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30/06/2006 | Mexico's Economic Choices in the Upcoming Election

Stratfor Staff

Mexicans will elect a new president and Congress on July 2. Thus far, the election season has been a bit anticlimactic compared to the 2000 campaign and election, when current President Vicente Fox was able to break 71 years of uninterrupted rule by the Institutional Revolutionary Party (PRI) and win the presidency for his center-right National Action Party (PAN). Fox's main message during the 2000 campaign and election was one of change.

 

He convinced a usually fairly cautious Mexican electorate that it was time to abandon the old long-ruling party -- and he generated considerably elevated expectations about political and economic change while doing so.

Six years later, Fox is preparing to hand over a country with a stable economy and sound macroeconomic variables. Opinions on whether or not Fox's presidency was successful are divided; how his fellow PAN member Felipe Calderon fares in the polls July 2 will give some indication of that opinion. While it can be argued the Fox administration has used a competent macroeconomic policy -- no small feat in Latin America -- and implemented some other successful programs, the truth is that Fox's performance fell far short of the expectations he created when he came to power.

This time around, voters are wary, and -- despite their promises -- the candidates are not generating the high expectations Fox did. Perhaps this is why not one of the three main candidates has been able to register more than 35 percent in opinion polls. The lack of such high expectations might actually be good, because whoever wins the presidential election will have to work with a Congress that will probably be divided among the three main parties. While a divided Congress could help mitigate the risk that some of the candidates' proposals could represent, it will also make it hard for any new president to deliver on his promises.

The candidates' main positions are pretty basic. Calderon is defending Fox's macroeconomic record (though he admits Fox's policies failed to create enough jobs) and talking about competitiveness. Andres Manuel Lopez Obrador, from the leftist Democratic Revolutionary Party (PRD), is saying the "neoliberal" economic model should be changed. He says he wants a fairer system and proposes that the state have a larger role in the economy. Roberto Madrazo, of the once ultrapowerful PRI, agrees with both positions, depending on his audience, but says he will do a better job of improving the economy than the other candidates will.

Again, while the Mexican economy has been stable and no new economic crisis seems to loom over the horizon (in fact, the Mexican government announced last week that it will make an anticipated payment of $7 billion to the World Bank and the Inter-American Development Bank), its growth rate over the past six years has been lackluster, and Mexico has continued to slide in all the rankings that measure economic competitiveness. Unless the Mexican economy starts growing at a considerably faster pace, it will be unable to create the jobs necessary to prevent Mexicans from immigrating to the United States. All the candidates have emphasized job creation as one of the most important issues. The question is, which candidate has the most realistic means to do it? And, even with good policies in mind, given the political landscape, will Mexico's next president be able to deliver?

Though the three candidates' ideas are all different, there are really only two approaches to Mexico's economy. Lopez Obrador favors an economic plan centered on public investment and still dependent on oil. Calderon and Madrazo both plan to stay the current course: Focus on private investment and diversify public revenues.

Both Calderon and Madrazo talk about reforming the tax system -- something Fox repeatedly tried and failed to do. Calderon has a more radical approach and proposes a substantial tax reduction and the introduction of a flat tax system. Madrazo talks about expanding Mexico's equivalent of the U.S. earned income tax credit and reducing the number of tax brackets and rates. Calderon proposes subsidizing the payment of social security fees for up to one year for young workers to increase job creation among that section of the population. He also proposes creating paid- and unpaid-internship programs prohibited by current labor laws.

Lopez Obrador, meanwhile, has not proposed any tax reforms; he plans to close the current loopholes that allow big businesses to evade taxes. He has also not proposed any moves to make the labor market more flexible. He has, however, presented extensive proposals to generate public-private partnerships in many infrastructure programs. Mexico has been lacking in infrastructure investment for highways, ports and communications. Lopez Obrador also says he will suggest drastically expanding the size and scope of the North American Development Bank -- which was established after the North American Free Trade Agreement became effective for the purpose of financing environmental and water projects along the U.S. Mexican border. Lopez Obrador wants the bank to finance projects in Mexico's central and southern areas -- the regions where most Mexican immigrants to the United States originate.

Some of the candidates' proposals, if agreed upon, could actually help create jobs in Mexico. But the rhetoric has been so loud, and the animosity among the candidates and their supporters so strong, that the next Mexican president will have a hard time claiming a mandate. Lopez Obrador has had an especially contentious relationship with representatives of the business community during the campaign. In the past few weeks, Mexico's Business Coordinating Council (CCE) has been paying for TV ads calling on the population not to take risks and abandon the economic model; Lopez Obrador loudly responded by saying the businessmen in the CCE are only trafficking influence. He has refused to attend any political forum organized by business leaders and has denounced the bank-bailout program established by the Mexican government after the 1994-1995 economic crisis. Moreover, he has denounced the sale of Banamex, Mexico's main private bank, to Citigroup, claiming the sale gave the previous majority shareholders impressive capital gains that went untaxed. If Lopez Obrador is elected and makes good on his promises, that bank sale could suddenly bear a very hefty tax bill.

Mexico's current political structure makes escape from the status quo difficult. If, as is likely, no candidate gets more than 40 percent of the vote, it will be hard for the next president to claim a mandate for change. In the short term, the continued lack of jobs will translate into continued immigration to the United States. But things could change if Mexico can push ahead and engage in reforms that can attract more investment.

Stratfor (Estados Unidos)

 


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Center for the Study of the Presidency
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