LatinFinance - September/October 2013 - 42

MEXICO
ECONOMY

As economic indicators flag, Mexico’s president remains determined to
transform the country. But getting the law through congress could be complicated.
By Lucy Conger

Crunch time

C

oming up to a year after he was elected to power on a sweeping reform
agenda, enrique Peña nieto, mexico’s president, remains just as staunchly determined to
push through changes.
in his first state-of-the-union address, he pledged to see through the reforms he has already
tabled to address education, labor, telecommunications, finance, competition and energy —
and to get the fiscal reforms to congress within days.
to underscore his point about the revolution he intends to forge, the president used the
words “change”, “transformation” and “reform” no less than 68 times during his 61-minute
speech.
the agenda is ambitious, and Peña nieto is in a hurry. He called for congress to pass his
reform proposals by year-end.
While the much-vaunted mexico moment came and went this year, the country can still
build momentum in growth and productivity — if you believe Peña nieto. Under his plan,
mexico will boast a new operating environment in 120 days: one with tougher rules for
monopolies, better public education, easier credit for small businesses, a more progressive
tax structure and private and foreign investment in the state oil company, Pemex. indeed, it
would be a transformation.
“the reform agenda is very ambitious, much more ambitious than one would have
thought by looking at the Pact at the beginning,” Gerardo Rodríguez, former undersecretary
of finance and public credit in mexico and now managing director at investment firm BlackRock, tells LatinFinance in reference to the Pact’s announcement in December 2012.
Peña nieto’s proposed reforms amount to a make-or-break deal for the future of mexico
— and for his legacy. if they are approved by congress, they will chart a new course for the
country and, economists predict, boost its growth potential in the medium and long term by
1.5 to 2 percentage points a year. that would be a big lift for mexico’s growth, which has idled
under 3.5% in recent decades.
“i pledged to reach across political aisles and adopt a comprehensive reform agenda to
boost economic prosperity and productivity,” Peña nieto wrote in an exclusive article for
LatinFinance in September.
now is the time for the president to send positive signals to investors and jump-start the
economy. mexico is overdue for modernization.
if the oil sector is to become competitive, it is in dire need of investment. “the time is right
— before the shale revolution takes hold — the sooner the better,” says George Baker, an independent energy analyst.

42 l atinfina nce.com - September/October 2013

Soggy alternative
the stakes are high. if the reforms are
not passed, mexico faces continued sluggish growth and low investment rates, a
monopoly-heavy economy, imperceptible
or negative productivity gains, declining oil
production, low banking penetration and
miserable public schooling.
already, observers are becoming more
bearish on the country. mexico slipped
two spots in the World economic forum’s
annual competitiveness ranking, moving to
55th place in September 2013. that compounded a darkening mood underscored
by the government cutting GDP growth for
the year to 1.8% in august, down from 3.1%.
that figure could even fall as low as 1.2%,
according to several bank projections. in
a heartbeat, mexican exceptionalism was
wiped out.
Peña nieto has worked hard to forge support for his reforms. the day after taking
office in December 2012, he announced
that the three leading parties in congress
had agreed to a broad legislative agenda
under the Pact for mexico label. His choice
for finance minister — luis Videgaray — has
top-notch academic credentials, and extensive experience in state-level finances
and politics. Videgaray showed a talent for
compromise when, as deputy, he led negotiations for his institutional Revolutionary
Party (PRi) that made it possible to reach
consensus among political opponents on
appointments to the federal electoral
Board.
the odds of success for the reforms are
good. a wide-ranging group of banking and
energy analysts as well as economists and
mexican businesses believe the reforms
will be approved. even the energy reform
that would allow private investment in all
segments of the oil industry is expected to
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