Download The paradox that is Enrique Peña Nieto

1. The silence of Los Pinos
The paradox that is Enrique Peña Nieto
Nov 21st 2015 | From the print edition
IN THE first 18 months after he became Mexico’s president in December 2012 Enrique Peña Nieto
enjoyed extraordinary success. Through deft political manoeuvring he enacted a series of structural
reforms of his country’s sluggish economy that had eluded his three predecessors, including a
historic constitutional amendment overturning a ban on private investment in energy dating from the
1930s. But then it all started to go wrong.
First a heavy-handed tax reform alienated private business. The murder of 43 student-teachers in
September 2014 by drug traffickers in cahoots with local authorities in the southern state of Guerrero
shocked the country. The revelation that the president’s wife and his finance minister had both
acquired luxury houses with the help of Grupo Higa, a construction company that had won
government contracts, pointed to conflicts of interest at the top (though all denied wrongdoing). The
transport minister then hastily cancelled a contract he had awarded to a consortium including Grupo
Higa to build a $3.6 billion high-speed railway.
In July the escape from prison of Joaquín “El Chapo” Guzmán, Mexico’s most notorious drug
trafficker, added humiliation to embarrassment. All this has undermined public support for Mr Peña.
In a country that is traditionally deferential to its presidents, his approval rating slumped to 34% in
the wake of Mr Guzmán’s flight. The government is the butt of remorseless contempt among Mexico
City’s chattering classes. Many Mexicans point to two big problems with which they associate Mr
Peña’s administration—the continuing lack of security and the prevalence of corruption.
Officials seem both bemused and resentful at the lack of credit the government gets for its
achievements. After all, while Mexico’s economy may not be stellar, it continues to grow steadily,
which is more than can be said for some others in Latin America. The reforms are starting to show
results that people can appreciate, such as a sharp fall in mobile-phone charges. Congress has
approved a constitutional amendment to set up a grandly named National Anti-Corruption System.
Many things, from education reform to the car industry, are going well in Mexico.
Even on security, the full picture is more mixed than the headlines. The murder rate fell from 2012
until March this year, though it is now edging up again. Several northern states where mafia violence
raged are much calmer. In the central state of Michoacán, the federal government has defanged
both a particularly vicious drug gang and local vigilantes. A new programme of community policing in
some of the most dangerous neighbourhoods (with a total population of 2.5m) has “measurable
results”, says a security official.
But the government’s failures are more visible. These include Guerrero, which has become one of
the world’s biggest sources of heroin. Parts of the state are “totally penetrated by organised crime”,
the official admits. To his critics, Mr Peña has failed to give priority to security and the rule of law
partly because many local politicians in his Institutional Revolutionary Party (PRI) benefit from the
status quo. That applies even more to corruption. Congress is due to approve by May the laws
required to implement the new anti-corruption system. If there is a “50% chance” that these laws will
have teeth it is because Mexican society and academia are becoming increasingly conscious of the
cost of corruption, says Mauricio Merino of CIDE, a university.
Mr Peña’s most surprising failure is political. Paradoxically, the president who piloted ambitious
reforms has proved incapable of reacting to events. “They don’t know how to respond to public
opinion,” says Héctor Aguilar Camín, a historian, of Mr Peña’s small coterie of aides. He calls the
problem “the silence of Los Pinos” (the presidential offices). In the days when the PRI ran Mexico as
a one-party state, presidents were often ruthless in sacking subordinates who failed. Not Mr Peña:
the finance, transport and interior ministers all remain in their jobs, despite the conflicts of interest
and Mr Guzmán’s escape. The president seems to place personal loyalty above public
accountability.
In the narrowest of political terms his judgment may be correct. Despite all the scandals, the PRI and
its allies kept their congressional majority in a mid-term election in June. Mr Peña may yet be able to
get his chosen successor elected in 2018 merely by conserving the PRI alliance’s hard-core vote of
around 36%. That is because the opposition is fragmented, and the constitution does not require a
run-off ballot. The problem is that this formula will intensify Mexicans’ disillusionment with their stillyoung democracy.
2. Turning on the charm
Enrique Peña Nieto is a charismatic reformer with a popularity problem
Sep 6th 2014 | GUADALAJARA | From the print edition
WATCHING President Enrique Peña Nieto in shirt-sleeves among his whooping, sombrero-wearing
supporters is a lot more fun than seeing him as he prefers to be seen: in a suit and tie, with slickedback hair, deploying all of Mexico’s sash-laden presidential paraphernalia. At a recent meeting in
Guadalajara the women call out to him flirtatiously, asking him to pose for selfies. Though many of
the men tower over him, he has a strong presence. He beams—even when they break into an old
agrarian anthem decrying capitalism.
These are Mr Peña’s people: campesinos (peasant farmers) from the Institutional Revolutionary
Party (PRI). During his 21 months in power, the president has positioned himself above the fray of
party politics, working with the opposition to enact a host of constitutional reforms, in areas from
education to energy, designed to modernise Mexico’s economy. But in this setting the old-style
politician emerges. The energy reform will bring lower fertiliser prices, he assures them. To bigger
cheers, he repeats a pledge to open the tap of credit to farmers without requiring them to put up their
land as security. And even better than a presidential selfie, women are offered a lower interest rate
than men.
Most Mexicans feel less warmly toward Mr Peña. In recent opinion polls his disapproval rating has
been above 50%—not bad by international standards, but much worse than that of his predecessor
after a similar length of time in office. Better-educated Mexicans are among the biggest doubters,
even though they might be expected to benefit more from his reforms. Leo Zuckermann, a pundit,
sums up their scepticism when he describes the government as “Janus-faced”. One face looks
forward, via the reforms, to a brighter economic future. The other looks backward, to most of the
20th century, when the PRI exerted almost total control in Mexico.
Mr Peña’s aides insist that his “absolute priority” from now on is successful implementation of the
reforms, such as ending a 75-year ban on foreign investment in the oil industry and strengthening
competition in Mexico’s telecoms industry. But the electoral clock is already ticking down to mid-term
congressional elections in July 2015, and Mr Peña is on a charm offensive.
On September 2nd, in his second annual state-of-the-nation address, he announced big plans to
stoke the economy, such as the building of a new $9.2 billion, six-runway international airport in
Mexico City that would quadruple the passenger capacity of the current one. He also launched a
programme called “Prosper”, which aims to help sons and daughters of people in poverty
programmes to gain access to higher education and jobs.
To ensure that his reform message gets a better hearing, his aides have divided up the public into
two categories—the “red circle” and the “green circle”. The former comprises opinion leaders such
as columnists, who are generally critical of the reforms, and the business community. The “green
circle” is the masses, who are more likely to be uninformed about the reforms—or simply
uninterested. This circle was recently treated to a pre-recorded presidential interview spun out over
five days on a popular morning television show. Mr Peña was typically strait-laced when discussing
the reforms. It was the presenters who provided the common touch. “Wow!” and “How marvellous!”
were some of their more probing interventions.
Ultimately, however, the message that Mexicans of all classes most want to hear is that the
economy is improving. Guillermo Valdés, a polling expert at GEA, a think-tank, says the drop in Mr
Peña’s popularity is principally because the economy has underperformed since he took office,
rather than because of the reforms themselves (see chart). Concerns about the economy now far
outweigh those about crime and violence. As yet, Mexicans do not appear to believe the
government’s promise that the reforms will help the economy grow faster than it has for decades.
There may soon be better news. In his annual address Mr Peña pointed to signs of stronger activity,
including a 3.7% rise in formal jobs in the year to July 31st. Analysts say growth is picking up at last,
though they are not yet raising their full-year GDP forecasts. If the acceleration becomes tangible
and news emerges of big foreign interest in the oil industry, Mr Peña’s popularity may start to grow in
time for the 2015 elections, and not just among the farmers of Guadalajara.
3. Keep it up
Enrique Peña Nieto has achieved a lot. Now his government needs to maintain the momentum
Aug 9th 2014 | From the print edition
FEW governments can truly claim to be radical. The administration of Enrique Peña Nieto is on its
way to joining this rare breed. The Mexican president came to office in late 2012, promising big
changes to the way the country was run. The legislative phase of this reform process is now
complete. Next comes implementation.
Much has been done in the past 20 months. Mexico has the lowest tax take in the OECD as a
percentage of GDP: a fiscal reform has started to broaden its sources of revenues. Measures to
shake up the telecoms and broadcasting industries last month prompted América Móvil, the
monopolistic telecoms firm owned by Carlos Slim, the world’s richest man, to announce it will divest
assets to avoid antitrust pricing regimes. Teachers will face more scrutiny, banks more competition.
No reform matters more than the liberalisation of Mexico’s hidebound energy sector. The state has
controlled the hydrocarbons industry since it was nationalised in 1938. Pemex, the state oil firm, is a
cash cow for the government—it contributes a third of revenues—but it is poorly managed and its
production levels have been steadily declining. Industrial electricity prices are almost 80% higher
than those in the United States. Mexico’s Congress this week approved secondary laws that will
throw the country’s deepwater and shale fields open to foreign investment. The electricity industry
will also be liberalised. Lower energy prices ought eventually to result.
Mr Peña is not the only one who deserves credit for these achievements. So does Mexico as a
whole. Its political classes have largely co-operated in pushing through the reforms, many of them
requiring constitutional changes. Its people have reacted with maturity to the dismantling of a taboo
around foreign investment in Mexico’s natural resources. The country has handed its northern
neighbours a lesson in non-partisan governance.
Mr Peña’s job is nowhere near complete, however. First, he has to find a way of pepping up a
sluggish economy, which is expected to grow by 2.4% this year. The reforms’ costs have
materialised faster than their benefits: regulatory uncertainty, higher taxes and denser accounting
rules have all taken a toll on consumption and investment. The best way to revive growth quickly is
to spend money on infrastructure. Billions have been promised, little has actually happened. Shovels
hitting soil would help confidence—provided the projects are not boondoggles. Obvious priorities
include new natural-gas pipelines and a new airport for Mexico City.
Many a slip
Second, the government has to ensure that the fruits of change are shared by all Mexicans. The
reforms of President Carlos Salinas in 1988-94 were discredited because their benefits seemed to
accrue only to a privileged few. Membership of NAFTA helped Mexico to attract foreign direct
investment but did not close the income gap with Canada and America (seearticle). Previous
attempts to evaluate teachers failed to root out the worst ones.
Mr Peña will need to do better. Independent regulators will be essential to fostering real competition
across the economy. The energy reforms present a particular test. Mexico has scant experience of
running tenders and awarding licences; and the most seasoned people are locked up inside Pemex,
the institution whose interests are most threatened by the changes. Letting the foreigners in to staff
the energy regulators, as well as to explore the country’s natural resources, may be the answer.
Even if these problems are solved, big ones will remain. Productivity among small businesses fell by
6.5% a year between 1999 and 2009, according to McKinsey, a consultancy. It will not be easy to
encourage tiddlers into the formal economy, where they can concentrate on growing bigger rather
than staying under the radar. But if the president can keep up the momentum during the last four
years of his term, Mexico will have been changed greatly for the better.
4.
Mexico’s president
Business backlash
Dec 5th 2014, 8:47 BY H.T. | MEXICO CITY
IN A sign of Enrique Peña Nieto’s weakened stature since a law and order crisis erupted in
September, Mexico’s business community will today directly challenge him over a grievance it has
nurtured for more than a year. In a face-to-face meeting with the president, the Businessmen’s
Coordinating Council, a lobby group, says it will ask him to roll back part of last year’s tax reform. It
will also call on his government to cut wasteful spending.
Gerardo Gutiérrez Candiani, head of the country’s main business lobby, says the fiscal overhaul that
raised taxes last year is the only one of Mr Peña’s reforms that the business community is against,
blaming it for putting the brakes on economic growth this year. He said he would propose an
immediate reversal of a reform that bars companies from using their investments to offset their tax
liabilities. He would also ask for a staggered reduction in income taxes, and propose the
reinstatement of other tax write-offs.
This call comes at a delicate time for Mexico. Public finances will eventually be hit by a decline in oil
prices (they are currently hedged), and the fiscal deficit is already running near a fairly high 3.5% of
GDP this year, a level which the government hopes to stick to in 2015. Mr Gutiérrez says the deficit
should not be allowed to rise further. He believes some of his group’s tax-cut proposals would not
harm revenues because they would spur growth. The government also has plenty of scope to cut
wasteful public spending. According to a report this year part sponsored by the World Association of
Newspapers, federal and state governments spend about $900m a year just on propaganda. It
saturates the airwaves.
Luis Videgaray, the finance minister who stunned the business sector last year with the tax reform,
now says he is open to cutting taxes. Until recently he had given short shrift to the private sector’s
gripes, which have been mostly aired quietly to avoid upsetting other aspects of the reform agenda
that big business supports. Even though Mr Gutiérrez hopes to increase pressure on the
government over taxes, he appeared to remain loyally supportive of Mr Peña’s law-and-order
strategy.
Political observers say the risk is that more vested interests affected by the reforms, such as
telecommunications firms, broadcasters and banks, will attempt to capitalise on the government’s
troubles and push for more leniency. Poll figures this week showed Mr Peña’s popularity had
slumped since 43 students went missing in September and he was embroiled in a scandal involving
his wife’s attempts to buy a house on credit from a government contractor. It is not just his left-wing
foes on the streets who are attempting to take advantage of his troubles.
5.