Mexico's next president faces tough economy

MEXICO CITY -- The country's newly elected president wants to take on sluggish growth with labor, fiscal and energy reform.

MEXICO CITY – When Mexico's apparent president-elect, Enrique Peña Nieto, assumes office in December, a battered economy will meet him at the door.

Peña Nieto on July 1 ushered in the return of Mexico's Institutional Revolutionary Party – which ruled the country for 70 consecutive years through 2000 – on soaring promises of labor, fiscal and energy reform. He has vowed to create jobs and raise wages.

Tough challenges, perhaps, given Mexico's economic stagnation of the past decade. The country's average annual per capita growth since 2000 amounts to just 0.9 percent, according to the Center for Economic and Policy Research.

Mexico's economy is still plagued by "concentration of wealth and lack of competition in the most important sectors of the economy, from telecommunications to tortillas and chicken," said John Ackerman, political analyst and director of the Mexican Law Review.

"There is such a centralized control of the market and economy that it's been hard for innovation to occur," he said. "I don’t know how Peña Nieto plans to pull the rabbit out of the hat unless he changes the development strategy."

Many people are questioning whether Peña Nieto will have the political will to take on powerful, anticompetitive interests. A youth movement, known as #YoSoy132, rose during the recent campaign in opposition to media coverage favoring Peña Nieto; Mexico's television market is famously dominated by just two companies, Televisa and TV Azteca.

"The PRI has control of numerous governorships, influence over the media and lots of weight in congress," said Maureen Meyer of the Washington Office on Latin America. "A lot needs to be watched in this next government in terms of transparency and accountability."

There is also the question of mandate: Peña Nieto won with 38 percent of the vote, meaning six in 10 Mexicans who went to the polls did not vote for him. And while the PRI remains a heavyweight in the legislature, it will have to negotiate with other parties.

Among his proposed reforms, Peña Nieto plans to open Mexico's national oil monopoly, Pemex, to some private investment. (Oil accounts for roughly a third of government revenue.) He has said he wants to overhaul the tax system of the country, which has one of the lowest rates of tax collection in the region: Tax revenue amounts to just 17.4 percent of GDP compared with nearly 33 percent in Brazil and 31 percent in Argentina, according to Latin American Economic Outlook. (The average tax revenue, as a percentage of GDP, among the 34 OECD countries is 33.7 percent.) Peña Nieto's promises in terms of labor reform have been somewhat vague, including pledging greater productivity and higher wages without specifying a path to get there.

In an op-ed in The New York Times, Peña Nieto asserted that he will govern with "pragmatic realism and a clear, long-term strategy."

"Developing countries like India, China and Brazil have shown the way to significant and lasting poverty alleviation through institutional reforms and economic policies focused on growth," he said. "It’s time for these improvements to come to Mexico."

The outgoing administration of Felipe Calderon leaves behind a disappointing economic record, exacerbated by the 2008 and 2009 global recession when Mexico lost 9.4 percent of GDP over four quarters. Official unemployment and poverty climbed during Calderon’s presidency, which began in 2006.

"To the scandalous statistic of deaths due to the war on organized crime, one has to add the 2.4 million unemployed, the 14 million workers in the informal sector and the 6.5 million Mexicans who suffer from extreme poverty," according to an assessment in the El Financiero newspaper.

Come December, Peña Nieto will have to answer to all of them.

Photos: Nacho Espejo

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