Challenges Await Mexico's New Leader

After a much-contested election, Felipe Calderón takes the oath of office, promising reforms and welcoming his foes

Defying rebellious opposition politicians who jeered and whistled their disapproval, Mexican President Felipe Calderón took the oath of office Friday and pledged to combat the poverty, drug violence, and incessant political infighting that threaten growth and competitiveness in Latin America's most developed economy.

Calderón won the July 2 presidential elections with a razor-thin, 240,000-vote margin over leftist populist Andrés Manuel López Obrador. Calderón, a 44-year-old lawyer and Harvard-trained economist, spent just four minutes at the National Congress, which for three days had been mobbed by unruly López Obrador supporters who had been hoping to force cancellation of the inauguration ceremony there.

But Calderón managed to put on the presidential sash, and quieted the jeers by leading the chamber in singing the national anthem before slipping out a back door. From a balcony, former U.S. President George H.W. Bush, Canadian Prime Minister Stephen Harper, Spanish Prince Felipe de Asturias, and California Governor Arnold Schwarzenegger watched the chaotic scene. "It's good action," Schwarzenegger said.

Important Manufacturing Center

But the cloak-and-dagger measures necessary to ensure Calderón's safe entry into the building underscored the difficulties he will face. In his inaugural speech, delivered three hours later in an auditorium packed with cheering supporters, Calderón said he will not shy away from the challenges he faces. "Conflict between politicians is costly for our people and especially for those who have the least," he said. "I will engage in dialogue with anyone who is willing to talk."

Mexico's $720 billion economy is Latin America's second-largest, after Brazil's. It is also one of its most open, with free trade agreements with more than 30 countries. Over the past decade, thanks to the North American Free Trade Agreement, Mexico has become an important manufacturing center for the hemisphere—and has helped the country become the U.S.'s No. 2 trading partner.

Prudent fiscal management over the past decade, meanwhile, has helped Mexico vanquish inflation, sparking a home-building boom and an improvement in real wages.

Turning to Tourism

But more than 40% of all Mexicans still live in poverty. Not enough jobs are created to employ the nearly 1 million young people who enter the workforce annually, which prompts more than 400,000 people each year to cross the U.S. border illegally in search of work.

In his inaugural speech, Calderón pledged to be the "jobs" president and vowed to place a greater emphasis on the domestic economy, especially tourism, as the engine of development, after 15 years of focusing almost exclusively on export-related industries.

One of the biggest challenges facing Calderón will be to halt the growing drug-related violence that has killed more than 2,000 people over the past year. Warring drug cartels have turned border cities such as Nuevo Laredo into no-man's lands, but in recent months violence has spread further south into Mexico's heartland, where traffickers have beheaded rivals and dumped the severed heads in crowded discotheques and on city streets. "Together, we Mexicans will beat the delinquents," Calderón said.

Oaxaca Still Smoldering

Calderón also must deal swiftly with political unrest in the southern state of Oaxaca. In the state's capital, protesters demanding the ouster of an unpopular governor from the Institutional Revolutionary Party (PRI) have laid siege to the city center for nearly seven months, interrupting business and shuttering schools.

Clashes there between police and protesters have resulted in 15 deaths. Former President Vicente Fox was widely criticized for letting the situation fester for months. Though he recently sent in federal troops to oust the protesters, the soldiers have yet to fully re-establish order there.

Calderón and Fox both hail from the pro-business National Action Party (PAN).

In 2000, the party won the presidency from the PRI, which had ruled Mexico for 71 years. López Obrador, who staged his own "inauguration" and installed a shadow cabinet Nov. 20, claiming that the Mexican political system was stacked against him, has vowed to disrupt Calderón's presidency.

Much Reform Needed

But recent opinion polls show diminishing support for the losing candidate, even among members of his Party of the Democratic Revolution (PRD). In the July vote, Calderón won 35.89% compared to 35.31% for López Obrador.

The PAN is the largest political party in both houses of Congress, but will have to join with the PRI to muster the majority needed to pass key legislation. Mexico must reform labor, tax, and energy laws to foster competition and growth. During Fox's six-year term, Mexico grew just 2% annually.

This year, the economy is expected to chalk up 4.3% growth, but most economists believe Mexico must grow by more than 5% annually if it is to achieve its full potential and pull millions out of poverty.

Boosting Competition

"If Mexico is to catch up with the rest of the world, we have to move quickly, says Carl Rianhard, CEO of OpenTec, a software and e-learning company in Mexico City. Rianhard says he hopes Calderón will move swiftly to modernize the economy by promoting high-tech industries and shaking up the hidebound educational system to teach Mexicans the skills they need to compete in a global economy.

"If we see some significant short-term accomplishments, we'll know in Calderón's first year in office how successful he's going to be in turning this country around," Rianhard says.

Calderón also must show he's serious about boosting competition. Sectors such as telecommunications, television broadcasting, beverages, and building materials are largely controlled by powerful monopolies and duopolies. During the election campaign, López Obrador portrayed Calderón as the lackey of big business, including monopolists such as telecommunications and retail magnate Carlos Slim, the world's third-richest man.

Experienced Legislator

"Contrary to what López Obrador claims, Calderón owes nothing to Carlos Slim or to the rest of the business elite," says political scientist Federico Estévez of the National Autonomous Technological Institute (ITAM), a leading university. "He should go after them."

The best thing Calderón has going for him is his experience as a PAN congressman. While in Congress, he forged compromises with other parties to get legislation approved. He's expected to reach out to all political parties to find consensus, something that Fox failed to do. Calderón's cabinet also includes experienced technocrats, including new Finance Secretary Agustín Carstens, a 48-year-old University of Chicago-trained economist who until recently was deputy managing director of the International Monetary Fund.

Including the Opposition

Another is Luis Téllez, the new Secretary of Communications and Transportation. He was former President Ernesto Zedillo's chief of staff before joining the Carlyle Group, an international venture capital firm. Téllez will have the opportunity to boost telecommunications competition and will oversee infrastructure projects that Calderón has pledged to carry out to boost development in Mexico's poor southern states, which send tens of thousands of undocumented migrants to the U.S. every year.

Calderón's biggest challenge is to convince the nearly two-thirds of all Mexicans who didn't vote for him that he will represent their interests. "To those who voted for other political options, I will not ignore the reasons behind their votes and I ask that they give me a chance to win their confidence," Calderón said in his inaugural speech. His main goal, he said, is "to reunite Mexico." That could be an even bigger challenge than creating jobs and jump-starting the economy.