I think that the way to reduce them is to create a much more competitive market structure in which there are no barriers to entry and in which whoever offers the cheapest telephone services can just do it without restrictions.

FT: Could you give me a little more detail as to how exactly you intend to change the present market structure?

MR CALDERÓN: The first step is to strengthen the regulatory bodies, in particular the Federal Competition Commission (CFC), which now has more tools and more teeth to oversee markets and avoid market abuse and monopolistic practices that can form in any given sector of the economy. At the same time, it is important to strengthen the Federal Telecommunications Commission or Cofetel so that it is better able to regulate competitive markets in that sector.

FT: And on the subject of competitiveness, what do you plan to do with Pemex, the state oil company? You and I talked about a year ago, just at the start of the presidential campaign, and you were very cautious in terms of your proposals for Pemex. Now that you are president can you be a little more aggressive about….

MR CALDERÓN: Now that I am president I think I have to be even more cautious [laughs]. What I can tell you is that to succeed Mexico needs a competitive structure in energy – both in terms of price and quality – that we are not going to have as long as we have a monopolistic structure.

At the same time, the people, political parties and political groups want Pemex to remain a publicly owned company. Even so, I think it is important to look closely at the experience of other publicly owned companies in the world that has allowed them to modernise. For example, that of Petrobras in Brazil, to look at the case of Statoil in Norway, or the case of the Chinese companies which, despite remaining the property of the Chinese Communist Party, have been able to enter competitive markets, place shares in the stock exchange, allow for certain schemes relating to investment and technology to allow them to improve.

Mexico needs a lot of investment in the sector. We are experiencing a real fall in oil reserves, an exhaustion of our most important fields such as Cantarell, and that forces us to innovate and seek mechanisms which, without giving up hegemony or sovereignty of our reserves, provide Pemex with investment schemes that give it much greater margin to invest more, to explore more, that give it access to cutting-edge technology and get back to the kind of oil production that we reached recently.

FT: In that sense, do you think Pemex should have greater flexibility to associate with private capital?

MR CALDERÓN: We should let Pemex have the instruments and tools it requires for more flexibility. I’m not sure whether or not to have greater capacity to associate with private capital but, yes, more flexibility to achieve greater levels of investment and access to technology. But I could not say what those mechanisms would be.

FT: And to carry out those changes will it be necessary to change Mexico’s constitution?

MR CALDERÓN: Probably, but that would imply a very long debate in congress that I don’t want to run ahead of.

FT: Could you tell me more about the political atmosphere with a view to achieving these kinds of changes?

MR CALDERÓN: We have to build the political atmosphere and public opinion to the degree that it allows us to start a responsible debate. Right now, I think the only thing we would manage to do is stir passions and emotions rather than debate. And that would be the quickest route to failure.

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