Mexico: Peña Nieto’s Reform Prospects On The Rise

Recent events support our stance that Mexico’s president, Enrique Peña Nieto, will be able to push through substantive economic reforms over the coming quarters.

First, Elba Esther Gordillo, head of the 1.5mn-strong teachers’ union, was arrested on charges of embezzlement on February 26. Given that she was long considered ‘untouchable’, we believe this served as a calculated message that the government is serious about cracking down on the power of various entrenched interest groups – including unions and monopolies – to push through reform.

Second, at the ruling Institutional Revolutionary Party (PRI)’s annual conference in early March, the party passed a number of rules to bring it more into line with President Peña Nieto’s reform agenda. It also now allows the president a greater role in internal party decision making.

We have long highlighted that one of Peña Nieto’s main challenges would be ensuring the full support of his own party. While these changes to the PRI’s internal statutes do not guarantee full party support for the president’s reforms in the legislature, they represent an important step forward.

That said, while these changes encourage us to take an increasingly optimistic stance on the passage of a number of key economic reforms, not the least comprehensive fiscal reform, we remain more cautious on energy sector liberalisation.

At present, we anticipate a piecemeal reform process. President Peña Nieto’s own rhetoric has focused more on side issues, such as highlighting the need to reduce Pemex’s tax burden and even drawing the need for alternative energy sources in the debate. While these are useful points, they won’t reverse a decade of declining oil production. Moreover, when the issue of increasing private capital into the energy sector is raised, it comes with the heavy caveat that the state will continue to control Mexico’s oil.

We are not ready to completely rule out energy sector liberalisation, and we acknowledge that the administration may be downplaying the controversial elements of its planned energy sector reform in an effort to tackle a number of other, less contentious reforms early on. Moreover, we note that recent events suggest Peña Nieto may have the political capital he needs to push through full-scale liberalisation. However, until the president indicates willingness to move forward with such a bill, we maintain a more tempered view.

Telecoms Sector: Dial ‘R’ For Reform

Meanwhile, in recent weeks we have taken a more optimistic stance on the potential for the Mexican government to push through legislation to introduce greater competition into the telecoms sector.

While our telecoms team has long been cautious about the potential that regulatory change may prompt substantive improvement in the sector – particularly since regulatory developments have been blocked by lengthy legal disputes in the past – there have been a number of positive steps in recent months.

Not only have the three main parties showed a far greater willingness to cooperate than in the past, but a bill is currently before the Senate that would prohibit companies holding public concessions to use court injunctions as a delaying tactic. This would remove one of the key obstructions used by the large telecoms firms.

Combined with the arrest of Gordillo, which we see as a signal of the government’s seriousness about cracking down on entrenched interests, we see increased scope for greater competition in the telecoms sector.

This blog is tagged to:
Sector: Country Risk, Oil & Gas, Telecommunications
Geography: Latin America, Mexico

Related products in our Store...

Check out our most popular reports below or view more in our store