Mexico: A Power Shift That Could Shake Up Business

When he worked at the Mexican Finance Secretariat 10 years ago, Francisco Suarez Davila used to help draft important legislation and then send it over to the rubber-stamp National Congress for its approval. "They asked few questions, and they made very few changes in the bills," he says. Things are different now. During the recent battle to introduce privately managed pension funds, legislators insisted on some 90 changes to what the government submitted, says Suarez Davila, who now heads the Finance Committee in the lower house.

A wide range of Mexicans, from politicians to executives, say that Congress, whose obsequiousness used to be a favorite target of cartoonists, is becoming an increasingly independent force. The legislators' assertiveness is part of subtle but important changes that are occurring in Mexico's power structure. Under President Ernesto Zedillo Ponce de Leon, the once-imperial presidency is losing clout, as Zedillo promised, while other institutions--Congress, the press, the judiciary, and business groups--are gaining.

FEWER HANDSHAKES. This dispersal of power is essential to make the country more democratic, but it will also make Mexico a more unpredictable place, particularly for business. Gone are the days when a Mexican president or Cabinet minister could promise major investors or foreign leaders almost anything and most likely deliver. For example, opposition by labor unions and powerful business groups recently forced the government to limit foreign participation in its privatization of the petrochemical industry.

At the same time, the government finds itself under increasing pressure to ease up on the free-market policies that many Mexicans think are to blame for the country's economic woes. Many members of congress say they want to eventually push for a renegotiation of the North American Free Trade Agreement. "I would be in favor of making some changes in NAFTA," says Suarez Davila. He also complained that Mexico's membership in the Organization for Economic Cooperation & Development limits its ability to control volatile, short-term investment flows that contributed to Mexico's economic crash.

ROLLBACK? Such sentiment runs deep in the left wing of the Institutional Revolutionary Party (PRI), which has grown in influence as right-leaning voters have jumped to the center-right National Action Party (PAN) in recent elections. The PRI's party congress in June could well witness a serious effort to roll back some economic reforms of recent years.

Zedillo could find himself further weakened next year if his PRI loses its comfortable majority in the 1997 congressional elections. That could virtually paralyze the President during the second half of his six-year term.

To bolster the PRI, Zedillo is attempting to satisfy some of the nationalist pressures without destabilizing public finances. In a major departure from his free-market predecessors, he is working with business groups to draft an industrial policy, including subsidies and tax credits, to help companies become exporters. He is also expected to agree to a new debt-forgiveness program that would slash borrowers' debts by 30%.

How much more Zedillo will have to concede is hard to say. If the economy perks up, the pressure will ease. But the economy is still in the doldrums. Just 2% growth is expected this year, most of it in the fourth quarter, after last year's wrenching 7% drop. What does seem clear is that economic circumstances and Zedillo's lack of a clear game plan have created a vacuum. So other forces are moving to fill it.

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