Mexican Election Results Could Spur Economic Reforms

Energy, education and healthcare reform, along with “better respect of the law,” would enable Mexico to grow in a positive direction – and the country’s recent elections could bolster that possibility, an expert says.

Luis de la Calle should know. He is managing director and partner of de la Calle, Madrazo, Mancera (CMM), a consulting firm specializing in economy, regulatory processes and international-trade matters. (In the past, de la Calle was undersecretary of international business negotiations at Mexico’s ministry of economics, and he headed bilateral trade-agreement negotiations as well as multilateral negotiations with the World Trade Organization.)

“Mexico needs changes that will allow the country to grow and have a larger middle class, whereas other countries need adjustments that would be a detriment in a short term to the middle class,” de la Calle affirms. “The question in Mexico is whether the new government and Congress can continue to improve make improvements and continue to progress, as well as to position themselves to be able to implement needed reforms that would benefit Mexico both economically and socially.”

Mexico’s elections in early July returned to power the Institutional Revolutionary Party, or PRI, putting former Mexico State Governor Enrique Peña Nieto in the country’s driver’s seat. Peña Nieto has vowed to lift his country’s growth to 6 percent annually via enhancing flexibility of labor markets, increasing tax revenues and allowing more private companies and foreign investors to participate in the development of Mexico’s historically closed domestic oil industry.

The most important energy reform would be one that allows competition against PEMEX (the Mexican oil company), de la Calle notes.

“We need competition in the marketplace to have a more efficient energy market, where prices would be competitive and the long-term contrast would be possible and determined by the market as opposed to being determined by government bureaucrats,” he says. A more competitive energy sector would be a boon to the country’s manufacturing economy, making the performance of energy intensive manufacturing activities in Mexico a more attractive option.

“We need a reform that will consolidate Mexico’s macro-economic stability. We need reforms to make the country more competitive in the areas of energy, labor market, social security, healthcare pensions.”

Still, the most significant improvement would be progress in consolidating ‘the rule of law,’ de la Calle adds.

“That needs to be done through the judiciary, police and municipalities working together to make Mexico a modern country,” he observes. “If we have a more stable environment and better respect of the law in Mexico, the amount of foreign direct investment that we’re getting – which is large already – might multiply times two or three. We could potentially see explosive economic growth in Mexico.”

Chances of those reforms happening will hinge on whether the PRI and PAN (National Action Party, the outgoing government) can put aside political differences and rivalries, and partner to enact change, de la Calle says.

“We don’t know,” he admits. “But this time around conditions are such that the country is probably in a better position to implement some of these needed reforms. Mexico is in a good position. We are going a little faster than Brazil (and) we don’t depend on commodity prices as much. If we manage to have one or two reforms implemented on top of the stable macro-economic environment that we currently have in Mexico, I think the perception would be that Mexico will be on the move again.”

Next week: More of de la Calle’s perceptions of Mexico as an increasingly middle-class nation.