Monday, October 30, 2006

 

Economic Planning and Social Needs in Mexico

 

By Enrique Andrade González

 

Among the strategic steps taken over the past two weeks, Mexican President-elect Felipe Calderón has shown a need to legitimize his election victory with the hope for economic and social change.  This as Mexico’s future president seeks to take office on December 1 with a credibility margin gained from expectations generated during this stage of the transition. 

 

At the same time, Calderón is trying to consolidate support from the economic sectors, support that will come as long as he takes clear steps to keep his campaign promises.  This while he also endeavors to sell his social message to the general public.

 

An example of this is the recent naming of Agustín Carstens as coordinator of Calderón’s economic team, a man linked to Mexico’s financial sector for some 20 years.  Carstens, who has a doctorate in economics from the University of Chicago, was Under-secretary of Finance in Mexico from 2000 to 2003, when he accepted the position of Deputy Managing Director of the International Monetary Fund, the IMF’s third-highest position.  And he is now the odds-on favorite to become Mexico’s next Secretary of Finance and Public Credit.

 

Carstens represents a guarantee of continuity in Mexican economic policy to national and international markets — a surety for investments, the peso’s rate of exchange, and international trade relations.  It is a proclamation by the future government that it will follow the dictates of international economic agencies, and that it will do so with the same or greater commitment as has been done for the past six years.  And the naming of Carstens has pleased businesspersons and investors alike.

 

In addition, it draws attention to the effort to present this economic development in a manner that will be looked upon favorably by the other social sectors.  In one of Carstens’ first declarations after joining the Calderón team he himself touched on social problems, mentioning the commitment to reduce poverty in Mexico, and to promote the creation of jobs.

 

Surely too the new government will seek to implement fiscal policy reforms that will broaden the base of taxpayers and increase tax collections; simplify the paying of taxes; stimulate investment; and control inflation and the peso’s rate of exchange.  All of which would bring about social benefits.

 

On international trips, during forums and in interviews, those who will be in the next administration have also been discussing reforms that would allow the participation of private capital in Mexico’s oil and gas industries.  An important subject that corresponds to certain earlier pledges, plus this too pleases the business and entrepreneurial sectors.

 

Mexico’s main sources of foreign exchange are first export sales of crude oil, and second from remittances that are sent home by Mexicans living in the United States.  And the Fox government has had the good fortune of oil prices holding at high prices over the past five years.  Plus remittances grew from US$7 billion to US$20.035 billion in 2005.  (This year remittances are expected to top US$25 billion.)

 

Calderón however may not have the same luck, so he will need to create more income sources.

 

Mechanisms are being studied in order to make this energy sector private participation possible in spite of the constitutional obstacles.  President Vicente Fox tried this in three different ways during his presidency: by naming businesspersons to the Pemex board of directors, which went nowhere; through multiple service contracts with businesses, the legality of which is still being questioned; and with the future construction of a refinery, with public and private investment, in some Central American country.  However the three less than conclusive efforts have brought about more controversy than infrastructure.

 

Calderón will not be able to use the same recipes insofar as energy reform in a general sense is impossible.  Concrete projects will have to be launched, with the approval and oversight of Congress, for Mexico’s energy sovereignty belongs to the nation and not a single person or his team.  And any attempt to get around the law will result in legal and political failure.

 

Yet Mexico’s energy industry must be promoted in order to stimulate its development.  Plus Pemex needs to be reorganized; funds must be allocated for refining and not just crude oil exploitation; and income is needed to drill new fields.

 

These are the objectives of everyone — even the political opposition, however the debate is just how to accomplish this?  That is why something concrete must be done, a plan that clearly defines the need for private capital that too will gain congressional support for the needed changes.

 

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Enrique Andrade, a Mexico City-based attorney and business consultant, writes a weekly column for MexiData.info.  He can be reached via e-mail at enriqueag@andradep.com.