Investors are growing increasingly confident that Mexico’s Congress will pass labour reform laws by the end of this month amid signs that an equally business friendly administration will succeed the current administration in December.
Enrique Peña Nieto, the president elect, is now well positioned to build a consensus together with the support of the opposition PAN party on the labour reform, and possibly other structural measures.
Peña Nieto will have a stronger mandate than his predecessors partly thanks to the political reform that now allows the head of state to use some sort of fast track initiative to get its reform projects approved within a month. “The fast track is a powerful signal,” said Gerardo Rodriguez, Mexico’s undersecretary of finance and public credit.
Rodriguez, who belongs to the outgoing administration of Felipe Calderón, said that Peña Nieto would be politically stronger thanks to the possibility of stronger alliances in Congress and the support of 20 state governors, which is more than Calderon has had.
Still, the biggest uncertainty is whether or not the new administration will achieve progress on the much expected oil reform, which may paved the way for private participation in the oil industry and joint venture with the state-owned company Pemex. “This is the big one,” said Ramon Aracena, Latin America chief economist at the International Institute of Finance.
Peña Nieto has certainly made clear that he wanted some changes but he has also pointed at some limits. “The modernization of Pemex does not mean the privatization of hydrocarbonates in our country, but rather the introduction of mechanisms that allow a greater involvement of the private sector,” he said during a recent tour of South American countries.
“If we are to achieve greater productivity and greater competitiveness for Pemex, we will have to have investment in infrastructure for exploration and oil production. This will only be achieved through the involvement of the private sector,” he said.
“It seems to me that the models that have been implemented in Brazil and Colombia make what this new strategic model is plain.”
Mexico has registered one the lowest growth performances in recent years in the region and was hardly hit by the US subprime crisis, but its economy has recently rebounded partly thanks to the competitiveness of its manufacturing sector.
“The challenge ahead is to step up structural reforms in order to improve the capacity of the economy,” Aracena told Emerging Markets. “Peña Nieto has a strong platform for reforms. We hope he will deliver – nothing spectacular but it will be an improvement.