A Free Market Man for Mexico

Conservative candidate Felipe Calderon may have bested his leftist rival in the closest presidential race in Mexico’s history. But getting the economy moving will be no easy task for the man who billed himself as the “jobs president.”

Political gridlock kept current President Vicente Fox from winning free-market legislative reforms aimed at Mexico’s energy, tax and labor sectors. The result, he has argued, has been sluggish growth, anemic job creation and more ground lost to rival nations such as China.

The phlegmatic Calderon will start his six-year term in December in an even weaker position, some analysts say, than the charismatic Fox, who won the presidency by a wide margin even though his minority National Action Party, or PAN, faced stiff opposition in Congress.

Party colleague Calderon edged runner-up Andres Manuel Lopez Obrador of the Democratic Revolutionary Party, or PRD, by just 244,000 of the 41 million ballots cast in a bitter contest. None of Mexico’s three major parties holds a majority in the Senate or Chamber of Deputies. And the Mexican public is deeply divided on whether to tighten or loosen its embrace of conservative policies favored by Calderon.

The political situation is a formula for more stagnation and infighting, which Mexico can ill afford. It’s a country that isn’t producing anywhere near the 1 million jobs it needs to keep pace with population growth and whose economy is one of the slowest-growing in Latin America. Even feeble Bolivia, with a 4.1% growth rate last year, beat Mexico’s 3%.

“The clock is ticking for Mexico in terms of its being able to compete in a globalized economy,” said Armand Peschard-Sverdrup, a Mexico scholar with the Center for Strategic and International Studies in Washington. “Right now, the tone doesn’t seem conducive to consensus building.”

Investors and business leaders here rejoiced when Calderon pulled off a come-from-behind win over Lopez Obrador, a former indigenous-rights activist who held a slight lead in most opinion polls heading into the July 2 contest. Many feared that the populist would threaten hard-won economic gains with plans to spend big on public works projects and social programs for the poor.

The nation’s elites preferred Calderon, a Harvard-educated technocrat who vowed to adhere to Fox’s pro-business policies. (The incumbent couldn’t seek re-election because the law limits each president to one six-year term.)

Campaign ads touted Calderon as a responsible economic steward in a nation with a history of lurching from one financial crisis to another. The pitch appears to have been effective in swaying undecided voters worried about losing what they have. But macroeconomic stability isn’t enough. Mexico needs economic growth, with lots of jobs, and it needs them fast.

To get there, Calderon wants to open to private investment the nation’s state-owned oil and electricity monopolies, which he has disparaged as inefficient. He wants to improve the nation’s pitiful tax collection to provide more money for public spending, in part by establishing a flat tax. And he wants to relax labor laws to make it easier for employers to hire and fire.

Such policies are highly controversial in Mexico, where 25 years of liberalization have done little to reduce income inequality or build a vibrant middle class. Mexico boasts more billionaires than Switzerland, yet nearly half its 106 million people live in poverty.

Some blame botched free-market policies and half-measures that have left key sectors of the economy in government hands. Others point to the powerful oligopolies that emerged in the wake of the sell-off of state assets.

Calderon offers as a solution a more thorough liberalization campaign that would free up Mexico’s productive energies. He is already working to build wide backing for such an agenda, a consensus that eluded Fox.

Although the PRD is challenging the election results and a special tribunal won’t declare a winner until early September, Calderon has formed a transition team and is reaching across party lines. He has talked repeatedly of forming a multiparty Cabinet, going so far as to offer a post to his rival, Lopez Obrador.

“We’re starting the construction of a government of national unity with the participation of the widest sectors of society and the other political forces,” Calderon said at a news conference Tuesday.

With so much bad blood circulating between the PAN and the PRD, Calderon’s best hope for forming a coalition may be the old Institutional Revolutionary Party, known as the PRI, which has seen its share of congressional seats shrink. With its influence waning, the once-dominant PRI is searching for a way to remain relevant.

PRI operatives from Mexico’s bustling industrial north appear eager to strike a deal with Calderon, said George Grayson, a professor of political science at the College of William & Mary in Virginia, who served as an election observer.

“How does the PRI become a player again?” Grayson said. “By helping the new president pass legislation.”

Grayson and others believe that Calderon, an experienced horse trader from his days as Fox’s leader in the lower house, will prove a better negotiator than his old boss.

Still, the north-south divide is worrying to some who see a dangerous split developing. Mexico’s relatively prosperous north voted overwhelmingly for Calderon and the pro-business PAN. Lopez Obrador, the former mayor of Mexico City, obtained most of his support from the capital and the impoverished, rural south, where his stipends for the elderly and suspicion of free trade gained traction.

Mexico’s long-term stability may hinge, experts say, on whether Calderon overplays his political hand by pitting one region against the others.

He also can’t afford to write off PRD legislators. He’ll need their assistance in passing one of his most desired reforms: opening the state petroleum monopoly, Pemex, to foreign investors who could fund the new drilling and exploration needed to help the giant company replenish its declining reserves.

However, Mexico’s constitution prohibits investment by outsiders. Changing it would require a two-thirds approval by Congress, which would be impossible without the votes of legislators from Lopez Obrador’s party.

Some are skeptical that Calderon will get much help from the PRD, given all the mudslinging of the campaign. Calderon supporters launched particularly vicious attack ads against Lopez Obrador, comparing him to Venezuela’s leftist leader, Hugo Chavez, whose socialist revolution has polarized that South American nation and increased friction with the U.S.

Federal election officials forced the PAN to yank those spots. But the damage was done. Opinion polls showed slipping support for Lopez Obrador. Subsequent ads funded by business groups warning voters that an economic crisis would follow a change in direction reinforced the notion that Lopez Obrador posed a danger to Mexico’s well-being.

Those U.S.-style attacks helped Calderon get elected, Peschard-Sverdrup said. But they may have hurt his ability to forge the coalition that he desperately needs to govern.

“It has diminished whatever political goodwill may have existed,” he said. “The odds of brokering anything that requires a constitutional amendment will be nearly impossible.”