Mexico Oil Monopoly and Drug War Head New President’s Agenda

Incoming President Enrique Pena Nieto
Incoming President Enrique Pena Nieto plans to open the state-owned oil industry to more private investment, which may help increase demand for Alpek bonds. Photographer: Susana Gonzalez/Bloomberg

Mexican President Enrique Pena Nieto takes office today vowing to bolster Latin America’s second-biggest economy by ending a seven-decade oil monopoly and improving security in a nation wracked by drug violence.

The 46-year-old former governor of Mexico state assumed office in a midnight ceremony where the national anthem was played and outgoing President Felipe Calderon handed him a Mexican flag. Pena Nieto will take the formal oath of office today as the first president from his Institutional Revolutionary Party, or PRI, to lead the country since voters ended the party’s 71-year rule in 2000. He’s then scheduled to give a speech at the National Palace.

As the lower house of Congress began the session for Pena Nieto’s swearing in, Ricardo Monreal, a legislator who ran election runner-up Andres Manuel Lopez Obrador’s campaign, took to the podium to rail against alleged corruption by the PRI and Calderon’s National Action Party. Hundreds of protesters fought with police at barricades around Congress, with rioters hurling firecrackers and officers spraying tear gas to disperse them.

Pena Nieto’s economic goals have fared better, getting a boost last month when PRI lawmakers, working with Calderon’s PAN, passed a labor bill intended to increase productivity by allowing hourly wages and part-time contracts. The 3.8 percent economic expansion analysts forecast for this year is still below the 6 percent potential outlined by the government.

‘Trapped Growth’

“We need to find a way to unleash that trapped growth potential in the economy, and that’s why those reforms are so critical,” said Alberto Ramos, an economist at Goldman Sachs Group Inc. Investors are looking to see that the PRI “will be willing and able to reach across the aisle to achieve meaningful reforms,” he said.

Mexico’s economy has accelerated faster than Brazil and the U.S. as companies from Ford Motor Co. to Bombardier Inc. spur a manufacturing boom. Yet growth still trails Chile, Colombia and Panama.

The incoming leader has also promised to turn the tide in a drug war that claimed more than 57,000 lives under Calderon. That violence shaves about 1 percentage point off annual gross domestic product, according to government estimates.

Pena Nieto won a July 1 election with 38.2 percent of the national vote, compared with 31.6 percent for Lopez Obrador. During the five-month transition, Pena Nieto prioritized transparency and anti-corruption measures over economic legislation amid public concern the PRI would return to the cronyism that marked its prior rule.

‘Solid Perspective’

Investors are bullish on Mexico’s prospects. The nation’s access to cheap energy, low wages and proximity to the U.S. consumers are helping manufacturers boost exports to a record this year and may help the nation overtake Brazil as Latin America’s largest economy within 10 years, according to Nomura Holdings Inc.

“A lot of variables are coming together to give Mexico a very solid perspective going forward,” Carlos Slim Domit, co-chairman of America Movil SAB, the largest wireless carrier in the Americas by subscribers, and the eldest son of Carlos Slim, the world’s richest person, said in an interview.

Pena Nieto has said he favors allowing more private investment in the nation’s energy sector and accelerating development of shale gas reserves and deep-water oil deposits as Pemex seeks to reverse seven years of declining crude production. Yesterday he named Emilio Lozoya to run Pemex.

Tax Revenue

He’s also pledged a fiscal overhaul to help boost tax revenue that equaled 19 percent of GDP in 2010, the lowest among 34 nations in the Organization for Economic Cooperation and Development. Luis Videgaray, who ran Pena Nieto’s campaign and headed his transition team, was named Mexico’s next finance minister yesterday, making him the point man on budget and spending in the $1.2 trillion economy.

The PAN pushed for similar changes during Calderon’s six-year term, only to be blocked by the PRI. Gustavo Madero, the PAN’s president, reiterated on Nov. 24 that his party will work with the PRI to achieve the overhauls that it worked for under Calderon.

“Fiscal and energy reform are the most difficult to get through, and also the ones he needs most urgently so that he can do many of the other things he has promised,” Andres Rozental, who served as deputy foreign minister under PRI President Carlos Salinas de Gortari, said in an interview.

Pena Nieto has also said he wants to diversify Mexico’s exports beyond the U.S., the buyer of about 80 percent of the nation’s goods sold abroad. After his election, Pena Nieto made his first international trips to Latin America and Europe before going to Washington earlier this week.

In his meeting with President Barack Obama, Pena Nieto said he wants to help strengthen security at the 2,000-mile border that separates the two countries and that he supports Obama’s aim to change immigration law to resolve the status of 6 million Mexican immigrants living illegally in the U.S.

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