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Mexico in Crisis

Mexican President Enrique Pena Nieto delivers a speech at the National Palace in Mexico City on January 13, 2014. (OMAR TORRES/AFP/Getty Images)
Caption
Mexican President Enrique Pena Nieto delivers a speech at the National Palace in Mexico City on January 13, 2014. (OMAR TORRES/AFP/Getty Images)

The fiesta is over. Mexico, a remarkably important nation of some 120 million people—indeed, the world’s fifteenth largest economy—is descending into crisis. Students have been slaughtered en masse with the complicity of a corrupt police force. The country’s young president and his finance minister are embroiled in a corruption scandal. And the recent fall in oil prices—which looks set to continue —only portends further suffering.

It wasn’t supposed to be this way. When 48-year-old Enrique Peña Nieto was elected Mexican president in 2012, his country’s future looked bright. A self-styled reformer, the leader of the Institutional Revolutionary Party (PRI) and former governor of Mexico State moved immediately to implement his Pact for Mexico, which called for the achievement of some 95 goals over his six-year term.

Peña Nieto enjoyed remarkable success over his first two years in office. He liberalized the country’s telecommunications market, greatly weakening the monopoly of billionaire (and New York Times savior Carlos Slim. Ditto for Mexico’s television broadcasting market, ending the domination of Televisa. In a move that American conservatives are likely to envy, Peña Nieto also managed to overhaul Mexico’s sclerotic education system, introducing new standards for hiring teachers. (Professional merit must be the only way to be hired, and remain and advance as a teacher," he "said on signing the law.) And perhaps most significantly, he ended a 75-year old monopoly, whereby state-owned energy company Pemex enjoyed total control of the country’s sizable oil and gas industries. Foreign companies will now be able to operate in Mexico and invest in Pemex as well. It was little wonder when in early 2014 Time dubbed Peña Nieto “the man who saved Mexico.”

Or not. For since early this fall, Peña Nieto and his PRI government have begun to unravel. The president’s approval rating now stands at a ghastly 39 percent.

Peña Nieto’s troubles began in September when 43 students were kidnapped and murdered in the anarchic Guerrero State in southern Mexico, a major drug trafficking hub. Remarkably, it subsequently emerged that the local police—and even the mayor of the city where the atrocity occurred—were involved in the murders. The case brought back memories of the bad old days of hideous drug wars and corrupt local police forces—an era that Peña Nieto and his predecessor former president Felipe Calderon were said to have vanquished. Major protests were sparked by the tragedy—protests that continue even today, and which have recently grown more violent Amazingly, it wasn’t until early December that Peña Nieto even bothered to travel to Guerrero to address the crisis.

At the same time, a corruption scandal played out at the very top of Mexico’s government, involving President Peña Nieto himself, as well as his wife. In November, it emerged that Peña Nieto’s wife had purchased a multi-million dollar mansion from a company that had received major public construction contracts from Mexico State when Peña Nieto was that state’s governor. Even worse, a subsidiary of the company had just won a no-bid $4 billion dollar contract to construct a new high-speed train line. Mrs. Peña Nieto ended up canceling the purchase of what she had dubbed a “family home” but the damage was done, and the President’s reputation continued to fall. Meanwhile, Mexico’s Finance Minister Luis Videgaray has gotten himself embroiled in a similar situation. The Wall Street Journal recently discovered that Mr. Videgaray too had purchased a mansion from the company in question. “Videgaray, widely seen as the driving force behind Mexico’s recent economic overhauls” reported the Journal, “bought the house in an exclusive golf resort outside the picturesque town of Malinalo [in 2012].” A pervasive stench of corruption has begun to engulf the Peña Nieto government.

The country’s economic performance, meanwhile, has disappointed. As Financial Times columnist John Paul Rathbone recently wrote,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F5508d4fc-844d-11e4-bae9-00144feabdc0.html%3F…, “Despite what Mr. Peña Nieto trumpets as a 40 percent rise in jobs created this year, economic growth has failed to take off; indeed, the government has already had to cut its growth forecasts four times. To compensate, the state has increased spending.” Therefore, “next year’s fiscal deficit will rise to 4 percent . . . almost double the annual average deficit of the previous two governments.” And then there’s the matter of tumbling oil prices, down from more than $100 a barrel early this summer to roughly $60 now. If prices remain low, the government will almost certainly be forced to cut spending in 2016, aggravating already inflamed passions.

All of this is bad news for Mexico—and the United States. The U.S. clearly has a strong interest in a strong and prosperous southern neighbor, given the importance of trade between the two countries. A collapsing Mexico, meanwhile, would likely restful in a wave mass of migration into the United States. (In this regard, President Obama’s recent executive action on immigration may serve to only invite more illegal immigrants.) Unless President Peña Nieto rights the ship soon, both the United States and Mexico could find themselves sailing into stormy seas.