No Turning Back In Mexico

Beneath the murder and mayhem that have punctuated the Mexican election campaign over the past year, an amazing shift in the body politic has quietly taken place. The left, which nearly took power in 1988, has imploded, and some 70% to 80% of the electorate now support the free-market policies of out-going President Carlos Salinas de Gortari.

Whether they prefer the governing Institutional Revolutionary Party (PRI) or the up-and-coming National Action Party (PAN), the vast majority of Mexicans want to continue the policies of economic pluralization: privatizing the state sector, liberalizing foreign investment, and boosting market competitiveness. If anything, the shift of the middle-class opposition vote away from the left to the PAN, which is to the right of the PRI, highlights one critical fact about the Aug. 21 election in Mexico: No matter who wins, there will be no rejection of NAFTA and no return to the nationalist-populist economic policies of the past.

This is good news for the U.S. and Canada, Mexico's NAFTA partners, but it means even more for Peru, Argentina, and Venezuela. These countries have also switched to free-market economies but worry that recent peasant and labor unrest might push the region left.

Pre-election polls in Mexico show that these fears are misplaced. But changes are coming. First, the pacto, the wage agreement among unions, business, and government, will get richer. Salinas brought inflation down to 7% by keeping wage hikes below the rise in inflation. Expect wages to at least keep pace in the future.

Second, the "dirty float" of the peso against the dollar will get dirtier. With Mexican companies taking out dollar loans and the country in need of capital inflow from the U.S., a sharp devaluation is unlikely. But over time, the peso will probably decline a bit faster against the dollar.

Third, the tight fiscal discipline that generated a budget surplus will get looser. Spending on agriculture and education is essential to bringing the peasants and the young into the modern economy.

Will this add up to a new burst of inflation? Probably not. Selling off state assets can finance added social spending.

The election in Mexico marks the second stage of the pluralization of Mexican society. The decentralization of its command economy is now being followed by a similar shift in its one-party political system. Mexico's challenge is to "secularize" its judiciary and police, removing political corruption from both institutions. Devolving power and resources to the states within Mexico would help as well. A new federalism might provide the kind of political flexibility that is needed to pluralize the polity.

Liberalization of the Mexican economy is being followed by a more liberal society. There is another term for that--call it democracy.

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