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Mexico's Moment

Jaime Daremblum

Assuming the polls are correct, Mexico’s notorious Institutional Revolutionary Party (PRI) will cruise to victory in Sunday’s presidential election and also win at least one chamber of the national legislature. Will this mean a return to the bad old days of authoritarian politics and corrupt deals with drug cartels, as many PRI critics fear? Or will it affirm the strength of Mexico’s young democracy and create a golden opportunity for economic reform?

Nobody can say for sure, but the second outcome seems more likely.

The youthful PRI presidential candidate, Enrique Peña Nieto, who turns 46 on July 20, is the former governor of Mexico’s most populous state (the one surrounding Mexico City). He is not a member of the party’s old guard, and there is little evidence that he harbors a penchant for autocratic rule. Moreover, he will be dealing with an independent supreme court, an independent central bank, and two robust opposition parties (the center-right PAN and the center-left PRD) that control a host of state and local offices, including the powerful mayorship of Mexico City, not to mention a large number of seats in the federal congress. We should also remember that media coverage of Mexican politicians is far more aggressive today than it was during the PRI’s “perfect dictatorship“ years.

As for the once and future ruling party itself, the PRI has changed a great deal since losing the presidency in 2000. “While many of the old-time PRI remain in important advisory roles,” former U.S. ambassador to Mexico James R. Jones said recently, “this PRI headed by Peña Nieto is truly different and seem ready to tackle many of the remaining issues that have prevented Mexico from attaining first-world status.” To be sure, patronage-loving PRIdinosaurs“ are hardly eager to liberalize the economy, crack down on political corruption, or improve transparency. But Peña Nieto has endorsed some relatively bold economic reforms, especially when it comes to energy policy and the state-run oil company Pemex, which is perhaps the most prominent symbol of Mexico’s (public and private) monopolies. “I suspect that we are on the eve of the most promising opportunity the country has seen in more than a decade,” Morgan Stanley economist Gray Newman has written.

Despite years of terrible drug violence, Mexico is doing better economically than many outsiders realize. Indeed, Dallas Fed president Richard Fisher notes that the country “is outperforming the U.S. in many economic areas.” For example, Mexican industrial production eclipsed its pre-recession peak early last year, whereas American industrial production is still 3.3 percent below the pre-recession high it reached in December 2007. Meanwhile, Mexico’s budget deficit in 2011 was only 2.5 percent of GDP, whereas America’s deficit was 8.6 percent of GDP. Mexico also had a faster-growing economy than the United States.

More impressively, it had a faster-growing economy than Brazil, which has been hailed as Latin America’s rising superpower for much of the past decade. The South American giant is facing a sharp economic slowdown, along with a seemingly endless parade of high-profile corruption scandals. “Mexico now looks a better bet than Brazil for rapid economic growth,“ declares the Economist.

That is quite a remarkable statement. Throughout the 2000s, Brazil was the country experiencing an “economic miracle,” while Mexico was the country mired in sluggish growth. One big reason for this disparity was China: In commodity-rich Brazil, China’s economic surge led to a massive resources boom; in Mexico, it led to fierce industrial competition that suppressed job creation. But J.P. Morgan estimates that the Chinese-Mexican wage gap in the manufacturing sector declined from 237 percent in 2002 to 13.8 percent in 2010. “Experts expect Chinese wages to overtake those in Mexico within five years,“ reports Financial Times correspondent Adam Thomson. In other words, China is losing its competitive advantage in the realm of manufacturing labor costs. That is good news for Mexican companies.

Of course, good economic news from Mexico gets fewer headlines than the ongoing war against brutal drug cartels. While the post-2006 death toll from drug violence now exceeds 55,000, a recent Pew Research Center poll found that 80 percent of Mexicans still support using the army to battle organized crime. Mexicans are well aware that the old PRI strategy for keeping the peace was to strike corrupt deals with drug lords, and many citizens are thus concerned that a Peña Nieto administration would do the same. The PRI candidate tried to assuage these worries in a recent interview with the BBC: “I can say categorically that in my government, there won’t be any form of pact or agreement with organized crime.”

On June 14, he went a step further, announcing that General Óscar Naranjo, Colombia’s former national-police chief, would be his special adviser on organized crime. The selection of a Colombian general with deep ties to Washington for such a key position “was meant to signal continuity in Mexico’s close working relationship with U.S. officials in the war on drugs and related measures such as rebuilding the police and court system,“ noted the Los Angeles Times. “Naranjo is reported to be very close to Calderón’s security czar, Genaro García Luna, and is said to follow a similar playbook.”

It’s true that many PRI officials would prefer to take Mexico backward. But there are major structural forces (both institutional and societal) standing in their way, and Peña Nieto has sent encouraging signals about his appetite for reform. The country he will govern is an increasingly confident democracy with a healthy economy. Even on the security front, there has been progress, despite the horrifying number of drug murders. As former DEA administrator Robert Bonner wrote recently in Foreign Affairs, President Calderón “will bequeath to his successor major successes against the cartels, newly invigorated institutions, and a sound strategy.” Let’s hope that Peña Nieto doesn’t waste his opportunity.

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