Mexico Slashes Its Growth Estimate

The Mexican government Friday slashed its projection for economic growth this year because of the impact of the U.S. slowdown, the latest in a flurry of setbacks for the 5-month-old presidency of Vicente Fox.

The growth estimate was cut from 4.5% to between 2.5% to 3%. And to make up for falling tax and oil export revenues, the government cut its current annual budget by $350 million, canceling highway, water and electricity projects and other programs.

Fox’s economic troubles come on top of recent conflicts with a newly feisty Congress and even with his own party over key legislative initiatives. And the president’s public approval rating has fallen because of his unpopular proposal to raise taxes sharply on food and medicine.

Indeed, the extended honeymoon after Fox’s Dec. 1 inauguration is most definitely over.

The most worrying uproar for Fox is within his own center-right National Action Party, or PAN, which the president desperately needs to stay loyal if he hopes to get any major legislation passed.

No party has an outright majority in either the Senate or Chamber of Deputies. Elements of the PAN--the second-largest bloc in the lower house, with 207 of the 500 seats--has balked at accepting Fox’s tax reform.

The tax overhaul would impose value-added tax on food and medicine. Opponents say the plan targets working and poor people, despite Fox’s promise of subsidies to the poorest to offset the effects.

Objections to aspects of the proposal have thwarted Fox’s attempts to get Congress to convene in extraordinary session and debate the bill.

“Fox has dedicated himself more to governing through the media, as if he were still campaigning, than to caring adequately for cultivating agreements and dialogue with Congress,” said Joel Estudillo, director of information and analysis for the Institute for Mexican Political Studies, an independent think tank in Mexico City.

The other recent train wreck for Fox came over his proposal to grant autonomy and other rights to Mexico’s indigenous peoples, who make up about 10% of the population.

The proposed constitutional amendment was based on a 1996 accord to resolve disputes with Maya rebels in Chiapas state. The previous government had shelved the deal, but Fox made it a cornerstone of his program and submitted it to Congress soon after taking office. He also arranged high-profile releases of rebel prisoners and closed army bases in the southern state’s conflict zone.

But Congress, in part at the urging of leaders of Fox’s party, made substantial changes to the bill, ensuring its rejection by the Zapatista rebels of Chiapas. Fox first applauded the congressional approval, then backtracked when the rebels rejected the measure.

Now Fox faces angry rebels in Chiapas who feel betrayed and legislators who feel a new independence.

The emerging, more equitable balance of power between Congress and the presidency has had other ramifications.

For example, Fox backtracked on his own decision to create a new board for the state-owned national oil company, Pemex, that included prominent business leaders. Last month, facing congressional objections that he was undermining state control over the oil company, Fox changed the new board into an advisory body.

It remains unclear whether the business leaders he appointed, including telephone czar Carlos Slim and cement baron Lorenzo Zambrano, will be willing to serve on such an emasculated panel.

The economic slowdown further aggravates Fox’s problems, said political scientist Estudillo.

“I believe this is serious in that while the economic downturn was foreseen, it is more complicated when combined with the unclear panorama of Fox’s government,” he said, “and further complicated by errors on Fox’s part, especially in communication.”

Estudillo noted that Friday’s budget cuts were the culmination of more than a week of leaks and speculation. “This kind of thing generates more uncertainty and lack of clarity in terms of the direction he is taking.”

To be sure, Fox retains much of the public popularity that helped him sweep the Institutional Revolutionary Party out of power after its 71-year grip on the presidency. A poll in the Reforma newspaper Monday gave him an approval rating of 65%, down from 70% in February. Significantly, however, 53% said they wouldn’t have voted for Fox if they knew that he would impose a tax on food and medicine.

Fox drew boos and whistles over the tax reform plan from organized labor when he spoke at a May Day celebration last week.

But Sergio Sarmiento, an influential commentator, noted that Fox’s popularity rating remains far above the 42% of the vote he won last July.

“People aren’t necessarily willing to jettison President Fox just because he supported a bill they don’t agree with,” Sarmiento said. But he added, “The mood of the country has changed, that is clear.”

Commentator Javier Solorzano Zinser wrote Friday in the daily El Financiero: “The honeymoon is over, but it is not fatal. . . . His term is finally beginning. We will see what this man who so enjoys being president is made of.”

The budget cut represents only 0.25% of government spending. Finance Secretary Francisco Gil Diaz said it is in response mainly to a fall in revenue from petroleum exports. He said the economic fundamentals remain strong, including foreign reserves of nearly $39 billion and annual inflation of 6.5%--notably less than the rate of a year ago.

Luis Rubio, head of the independent Center of Research for Development, said the budget cut was conceptually sound, “but there is very little meat.”

Rubio argued that “unless Fox builds a new relationship with Congress and his own party, he will fail in his agenda.”

Fox seems oblivious to the criticism, plunging forward energetically with speech after speech defending his tax plan.

“The government keeps working, stays on the march,” he said in Sinaloa state this week. “Things are advancing, making strides.”

When a reporter asked, “How does the president define crisis if there are 200,000 [additional] people without work and the budget is being cut?”

Fox replied: “Don’t get mad, don’t get mad, things are going to go fine, don’t worry.”