Commentary: Vicente Fox May Be Setting Himself Up For A Fall

Moises Salas has been selling candy and cigarettes outside a Mexico City office complex for 17 years. He clears around $14 a day, barely enough to support his wife and four kids. But the 37-year-old Salas hopes life will get better once Vicente Fox is sworn in as President of Mexico on Dec. 1. "Let's hope that it's a government that governs with justice, sincerity, and follows the law," he says.

Mexico is filled with great expectations as it awaits the inauguration of the first opposition politician to hold the presidency after 71 years of single-party rule. Fed up with authoritarian government, widespread corruption, and a string of crippling economic crises, Mexicans overwhelmingly voted on July 2 to make the former Coca-Cola Co. executive their next leader.

Yet high hopes could also lead to deep disappointments. Fox, 58, must now make good on a long list of promises, including a pledge to sustain economic growth at 7% a year and create 1.35 million new jobs annually. It would take a political magician to pull this off in just six years, the length of a presidential term in Mexico. And the scope of Fox's legislative ambition is huge, while the political obstacles are great.

TAX REFORM. The battles will start even before Fox assumes office. In late November, his center-right National Action Party (PAN) intends to introduce controversial legislation to open up Mexico's electricity industry to private competition. Previous attempts at reform have been shot down. And the PAN, which lacks a congressional majority, must win the backing of the long-ruling Institutional Revolutionary Party (PRI) and the left-of-center Party of the Democratic Revolution (PRD). But both parties, which suffered humiliating defeats at the polls, are leery of the plan, which they believe will lead to an unpopular privatization of the entire industry. "They are absolutely mistaken if they think we're going to go along with that," says Marti Batres, who heads the PRD's 60-person delegation in the lower house of Congress.

Fox might have chosen to start off his term on a less contentious note. But his advisers say Mexico needs up to $50 billion in new investment to keep pace with fast-growing electricity demand. Fair enough. Yet Fox faces other tough legislative fights. In his first month in office, he must ram through an austere 2001 budget just as Mexico's economy is riding a $5 billion oil windfall. His advisers believe that spending must be reined in to compensate for a cooling U.S. economy, which absorbs most Mexican exports. Wise indeed--but consumers never like it when the punch bowl is taken away.

Tax reform is also high on the Fox agenda, since the new government wants to fund ambitious antipoverty and job-creation programs. Fox expects to submit a sweeping tax-reform proposal to Congress by March. There is broad consensus that Mexico needs a fiscal overhaul, but the Fox package will still draw fire.

The Mexican Treasury collects only 17% of gross domestic product in taxes, compared with 30% of GDP in the U.S. Tax evasion is rampant, and loopholes abound. So the Fox team has floated a plan to extend Mexico's 15% value-added tax to previously exempt items, such as food and medicine. That has outraged many politicians, who argue the measure will hit the poor hardest.

Fox's advisers maintain that the impact on the poor will be softened by targeted subsidies and better welfare benefits. But boosting the tax take is notoriously difficult to pull off. Fox will have to deploy his considerable charisma and hands-on negotiating style to make any progress. As governor of the state of Guanajuato, he worked effectively with an opposition-dominated legislature. His business experience could also be a plus--something Mexico's recent Ivy-League-educated technocrats-turned-Presidents have lacked.

Mexicans have entrusted Fox with nothing less than the task of reshaping the country. In the end, perhaps the best he can do is to lay the foundations for such a transformation. "I don't think he has done a good job bringing people's expectations in line with reality," says political scientist Luis Rubio, director of the Center for Research & Development. The hard reality will become apparent in Fox's first 100 days.

Before it's here, it's on the Bloomberg Terminal.