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Pena Nieto Anti-Corruption Focus Slows Mexican Economy Overhaul

Two weeks after Enrique Pena Nieto won Mexico’s July 1 presidential election, he unveiled his most pressing priorities for action. The contrast with his pre- election agenda was unmistakable.

His first order of business when Congress convenes in September will be three bills to tackle corruption and increase transparency in government and media, Pena Nieto wrote in a July 16 column in Reforma newspaper. Proposals to revamp the economy will be offered “in their own time,” he said, without specifying when that will be.

This marks a change in emphasis from the campaign, when Pena Nieto pledged to open the state-run oil industry to outside investment -- a measure he called his “signature issue” -- and overhaul tax and labor codes as soon as possible, said Jorge Chabat at the Center for Economic Research and Teaching.

“I don’t think any of these economic reforms will be passed between now and December because the post-electoral atmosphere won’t permit it,” said Chabat, a political science professor at the Mexico City-based university. “It’s important to pass these laws in the beginning, because it’s when presidents have the most power.”

Pena Nieto’s decision to push first for an anti-corruption panel, transparency requirements for local authorities and a citizen watchdog to oversee government spending on the media came amid protests that have brought thousands onto the streets of Mexico City each weekend since the election. Many are supporters of runner-up Andres Manuel Lopez Obrador, 58, who has challenged the results, alleging that local officials of the winner’s Institutional Revolutionary Party, or PRI, embezzled public funds to buy millions of votes.

Protests

Protesters against Pena Nieto, 46, the former governor of Mexico’s biggest state, have sought to revive memories of the PRI’s 71-year hold on power that ended in 2000 and which they say was marked by corruption, cronyism and repression.

Pena Nieto, who takes office Dec. 1, beat Lopez Obrador by 6.6 percentage points, about half the margin forecast by most opinion polls before the election. The PRI failed to win a majority in either the Senate or the Chamber of Deputies.

While the nation’s top electoral court is unlikely to throw out the election, Pena Nieto’s attempt to placate his opponents with anti-corruption proposals risks postponing policies needed to boost economic growth that averaged 2.3 percent over the past decade, said Enrique Alvarez of research firm IdeaGlobal.

“He has to demonstrate that his pledges are more than just political rhetoric,” Alvarez, the head of Latin America fixed- income research at IdeaGlobal in New York, said in an interview. “If you had a very sharp focus on economic reform and understood that it was critical for the Mexican economy, you’d have left politics aside and continued to stress this.”

Investor Optimism

Signs that Pena Nieto may need to delay his economic agenda haven’t affected investors’ optimism. The extra yield investors demand to own Mexican dollar debt instead of U.S. Treasuries has fallen 14 basis points since the election to 188, compared to a gain of 2 points to 210 for Brazilian dollar debt, according to JPMorgan Chase & Co.’s EMBI Global Index.

Mexico’s benchmark IPC stock index has climbed 9.8 percent this year, reaching a record on July 17, while the peso’s 1.7 percent advance to 13.7090 against the dollar is the second- biggest gain among 16 major currencies tracked by Bloomberg.

In a May 30 interview, Luis Videgaray, Pena Nieto’s campaign chief, stressed that the incoming president wants to ask Congress to approve changes to the constitution to allow companies to own stakes in oil fields before he takes office in December. In an interview in November, Pena Nieto said such proposals would be the “signature issue” on which he wanted to be judged.

No Distraction

The focus on tackling graft won’t distract from the longstanding goal of overhauling the economy, Pena Nieto wrote in Reforma.

“While these are my three first bills, my team will also be working on economic reforms that I promised, and in their own time, I’ll present them to Congress,” Pena Nieto wrote.

Videgaray said on July 11 in an interview broadcast on Radio Formula that the transparency legislation will require a two-thirds vote to amend the constitution. Since the PRI’s alliance didn’t win an outright majority in either the Senate or lower house, it would need support from other parties to pass the measures.

PRI ‘Smokescreen’

The announcement of the measures follows Lopez Obrador’s complaint that the PRI bought millions of votes using pre-paid supermarket and bank cards. Veronica Juarez, a spokeswoman for his Democratic Revolution Party, said by phone that Pena Nieto’s anti-corruption bills are a “smokescreen” and that transparency efforts should start with clearing up irregularities in the election.

PRI President Pedro Joaquin Coldwell in turn yesterday at a press conference accused the PRD of breaking campaign finance rules to bankroll Lopez Obrador’s run. The PRD has denied the PRI’s charges, while Coldwell yesterday reiterated that the PRD’s charges against Pena Nieto’s campaign have no merit.

Josefina Vazquez Mota, 51, the candidate of the ruling National Action Party, who finished third, also raised the ghosts of past PRI misconduct during the campaign. In a June 10 debate, she associated Pena Nieto with a former PRI governor accused by U.S. prosecutors of taking millions of dollars in drug cartel bribes, and at a rally the next week she said Pena Nieto represents “corruption, authoritarianism and surrender before organized crime.”

Pena Nieto said at a July 18 press conference that while he’s committed to pushing the economic proposals, he recognizes the importance of transforming the PRI.

“The party has to modernize, be updated and reform itself,” he said. “My participation will be ongoing and active during this process.”

Skepticism

Students who for months marched against the return of the PRI will have a hard time believing Pena Nieto will keep his word to boost transparency and fight corruption, said Roberto Rios Orozco, a representative of the protest movement known as #YoSoy132, in reference to its origin on Twitter.

“There will be a great push in the media to make us believe him,” Rios Orozco said. “I like the proposals, but I don’t think Pena Nieto or the PRI will carry them out.”

Making the fight for government fairness an initial focus could be a good strategy if it helps unify Mexico’s divided political parties behind a common purpose, said Eric Farnsworth, vice president of the Council of the Americas in Washington. That would help build goodwill for Pena Nieto’s economic proposals, which will probably be more controversial, he said.

Labor Overhaul

“If his first success is in the realm of anti-corruption, that’s going to cause critics to be a little circumspect and give the guy room to operate,” said Farnsworth. “It’s tough to criticize somebody for doing what you say needs to be done.”

While Lopez Obrador’s legal challenge and the PRI’s lack of a congressional majority may slow Pena Nieto’s economic agenda, they won’t prevent him from eventually moving forward, said Carlos Ramirez, an analyst with Eurasia Group, a Washington- based research organization. The labor overhaul, which the ruling PAN party has proposed in the past, stands a strong chance of passing this year even with Pena Nieto’s new anti- corruption focus, Ramirez said.

“It will probably slow it down a bit, but not derail it,” he said in a phone interview. “Economic reforms have been waiting for 15 years. They can wait three more months.”

To contact the reporters on this story: Nacha Cattan in Mexico City at ncattan@bloomberg.net; Eric Martin in Mexico City at emartin21@bloomberg.net.

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

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