Monday, December 10, 2012

Mexico post 2012 election - Brief Notes series

At the height of a bitter political campaign this year, the average Mexican citizen found himself forced to decide amongst 3 alternatives: 1) the continuation of a regime that had left thousands dead in a war with little hope for success; 2) the return of the party that ruled uninterruptedly by denying the most basic democratic ideals to the population for the majority of the 20th century and; 3) a candidate that openly promised a change so radical that it threatened the interests of the large conglomerates, unions and historically stable political groups.

It was the PRI, the old party that combines the words “revolutionary” and “institutional” in its name, that on election day concentrated the residual vote of those who felt uncomfortable with the other two choices to decidedly win the Presidency. The good news is that the country managed to avoid the ambiguity of 2006, which left President Calderon with a crisis of legitimacy he was only  partially able to overcome, if well into his term. The bad news is that large and important sectors of the electorate (the young, the intellectuals, the inhabitants of the rural areas) strongly oppose Mr. Peña Nieto’s background, party and economic plans. Interestingly, he has found important allies in the departing President’s party, PAN (National Action party), for many of his most market friendly proposals. This has happened at a time in which his own party has thrown sand at the wheels of his promoted Labor Reform as it would have negatively affected the unions, to whom his party has strong historical ties. These dynamics so early in his presidency are a representative sample of the muddy and turbulent political waters Mr. Peña Nieto must quickly learn to navigate in order to be able to have initiatives of larger reach and greater impact than those he promoted in his home state approved and implemented. This is no longer the age of the old PRI, when whatever the President said became law.

Switching gears to the economic front, if growth ends at 3.8% in 2012 the economy will have grown at an average annual rate of 1.9% under Mr. Calderon. This 1.9% reflects the impact of the 6.5% fall in growth in 2009. During the same period, the  population has kept a 1.8% growth rate, roughly indicating there has been only a marginal improvement in GDP per capita. There has been no recoil, but this is hardly the desired result of the self-titled “President of Employment”.  Vicente Fox, before Calderon, didn’t fare much better. Mexico grew at an average annual rate of 1.8% then, adding six more years of low growth for the country.

More recently, things have started to look brighter even for a country with a keen ability to turn opportunity into disaster. Mexico has grown at an average annual rate of 4.3% on the back of a healthy exports sector that has benefitted from increasing Chinese wages, proximity to the large U.S. economy and a cheap currency. Despite the anemic growth of the “sexenio”, the social security administration, IMSS, registered an average of 367 thousand jobs created per year. It is not an impressive figure, but at least one that has helped maintain a sense of macroeconomic stability and signals some progress in the battle to incorporate more workers to the formal economy. Still, the number remains below the 1 million necessary to provide formal jobs to all that join the labor force. What stands out is that this job shortage, an important factor behind the resilience of the drug crisis, took place at a time when oil maintained record high prices, contributing to increase the disposable income of Calderon’s government. Where did all the money go? Well, it was spent. Net spending in 2012 was 60% more than in 2006; and three times the 2000 figure. The problem is that much of that money went to less productive uses like promoting the Presidential image, increases in already generous pensions for public servants (who can retire early and with very favorable benefits) and to fight the war on drugs. Finally, part of this excess revenue went to gas subsidies, which contribute to exacerbate wealth inequality by providing a financial benefit to the higher economic class that can afford one or various vehicles at the expense of everyone’s taxes.

Despite the human and financial cost of the war on drugs, the European debt crisis and the effects of the systemic crisis of 2008-09, Mexico had a great opportunity to achieve escape velocity in its race towards becoming a formal member of the economically developed world. It couldn’t properly exploit it then, but destiny has been generous with the country and seems to have granted it another (perhaps brighter) opportunity under Peña Nieto.