New Government … New Direction?? Update

This past December, I wrote a blog on my hopes that the incoming president, Enrique Pena Nieto, of the political party PRI and the one in charge for the last 7 decades of the 20th century, a period where corruption and support of the old money oligarchies was the norm and still to blame for many of Mexico’s problems today. (New Government … New Direction?? December 2012 ) His party was voted out for 12 years in 2000, or 2 election cycles, with opposition PAN party Presidents Vincente Fox and Felipe Calderon running the country during both times of reform, and times of just more failed government. Pena Nieto was elected in a very close 3 party election last summer in which he got less than 38% of the vote. Far from a popular mandate.

He assumed office in December and my hope in that blog was that President Pena Nieto was a new breed of PRI leadership, one that would reject the old “banana republic” style of corrupt and crony filled, incompetent government and instead, embrace a more progressive style of capitalism, much like that in the US during the 40’, 50’s and 60’s, that recognized the building of a large middle class of capable consumers as a better way for the investor class to make money, and at the same time, make for a healthier, happier and safer population of citizens. The US did that with many regulatory measures that came about during those years, like establishing labor laws that forced employers to pay better wages, breaking up old money monopolies and so forth. The result was a sort of regulated capitalism that created the largest, most prosperous middle class in the history of the world. Mexico, is a very rich country, full of very poor people, much like the US was well into the early 20th century. This new President so often uses the phrase “para todos Mexicanos”, or “for all Mexicans” in his speeches and up until now, I have just always rolled my eyes with skepticism. However if one looks at the first 9 months of President Pena Nieto’s administration, you have to admit, he seems to be doing as he said he would for “todos Mexicanos”.

In the first months of President Pena Nieto’s administration, he has made some moves that surprised me beyond what I realistically hoped to see. He immediately removed and had arrested, a long time teachers union boss who was opposing very badly needed education reform in order to maintain her power and control. Her outrageously expensive lifestyle easily allowed them to find all the illegal behavior and she is still in jail today. Opposing making teachers take competency tests, doing away with allowing teachers to hand their job to a family member, making students go to school longer days and fewer holidays, all measures that seem very reasonable and needed, was not a smart thing to do if you are the teacher’s union boss. When her arrest was announced shortly after Pena Nieto took office, most Mexicans seemed relieved she was gone. Even teachers seemed to have mixed feelings about her; perceiving her as a mean, hard lady, but their mean, hard lady, so they supported her and looked the other way at her many plastic surgeries and summer homes in California. Her removal will allow the President to now push the reform agenda he campaigned on and the one the former union boss opposed. Good for him and “todos Mexicanos”!

Arresting a corrupt union boss that publicly campaigned against you could easily be perceived as typical banana republic politics though, so it was understandable that many looked at that first move as perhaps not convincing enough that this new government was actually going to go in a new direction. Education reform was to be applauded but most were still not convinced of his motive. His next step should have removed any and all doubt that this administration was different. He broke up a monopoly owned by telecom giant Carlos Slim, the wealthiest man in the world at the time and a long time supporter of Pena Nieto’s party. Nobody could blame this move as a political payback, that is for sure. This was again, badly needed reform that has broken up Slim’s dominance of Mexico’s communications systems by a single company in much the same way the US broke up Bell/AT&T a half century ago. Now Slim is forced, through regulation, to lease space on his nationwide grid with other companies and at rates that will drive the high prices Mexicans pay for telecommunication services lower. Mexicans pay double for telephone, internet and cellular than people in the US, yet have annual salaries 5-10 times lower. Something needed to change and it did.

Next came a bill presented in the lower house of congress by a PRI legislator to remove the requirement of Mexican ownership for property in restricted areas, an antiquated law and encumbrance to foreign investment, something that Mexico has traditionally relied on for income and has been falling rapidly the last several years. Supporters argue correctly that removing the old law will remove unnecessary middlemen who thrive on making money on foreign investors and companies by providing un-needed and often ill advised, or even illegal, services and causing foreign investors to begin to second guess the decision to invest in Mexico. Again, this is a bold political step because this will be a somewhat sizable blow to a banking industry that makes large profits as fideicomisos (holding companies) for foreign investors. And again, this change in the law is not a payback to a political opponent, and in fact, the banks and the government in Mexico have traditionally had a sound relationship at worst. It is just something that should be done and this administration is finally doing so. This bill is expected to pass the PRI controlled upper house and have the President’s signature by the end of the year and will most likely bring about a badly needed boost to the Mexican economy from foreign investment. Another good thing for “todos Mexicanos”.

In the coming days, the President is expected to announce what might perhaps be his boldest move yet as he is expected to announce a plan that will open up Mexico’s oil reserves to foreign oil companies. Most Mexicans know very little about Pemex, Mexico’s “nationalized” oil company. From what I can tell, Pemex is a loose arrangement that gives the government “ownership” along with a small group of very hard to identify, private investors/stockholders that smells a lot like an old money oligarchy to most. If controlling the price of gas at the pump is the only goal, Pemex has done a great job, but many argue at the expense of the Mexican taxpayers. The reality though is that Pemex seems more like a tax shelter arrangement with the government that allows that small number of stockholders, to make money off oil, and forces the government to pay the bills. Whatever it is, Pemex is losing money and most experts think Mexico will need to increase production, which requires Pemex invest heavily in new fields and technology, something the stockholders have refused to do, or close down by about 2020. Allowing foreign oil companies to drill in Mexico and pay their proper taxes, which Mexico can make them do better than they can old money oligarchies, will produce far more money for the country than the current system with Pemex. Possibly even more important though, foreign oil giants like Exxon/Mobil and BP will show other industries that players of that level will do business in Mexico again, and hopefully in the process, go a long way toward repairing Mexico’s somewhat tarnished image as a healthy place for investment and to do business.

As I say, Mexico is a rich country with too many poor people. So far, I am seeing a President here that seems to understand how it is better for all, the investor class, as well as the working class, to have a large and wealthy middle class. Bold moves such as those the administration have been both implementing, and proposing, are very encouraging signs. Building trust from the 60% of the population who voted against President Pena Nieto will take more time and real progress in the building of a middle class in Mexico. PRI’s 70 years of bad legacy can’t be forgotten in less than a year. However, if the remaining 5 and a half years of his administrations prove as progressive and benevolent as the first half year, my guess is Mexico will finally make great strides in building a middle class of happy, healthy and prosperous citizens. Or for the most part, “ para todos Mexicanos”! Viva Mexico!!

About talesfrommahahual

Stuck in Paradise!
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