GRI Person of the year in political risk: President Pena Nieto

GRI Person of the year in political risk: President Pena Nieto

In one year Mexican President Enrique Peña Nieto has overhauled key branches of Mexico’s economy such as energy and telecommunications, while also working to increase government revenue. He has enacted these reforms in a politically masterful way, which only begs the question of how much more Mexico can change under his leadership.

On December 1, 2012 Enrique Peña Nieto was inaugurated as the President of Mexico. The election marked the return to power of the Institutional Revolutionary Party (PRI) after a twelve-year absence. Led to victory by a youthful former Governor of the State of Mexico, many in the press and punditry harbored considerable doubts and worries over Peña Nieto’s capabilities and about the re-ascendancy of the PRI, a party with historical accusations of corruption during its seventy year long period of rule that ended in 2000.

Over a year later, as 2013 comes to a close, Peña Nieto has stunned many of his critics and carried out important reforms that have transformed Mexico. Both for the extent of these revolutionary measures and the way they have been carried out, Peña Nieto is arguably the most significant international political risk figure of 2013. In one year, the President of Mexico has managed to enact far-reaching reforms whose impacts will continue to reverberate in Mexico and internationally for years to come. Here are four reasons why:

1. Energy

Perhaps the most heralded of the reforms enacted since Peña Nieto came to power, and certainly the most controversial, is his latest gamble: energy. The prospect of opening up Mexico’s state-run oil to foreign investors has long been politically controversial. It is fraught with electoral peril in a country with deep memories of foreign exploitation and an institutionalized revolutionary tradition.

In changing the constitution to allow for state-owned Pemex to work with foreign investors and companies in oil exploration, Mexico has enacted what Duncan Wood of the Mexico Institute at the Woodrow Wilson Center calls “..the most significant change in Mexico’s economic policy in 100 years.” By welcoming foreign capital and development, the reforms will open up an estimated 30 billion barrels of oil and 500 trillion cubic feet of natural gas. In developing these untapped reserves, these reforms will make Mexico a major player in the energy sector, transforming its potential.

2. Telecommunications

During the presidency of Carlos Salinas de Gortari in the late 1980’s and 90’s, Mexico’s state owned communications were privatized. This enabled the rise of many wealthy telecommunications moguls, including the world’s formerly richest man Carlos Slim, and a select few others. It also contributed to a monopolization that has prevented ingenuity, innovation, and access. Fixed phone line company Telmex has controlled up to 80 percent of its industry and mobile service company Telcel up to 70 percent.

On June 10, Peña Nieto signed a constitutional amendment aimed at reducing monopolization through the establishment of a regulatory board, the Federal Institute of Telecommunications (IFETEL), and by preventing any single company from owning more than 50 percent of market shares. Unlike its predecessor, IFETEL will function as an independent agency, separate from the executive and legislative branches.

3. Fiscal reform

In October, Mexico’s Senate passed a fiscal measure to increase plummeting government revenues. Among other things, the bill increases the maximum tax rate from 30 to 35 percent. While some fear that the measures may result in diminished growth, it is also undeniable that increased revenues will be needed for research and development, infrastructure, and other essential investments needed for a developing and industrialized nation.

One controversial aspect of the law is an increased tax on high calorie foods and sugary drinks to curb the obesity and diabetes epidemics that have resulted in increased healthcare costs and are harmful to the labor force.

4. Politics

Many of these reforms have been quite controversial. Indeed, 60 percent of Mexico’s populations have been polled as opposing the introduction of foreign investment into Pemex. Reforms in education and labor have sparked numerous and politically costly protests.

The political costs of these reforms may very well inhibit many further items on Peña Nieto’s agenda, as the recent fracturing of the political coalition over oil illustrates. With his party lacking a majority in Congress, Peña Nieto has used a coalition to execute his Pact for Mexico, the plan that outlines many of the reforms he has sought to enact.

While not perfect, the manner in which Peña Nieto has enacted the Pact has been masterful. The more controversial legislation such as energy has been completed towards the end after he built up momentum and support through previous successes. For example, some reforms, such as aspects of the fiscal measures, have enabled increased support from the left, which was essential in pursuing reforms more popular on the right, such as energy.

Enrique Peña Nieto’s championing of needed changes and his pragmatic method of achieving them illustrate that in one short year, one individual can play an important role in transforming government and markets. What 2014 will bring for Mexico and the global markets remains to been.

Categories: Latin America, Politics

About Author

Sean Durns

Sean Durns worked as a research assistant to a former high ranking Pentagon official and the Director of National Security Strategies at a DC based think tank. His analysis has been referenced by a variety of media outlets including The Wall Street Journal, Roubini's EconoMonitor, OilPrice, and many more. He holds a M.Sc. in History of International Relations from the London School of Economics where he focused on US foreign policy, security studies, and energy security.