Focus: Pact for Mexico

Ground Rules

Ground Rules

Jul. 10, 2013

Contained in the Pact are 95 reforms revolving around three central themes: strengthening Mexico's economy, political and economic democratization, and citizen participation and social rights. The initiatives address issues ranging from labor reform and social security to ensuring transparency and non-corruption within the government. Among those taking effect in 2013 are the education and telecoms initiatives. The education reform, signed into law in February 2013, takes control of Mexico's ailing public education away from the union and returns it to the state. The telecommunications reform seeks to improve competition in the industry by regulating dominant telephone firms and giving more licenses for non-cable television channels. Mexico's own Constitution will also be amended to include broadband access as a right. This is expected to give a much-needed boost to the telecommunications sector in the country.

Another key reform that should excite business owners frustrated by bureaucracy is an initiative to shorten the time between a president's election and when he or she takes office. Traditionally in Mexico, this time period has been seen as idle time that could be spent legislating. The new reform calls for the president-elect to assume office after two months rather than six, which should greatly improve government productivity.

Perhaps the biggest changes will be caused by the energy reform, which is expected to affect the entire sector. Analysts say the Pact avoids mentioning outright privatization, but intends to reform the oil industry to improve Mexico's future without losing state control. The energy reform modernizes state-run oil company PEMEX, while simultaneously increasing competition in petrochemicals, hydrocarbon transportation, and refining. The oil sector reform should provide a window for private participation, which would allow international companies to enter the market previously dominated by PEMEX. “I believe we will see the possibility of partnerships between the private industry and PEMEX," said Duncan Wood, Director of the Mexico Institute at the Wilson Center.

Linked and crucial to energy reform is fiscal reform. This will eliminate subsidies that largely benefit the wealthy, simplify tax codes, and diversify Mexico's revenues away from those of PEMEX. The initiative eliminates “fiscal consolidation," thereby allowing businesses to avoid paying taxes by offsetting the losses of one subsidiary against the profits of another. The reform also seeks to modernize Mexico's largely informal labor sector, which, in turn, will provide more revenue through taxation. The comprehensive fiscal reform is of upmost importance, as nearly half of the reforms in the Pact depend on its passage.

While the Pact has gained support from all the major political parties and levels government, it does have its fair share of criticism. Some have labeled it more of a political tool than genuine economic reform, while others have pointed out some inconsistencies and ambiguities, especially in regard to the energy and fiscal reforms. PRD member Miguel Ángel Cantoral Gatica has said that the Pact is intended to serve as a message to the international financial markets.

Several reforms are scheduled for 2013, with the document specifying that all reforms be implemented by the end of President Peña Nieto's term in mid-2018. Should the reforms pass according to plan, the implications for Mexico, both in the political and economic spheres, will be huge. Some claim that the Pact should enable the country to increase public and private investment to more than 25% of GDP, thereby increasing productivity in the country. With lofty goals of transitioning to a more transparent democracy, promoting economic growth, and reducing social inequality, the Pact for Mexico hopes to play a big role in the country's development over the coming years.

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