Pena Nieto Prosperity Vow for Mexico Means Mastering the PRI

Enrique Pena Nieto rode a wave of discontent with Mexico’s ruling party to win the presidency. Now he must master his own party and a divided legislature to deliver on pledges to reduce drug violence, boost wages and break a state monopoly on oil.

Pena Nieto has 37.9 percent of the vote with 92 percent of ballots counted, beating his closest by six percentage points, according to preliminary results. His victory restores the Institutional Revolutionary Party to the presidency it held for 71 years until 2000, while falling short of a majority in congress.

While the 45-year-old presents himself as part of a more- democratic generation of leaders, many PRI governors continue to rule their states like “fiefdoms” and won’t take easily to centralized control, said Enrique Krauze, a historian and author of “Mexico: Biography of Power.” Pena Nieto also faces the threat of protests from an anti-PRI student movement and supporters of second-place finisher Andres Manuel Lopez Obrador, who performed better than opinion polls had forecast.

“Pena Nieto has proved during these months that he has political instincts, that he’s a political animal,” Krauze said in an interview in Mexico City prior to yesterday’s balloting. “But he won’t have an easy ride now in the sense that he’ll have to fight both inside and outside” his party.

Photographer: Amanda Gordon/Bloomberg

Enrique Pena Nieto during an interview on Nov. 17, 2011. Close

Enrique Pena Nieto during an interview on Nov. 17, 2011.

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Photographer: Amanda Gordon/Bloomberg

Enrique Pena Nieto during an interview on Nov. 17, 2011.

Pena Nieto said in an interview in November that he would stake his administration’s success on ending the state’s monopoly over oil company Petroleos Mexicanos. He has vowed to improve coordination between federal and local police forces to reduce drug-related violence that has left more than 47,000 dead under outgoing President Felipe Calderon’s rule.

Congress

“The Mexican people have given our party a second opportunity. We will honor it with results,” Pena Nieto said in a televised speech yesterday. “In facing organized crime, there will be no pact or truce.”

The new president will take office on Dec. 1, inheriting an economy that JPMorgan Chase & Co. (JPM) forecasts will grow as much as 4 percent in 2012, about twice the pace of the U.S., which buys 80 percent of Mexico’s exports.

Still, Pena Nieto failed to achieve the majority in congress many opinion polls had predicted he would win. With more than 90 percent of the votes counted, the PRI will likely get about 241 lawmakers in the 500-seat Chamber of Deputies, said Jorge Carlos Ramirez Marin, the second in command of Pena Nieto’s campaign.

Even with the cooperation of Calderon’s National Action Party, Pena Nieto may not have the two-thirds majority necessary to amend the constitution, a step required to end Pemex’s grip on oil production.

Opposition

Lopez Obrador’s Democratic Revolution Party, which opposes more private investment in the oil industry, won between 116 and 148 seats in the lower house, according to projections by Mexico City-based polling company Consulta Mitofsky.

Opposition to Pena Nieto spurred student protests that have taken aim at what organizers allege is favorable coverage of the PRI candidate by Grupo Televisa SAB, the world’s largest Spanish-language broadcaster and the dominant network in Mexico.

“There’s no time for a victory lap,” said Antonio Garza, the U.S. ambassador to Mexico under President George W. Bush, who now works at law firm White & Case LLP’s Mexico City office. “He’ll have to convince people and sell a vision to the country.”

Mexico’s economy has expanded 1.8 percent a year since Calderon took office, half the pace of Brazil, though it has overtaken Latin America’s largest economy in the past two years.

Bond Rally

Yields on Mexico’s peso bonds due in 2021 fell 63 basis points, or 0.63 percentage point, to 5.36 percent last month as Pena Nieto’s victory looked increasingly likely, according to data compiled by Bloomberg. Yields on similar-maturity Brazilian bonds dropped 32 basis points over the same period to 9.96 percent.

The yield dropped another five basis points, or 0.05 percentage point, to a record low of 5.30 percent today on a closing basis.

Pena Nieto’s well-picked advisers, such as his campaign manager Luis Videgaray, have been behind much of his success, said James Jones, a former U.S. congressman and ambassador to Mexico under President Bill Clinton.

“I would put Pena Nieto in a similar category as Ronald Reagan,” said Jones, referring to the actor-turned-president’s early portrayal by Democrats as a shallow lightweight. “Reagan was not analytically smart, but he had good political instincts. He chose people around him who knew how to run a government.”

Drug War

On the drug war, Pena Nieto must now negotiate the support of state governors to fulfill a pledge to create an elite federal security force that will contend with local police in hunting down traffickers.

“He needs the governors in order to accomplish most of the things he wants to do for the economy and security,” said Carlos Ramirez of Eurasia Group, a Washington-based policy analysis firm. “Can he convince the governors they need to reform their institutions? That’s where the question lies.”

The PRI will control at least 21 of Mexico’s 31 states and one federal district following yesterday’s vote, according to forecasts by Mitofsky based on early results. Some parts of the country remain tainted by allegations of corruption and cronyism associated with the old PRI regime that Pena Nieto has vowed to overcome.

Humberto Moreira stepped down as the party’s president in December after Standard & Poor’s said the state of Coahuila racked up undisclosed debt while he was governor. U.S. prosecutors in May filed civil charges against a former PRI Tamaulipas governor, Tomas Yarrington, for allegedly taking millions of dollars in bribes from drug cartels and investing them in Texas real estate. He denies the charges, according to his lawyer.

Rapid Ascent

In dealing with his party’s old-style governors, Pena Nieto can point to his family’s long history in the party.

He was born into a political family in Atlacomulco, a city in Mexico state that’s been a PRI stronghold for decades. Pena Nieto’s uncle and great uncle were both governors of the state, Mexico’s most populous. Trained as a lawyer, Pena Nieto entered politics early and at the age of 34 rose to a cabinet-level position in the state government.

In 2005, Pena Nieto was elected governor himself, beginning a tradition of signing his campaign pledges before a notary to convince voters he’d deliver. He also refused his advisers’ suggestion to cut his gelled-back pompadour, according to a campaign biography. In a race short on policy debate, Pena Nieto’s signature hairstyle garnered attention, with supporters donning wigs at rallies to emulate it while student protesters pointed to it as a sign of vanity.

Building a Reputation

As governor, Pena Nieto earned a reputation for building roads, hospitals and other public works. Standard & Poor’s awarded the state its first investment grade credit-rating in 2007, when Videgaray served as Pena Nieto’s state finance minister.

Sergio Luna, chief economist for Citigroup Inc.’s Banamex unit, said in an interview that Videgaray stands to become chief of staff or finance minister when Pena Nieto takes office.

Pena Nieto’s campaign has not been without its pratfalls.

On Dec. 3, he struggled when asked by journalists at a literary festival to name three books that influenced him, finally identifying the Bible and attributing to Krauze, the historian, a title written by novelist Carlos Fuentes. That same month Pena Nieto told Spanish newspaper El Pais he didn’t know the price of tortillas, Mexico’s staple food, explaining that he wasn’t the “woman of the household.”

Before the campaign started, Pena Nieto revealed that he had two children out of wedlock from his first marriage to Monica Pretelini, who died in an epileptic attack while he was governor. In 2010 he married Angelica Rivera, a soap opera star.

Popularity

The missteps had little impact on Pena Nieto’s popularity in opinion polls as his rivals failed to portray him as a product of television marketing and incapable of preventing a return to the corruption of previous PRI administrations, Krauze said.

He’ll need to make good on his promise of an improved PRI, with students threatening mass demonstrations if they see signs of the party reverting to its old authoritarian ways.

“He’ll have to call out acts of corruption of any party, even his own,” said Jose Antonio Crespo, a political analyst at the Center for Economic Research and Teaching, a Mexico City- based university, “He’ll need to show he can dialogue with opposing forces with respect.”

To contact the reporter on this story: Nacha Cattan in Mexico City at ncattan@bloomberg.net.

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net.

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