Analysis: Mexico’s creaky economy to test Pena Nieto’s ambitions
But the checkered history of reforms in Latin America’s second-biggest economy, producing failure as often as success, underscores the size of the challenge.
The win by Enrique Pena Nieto was also tighter than expected, meaning he will probably have to seek opposition support for plans to lift growth to 6 percent a year by making labor markets more flexible, boosting tax revenues and allowing more private companies to enter the oil industry.
The PRI seems set to miss the absolute majority in Congress. That could force it into potentially drawn-out negotiations with smaller parties that could water down or delay planned reforms.
Pena Nieto must also bring on board PRI-affiliated but independently powerful labor unions for reforms which will hurt many of their members.
“Reforms won’t be automatic under a PRI presidency and political negotiations with the opposition would gain further importance if the PRI does not gain a majority in Congress,” said Fitch sovereign ratings analyst Shelly Shetty.
If implemented in full, the reforms would be the deepest since Mexico embraced privatization, bank deregulation and free trade in the 1980s and 1990s. Those reforms culminated in Mexico’s 1994 entry into the North American Free Trade Agreement (NAFTA) with the United States and Canada.
NAFTA helped turn Mexico into a major exporter of computers, cars and fridges for foreign markets. Exports are almost double 1990 levels at 32 percent of gross domestic product, or GDP.
But that dynamism stands in stark contrast to a sluggish and archaic domestic market. The two-speed economy has taken Mexico further from its goal of joining the emerging-economy A-list and competing with countries such as India and Brazil.
A lack of competition stifles innovation and means Mexicans are overcharged billions of dollars a year for basic services.
High business costs drive similar sums into the informal economy, depriving the government of valuable tax revenue and crimping investment in education, infrastructure and research and development, vital building blocks for future growth.
Economic growth has languished at an average 2.6 percent annual rate over the last two decades, compared to 7 percent in India and 10 percent in China, partly due to the meager trickle of reforms. In recent years, a fierce drugs war has raised security fears and put off some investors.
Article source: http://articles.chicagotribune.com/2012-07-02/news/sns-rt-us-mexico-election-economybre8611cs-20120702_1_enrique-pena-nieto-mexico-city-pri
Posted by braziltribune
on Jul 3 2012 Filed under Market.
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