Mexico’s soon-to-be president Felipe Calderon faces a tougher transition period than any of his predecessors in modern Mexican history. Calderon, who won the July 2 election with the narrowest-ever margin of less than 0.5% of the vote, has to plan a government programme and create a multi-party coalition. And that’s just the start of his problems.
In an interview with Emerging Markets before July’s election – the result of which is being disputed by the opposition, supported by street demonstrators – the 43-year-old Calderon was already striking a conciliatory note. “We want to be a government that re-establishes public security, fulfils contracts, respects the [division of] power and promotes [judicial process],” he said.
Calderon’s opponent, Andres Manuel Lopez Obrador, told Emerging Markets in a pre-poll interview that Mexico’s social ills would cripple any government not wholly committed to resolving them. “It is not possible to govern effectively with huge sectors of the population suffering extreme poverty, unemployment and no hope of change.”
The post-election challenge presented by Lopez Obrador makes the political future, even in the short term, hard to call. His demands for more socially equitable policies, and ability to resist Calderon’s rightist reforms, cannot be ignored. But investors remain positive about Mexico because the external environment – especially oil prices – is so favourable, and the domestic economy seems rock-solid: international reserves are at a record level, debt management is sound, inflation and interest rates are low, remittances are high and the currency is strong.
Political risk should not be discounted, even though Mexico’s institutions may actually be strengthened as a result of the post-election battle. “If there were major friction about any legislation Calderon was trying to pass, and Lopez Obrador is successful in blocking it, there could be a negative impact on the perception of Mexico,” says Fulvio Dobrich, a managing partner at Galileo Asset Management in New York, which manages $200 million of investments in emerging markets.
How strong Calderon’s mandate is, and how deep his reforms can go, are matters of debate among analysts. The election made clear that Mexico is deeply divided, especially along regional lines: the north favours continuity and Calderon, and the capital and the south want change and Lopez Obrador, the candidate of the centre-left Democratic Revolution Party (PRD) and former mayor of Mexico City. Both candidates polled support across class lines.
Some say Calderon’s mandate is strong, because he won in untainted elections. Others believe he is weakened not only by allegations of cheating but also by his narrow lead. Although Calderon gained traction with the advance of his National Action Party (PAN), which became the largest bloc in the legislature, he himself won 35% of votes cast, which, factoring in abstention, amounts to only 25% of registered voters.
Carpe diem
Moreover, Calderon has lost valuable time. During July and August, the federal electoral court deliberated over grievances filed about the vote count and the campaign process. Lopez Obrador lost no time in organizing protestors daily, seeking to raise doubts over the legitimacy of election procedures. His stance in favour of justice and greater benefits for the poor, who comprise 40% of the population – which offers a radical challenge to the policies of the past four Mexican administrations – was backed by crowds of up to 1 million people. “The vote made it clear that social policy is very important,” says John Welch, senior vice-president for sovereign strategy with Lehman Brothers in New York.
Lopez Obrador has made clear his commitment to fighting for change from outside the system, warning in media interviews that the most important changes come “from the streets”, and claiming that Mexico needs a “revolution”. He will remain a determined fighter against the politics that grant privileges to the rich in Mexico and will press his case for equity for the poor, counting on a base of hardcore supporters for the long haul.
The challenge for Calderon is to lead decisively when he assumes office on December 1, while helping promote reconciliation. “The post-election problems are more serious [than the narrow margin of victory]. Calderon should have taken more ownership and leadership even before the electoral tribunal decision,” says Paulo Leme, managing director of Emerging Markets Economic Research for Goldman Sachs in Miami.
Broad consensus
Once formally declared president-elect, Calderon will have to move quickly to create conditions for strengthening the initial phase of his six-year administration. “He must seek a government of as broad a consensus as possible, built around an inclusive programme to isolate the [protest] movement … and try to avoid violent acts against the Lopez Obrador demonstrators,” says Guillermo Valdes, political analyst with GEA Structura consulting firm in Mexico City.
There have been discussions in political circles about a possible decision to use force to disperse Lopez Obrador’s supporters. This would have to be taken by the incumbent president, Vicente Fox, but since he is in the PAN party together with Calderon, it would tarnish the president-elect.
Calderon is expected to respond to the Lopez Obrador challenge by developing an inclusive government programme that would incorporate elements of the extensive social benefit schemes launched by his opponent during his five years (2000-05) as Mexico City mayor. These included a $60-per-month “food pension” for all citizens over 70 years of age, low-cost housing, and cash transfers to support poor school children, single mothers and the handicapped.
The Calderon team’s success will depend in part on its ability to drive a divisive wedge into the PRD party, now the second-largest force in Congress. The party itself, though, is likely to block economic reforms that require changes to the Constitution, such as opening the national oil monopoly to private investment or overturning protection of workers’ rights.
In the view of Christian Stracke, head of emerging markets research at CreditSights, the New York-based independent market research platform, “Calderon will be able to cobble together a majority in Congress and approve a limited reform agenda but not constitutional amendments.”