Mexico’s PRI Dismisses a Fox Ally as Its Congressional Leader

Mexico’s Institutional Revolutionary Party dismissed its congressional leader late Monday, reducing the already slim chances that President Vicente Fox’s reforms will pass legislative muster. And analysts say that’s bad news for Mexico’s languishing economy.

Perceived as a rising power broker just weeks ago, Elba Esther Gordillo was voted out as legislative coordinator at a council meeting of PRI mayors, state governors and members of Congress. Many complained that she had become too close an ally of the National Action Party’s Fox in his efforts to tweak the tax system and open up the electricity sector to private investment.

Gordillo’s dismissal is the latest chapter in an ongoing power struggle within the PRI, which has been seeking to redefine itself since it lost its 71-year grip on the Mexican presidency to Fox in 2000. The leadership crisis has unsettled the financial markets, with the peso hitting 52-week lows against the dollar.

“This shows the pulverization of the PRI. That creates a huge territory for uncertainty, which is what markets don’t like,” said Jesus Silva-Herzog Marquez, a Mexico City political scientist and newspaper columnist.

Numerous economists say reforms are essential if Mexico is to emerge from its three-year economic malaise and, in the longer term, regain competitiveness on the global scene. But Fox’s slate of ambitious reforms has hit a wall in Congress because of the opposition of the PRI, which holds a plurality of seats.

After taking charge as legislative coordinator, Gordillo expressed a willingness to work with Fox. But she didn’t have the full backing of her party; the vote to dismiss her was 69 to 28, with five abstentions.

Although intraparty opposition to her leadership had been mounting, the final straw was a Gordillo proposal last month favoring a new 10% value-added tax. To the minds of some PRI deputies, it was too similar to a Fox proposal.

“The coordinator tried to submit her responsibility to the goals of Fox and his machine. What happened last night was a recovery of the PRI of its social goals,” said Angel Buendia Tirado, a PRI member who holds a seat in the Chamber of Deputies, Congress’ lower house.

Chamber of Deputies member Jorge Romero Romero, however, expressed the outrage felt by many Gordillo supporters at her “illegal” ouster, saying that efforts to reach bipartisan solutions on badly needed reforms had been short-circuited by the party’s power struggle. For that, he blamed PRI President Roberto Madrazo, who presided at the council meeting.

“The rules state clearly that once elected, the coordinator cannot be removed for a three-year period, which preserves stability,” Romero said.

“Madrazo resolved the fight by satisfying one group of deputies but leaving aside those of us who favor reform and growth.”

Gordillo, who heads the Mexican teachers union, one of the largest guilds in Latin America, had been in charge of the PRI delegation as legislative coordinator since Sept. 1. Her successor is to be selected today.

Rogelio Hernandez, a researcher and political scientist at the College of Mexico here, said the dispute had hurt the PRI’s image and that the damage wasn’t over. He expects Gordillo to ultimately leave the PRI and take supporters with her to another party.

Amid the PRI power struggle, Fox issued another appeal Monday for cooperation among the parties to arrive at “urgently needed reforms.”

“Debate and criticism are not a sign of incompetence or crisis, but reflect the social vitality inside a democracy that is consolidating, that can express itself in an open and public way, thanks to democracy,” Fox said.

But as debate drags on, there seems little doubt that Mexico -- hampered by shortcomings in education, research, energy and transportation infrastructure -- needs to undergo drastic change.

Lewis Alexander, an economist at Citigroup in New York, said Mexico was rapidly losing its share of the U.S. market to China and that it needed to make changes if it was to become more competitive.

Topping the list of Fox’s reform proposals is one for Mexico’s tax system, whose collections equal only 13% of annual economic output -- half the average collected by countries at its level of development or higher, said Carlos Peyrelongue, an investment strategist with Merrill Lynch in Mexico City. Fox wants to make the current value-added tax cover all goods, including food and medicine.

Fox has also said the nation must open up its electricity grid to investment by foreign companies or face the prospect of brown-outs in coming years. Mexico’s Constitution prohibits such investment, but Fox is pushing for an amendment.

Foreign investment in energy is needed because Mexico’s poor economic growth rate and tax collections make financing it on its own very difficult, said Victor Manuel Herrera of Standard & Poor’s debt rating office here.