C&B Notes

Structural Reforms in Mexico

The incoming administration of newly elected Mexican President Enrique Pena Nieto is focusing on foundational economic reforms that are intended to enhance the country’s competitiveness, which has already been improving as Asia’s wages rise closer to parity with Mexico.  The first step, which is already in process, is reforming labor laws.

The passage of the labor reform is a positive sign to investors of Pena Nieto’s commitment to lift the economy.  However, the changes made to the bill last week by the Lower House suggest the PRI may not be willing to fully break with its past, and indicates that Pena Nieto will continue to struggle with the PRI’s old guard.  The president-elect will rely on a mix of young technocrats and veterans, as well as on the center-right PAN and the smaller Green Party to steer reforms through Congress, where he can expect resistance on energy and fiscal reforms even from a significant portion of PRI lawmakers.  Not surprisingly, Pena Nieto has picked two veterans, Manlio Fabio Beltrones and Emilio Gamboa, to keep Congress in line with a government agenda being overseen by top aide Luis Videgaray, 44, a reform-minded economist.  Acting rapidly will be of great importance to seize the favorable momentum created by the passage of the labor reform.

Analysts cite the national energy monopoly and labor rules as well as weak tax collection as the main factors causing the country’s economic stagnation.