The Pandemic Depression
The Global Economy Will Never Be the Same
When Enrique Peña Nieto, 47, became Mexico’s president, on December 1, 2012, expectations were hardly sky-high. A one-term state governor, Peña Nieto was relatively untested. His election also represented a return to power for Mexico’s Institutional Revolutionary Party (PRI), which had run the country for 70 years before being ousted in 2000 in the country’s first freely contested elections. Many feared that Peña Nieto’s ascendance would mean a resumption of the bad old days of crony capitalism, economic stagnation, and tacit cooperation with the country’s brutal drug cartels. Instead, the new president immediately set about enacting far-reaching economic reforms, taking on fiscal policy, unions, oligarchs, and a cosseted energy sector in rapid succession. He even got a fat tax on junk food passed last October. But as Peña Nieto’s first year in office has drawn to a close, results from the new approach have yet to materialize. Mexico’s economy has slumped, crime remains a serious threat, and polls show voter confidence in the president sagging. In mid-November, Peña Nieto met with Foreign Affairs managing editor Jonathan Tepperman at Los Pinos, Mexico’s presidential residence, to discuss his term to date and his plans for the future.
Your administration has gotten off to one of the best starts of any in recent history, but recently, the picture has started to look a lot gloomier. What concrete improvements can you point to from your first year in office? This government has come not to manage but to transform. Part of what has allowed this is the Pact for Mexico [a deal to push through reform signed by all three of Mexico’s major parties at the start of Peña Nieto’s term]. The pact gave us space to debate and agree on the changes Mexico needs, and that is exactly what has been happening throughout this year. We’ve made adjustments in labor, in education, in finance, on fiscal issues, and I hope also in energy. All these adjustments have -- and this is natural -- faced resistance from the people who are being affected. But we’ve been building the foundations for a country that will be more promising in the near future.
But for ordinary Mexicans, these changes must seem abstract. Can you reassure them that growth will improve soon or give them other targets to look for? Undoubtedly, the changes that have already taken place will allow our economy to perform better next year, for many reasons. First, the international environment will improve. We see signs right now that other economies seem to have hit bottom and are starting to recover. This will be good for the economic dynamics of Mexico, which is an open country.
Second, it was natural that with the change of administration, there was a change in the pace of government, and this will be felt next year. There will also be a higher budget, which is the consequence of the fiscal reform. Obviously, this new budget will test the capacity of the government to spend with transparency and efficiency, but I think this first year has set the basis for us to be able to [do that]. This has been a year of planning, of undertaking indispensable projects. Some of the results are already materializing. But next year, we will have a budget that will be the highest in the history of Mexico.
So are you promising specific new kinds of spending for next year? We have to expand higher education and health care. We’re going to be spending more. We also have a very ambitious plan for infrastructure. It has to do with roads, highways, modernizing ports, and also with expanding and modernizing part of our railroad network.
I also hope that in this [current] legislative period, the financial reform package (which is different from the fiscal reform) will be passed. It seeks to find a lever of growth and to make growth more accessible to the population. Mexico has very solid financial institutions, with good levels of capitalization, but they’re not lending much, perhaps because the current legal framework doesn’t really favor higher credit. The financial reform seeks to facilitate the offering of more loans by financial institutions and to make loans cheaper for Mexicans.
You’ve taken some initial steps on energy reform, but oil output is falling, and many people argue that more needs to be done. You’ve promised to allow foreign investment and joint ventures in the Mexican oil sector as a way of boosting production. But what exactly are the next steps? And if you offer foreign companies only profit sharing, not production sharing, can you get the kind of participation Mexico needs? I think the model we have presented to Congress is very similar to models that have proved successful in other parts of the world. It promotes greater participation by the private sector in oil, gas, and all our energy resources. This issue is very sensitive in Mexican culture. It’s practically a religious issue. But we’ve seen other countries implement reforms inviting in the foreign private sector, and they were able to boost production in Colombia, and in Brazil . . .
But Brazil just held its first big foreign auction for the development of its pre-salt offshore oil field, and they got only one bidder. Doesn’t that make you nervous? No. Mexico is a country that has a lot of energy potential. We not only have oil; we also have shale gas. But we cannot expect that a Mexican state company is the only one that can exploit the resources. Resources will continue belonging to Mexicans. They are the patrimony of the nation. But the Mexican state must find more efficient ways to exploit those resources. If we don’t make sure that Mexico can offer potential investors more input, they’ll stop coming to Mexico. They’ll go to the United States or other places where it is more economically viable to carry out their projects. I think that the debate taking place in Congress will lead to majority support for the necessary reforms before this legislative period concludes in December.
And when can we hope to see output actually start to grow? If the energy reform succeeds, its implementation should be gradual but also immediate, because the major challenge Mexico faces is economic growth rates that, unfortunately, have been lower than expected. Our growth has been well below what we originally thought it would be. But this happened to most other economies, and we believe that next year will be better. I think Mexico can grow, should be growing, by over four percent, five percent.
In your campaign, you promised a fundamental change in security strategy. But in some ways, you have followed the same strategy as your predecessor -- by continuing to target cartel kingpins, for example. Meanwhile, some sorts of crime, such as kidnapping and extortion, are on the rise. How is your strategy different from the last president’s? The constant element is the role of the Mexican state in fighting criminal gangs. This is a task that the Mexican state cannot renounce.
But reducing the level of violence is what I [emphasized in the campaign], because the way [crime fighting] was being done in the past resulted in an increase in homicides. Our strategy emphasizes prevention, coordination, and the reconstruction of the social fabric. And we have seen a reduction in violence, in homicides. Unfortunately, the reaction of different groups has been to resort to other types of illegal acts, like kidnapping and extortion, and this is something we’re fighting.
Here, I would highlight a major difference compared with the strategy of the past. Today, we have effective coordination between the federal and state governments. There is a permanent review of the different actions that each level of government is committed to implementing. I think that the issues to improve were there in the past: making professional policemen more reliable and making more investments in instruments such as intelligence systems. We’re going to create five regional centers that will allow us to reinforce the capacity of local authorities.
As for extortion and kidnapping, a lot of it comes from the jails themselves. We now have a project to put better equipment in jails to inhibit telephone calls, so that the people in prison cannot be making phone calls [to plan and commit crimes].
It seems like the underlying problem, though, is really about the lack of the rule of law. Mexico suffers from terrible corruption: the World Bank estimates that it eats up as much as ten percent of your annual GDP, and recent high-profile cases have involved everyone from the top to the bottom in Mexican society. What does your government plan to do about that? Corruption is an endemic evil -- a cultural problem, not only for Mexico but for [all] Latin America. Fighting it has to do with [improving] the environment for individual development. And this involves improving the economy, which we’re doing. And wherever there’s corruption, people have to denounce it so that there’s no impunity and we can penalize or sanction corrupt practices.
I [also] think the state should make additional efforts. I have proposed a bill in Congress, which is about to be passed, to create an anticorruption commission that will be given autonomy to look into claims filed by citizens. This, along with the effort to give more autonomy to the Federal Institute for Access to Public Information [which administers Mexico’s freedom-of-information law], will reinforce the capacity of the state to fight corruption in a more efficient manner.
But this cannot be the only thing we do. The effort should also be linked to education and, of course, the conditions of development in Mexico. Whenever there are some who have more opportunities than others, this feeds corruption. When you have more [equitable] development, it helps to curb corruption. So it’s a dual effort: on the one hand, you have to improve the environment and, on the other, to grant the state the necessary instruments to allow it to fight corruption more efficiently.
This year is the 20th anniversary of NAFTA. You’ve said that you’d like to widen relations with the United States. Would you like to see more integration and, if so, in what areas? As we’ve told the U.S. government, first of all, we need to recognize the harmonious and historic relationship between the two countries, breaking from the exclusive emphasis in recent years on fighting insecurity and collaboration for that purpose. The space of the relationship should be broadened.
What do we want? We have to recognize that the U.S. is the first destination of our exports. Mexico is also a top destination for the U.S. and Canada: there are no other countries the U.S. sells more to than Mexico and Canada. And we are geographically united. We governments have to recognize the gaps that still exist, and we have to improve the relationship for the benefit of all the populations.
What have we proposed? Let’s create conditions to help North America be more competitive vis-à-vis the world. I think that if we are able to attract the attention of the United States, all of North America might be a more competitive and productive region. We have to design an infrastructure to [unlock] the potential of our nations.
So better infrastructure across the borders. What else? I would emphasize financing infrastructure projects and the development of integrated value chains between Mexico and the U.S.
Would that require regulatory or legislative changes? No. We need political will, so that we can build together. The relationship is there, with the governments and without the governments. We’re very integrated. If we look at trade between Mexico and the U.S., for instance, before NAFTA and after NAFTA, the volume has grown. But Mexico and the U.S. were natural destinations for each other even before NAFTA. We’re neighbors.
We can develop more efficient borders that will allow the trade of goods and the crossing of people to become more agile, secure, and safe. Not many people know this, but the Mexico-U.S. border is the busiest in the world. Every day, legally, we have a million people crossing. We have good cooperation with the U.S. administration, but I do think we have a lot more to do.
Is the rising power of Latino voters in the United States changing ties? And has the stalling of immigration reform or the Snowden revelations about U.S. wiretapping of your communications hurt relations with Washington? U.S. politicians are increasingly recognizing the relevance of the Hispanic vote in U.S. politics. This motivated the immigration reform bill presented by President Obama. Mexico views that issue with enormous sympathy, although it is of course a domestic issue for the United States. Immigration reform would be a fair recognition of those [Mexicans] who live in the United States and are part of the dynamic U.S. economy.
In terms of the espionage, this is something I have talked to President Obama about. We don’t want it to mar the relationship between Mexico and the United States. But it is unacceptable for a country to practice such espionage, especially if there is a good relationship with the other country. This revelation is [an issue] not only for Mexico but for many other world leaders. The espionage is illegal, and I think that it breaks from the climate of harmony and cordiality we should have among our nations and peoples. Given everything that is now known, and the position of other heads of state on this issue, we hope that the United States, with humbleness, will recognize [the error of] what it did and avoid such actions from now on. And if there have been violations of international law, penalties should take place. We have pointed this out, and we are expecting to get a categorical and convincing explanation. But I insist that this will not be an obstacle in our relationship.
What are you planning to do to increase Mexico’s global profile? The Pacific Alliance -- an Asia-oriented trade pact including Mexico, Colombia, Peru, and Chile -- seems promising. Will Mexico join the alliance’s integrated stock market, making it the largest exchange in Latin America? And what other international initiatives do you have planned? I think there are two initiatives that will help demonstrate Mexico’s openness to the world. One is the Pacific Alliance. We’re practically ready to reach the accord. And the other one is the Trans-Pacific Partnership. There are 12 countries participating in the TPP: Mexico, the United States, Canada, and countries in Asia. Asia is a region with great potential, and the TPP would create a new relationship with great potential for trade among the countries signing the agreement. These two instruments, if they materialize, will create great opportunities for Mexico. Mexico hasn’t been the obstacle to finalizing the TPP. On the contrary, Mexico has always been in favor of the TPP.
I hope such efforts will project [the image of] another Mexico, a different Mexico, a Mexico [not associated] with a climate of insecurity or narco-violence, as in the past. Internal success will allow Mexico to project a different face to, and have a better position in, the world.
In the past, the PRI was hardly known as the party of reform; in fact, it often blocked such changes. How and why did the PRI change so quickly and become so enthusiastic about reform? I can tell you immediately. The answer is that Mexico changed, and the PRI has simply adapted itself to the new democratic conditions of our country. [In 2000,] the PRI stopped being the hegemonic party, and it got to be in the opposition. So it had to learn to compete, to gain the support of society. I think the PRI has really taken in these new lessons.
And the challenge and the opportunity for the PRI now is to show that we -- not just me but also governors and congressmen -- have learned these lessons, have learned to compete, and are here to produce results for society.
I know there are great expectations. But I would conclude by saying, first, that this government understands where we want to go and how we’re going to accomplish it, and we haven’t deviated from our path. And second, things are happening in Mexico. We have a political climate in which there are differences, controversy, polemics, and everything else. And we have our challenges. But unlike in other countries, where politics is a lid that doesn’t allow them to develop, here in Mexico, things are happening -- we’re reaching agreements. As we move from passing to implementing the energy and political reforms, that will be a good closing for this first year of my administration and will have created a sound foundation for more development in the coming years.
I’m very optimistic. The three main parties are at the table. Every time I speak to someone else from another country -- from Denmark, Italy, Spain, the United States, wherever -- they tell me, “What we need is a pact like in Mexico.” The most important changes are about to come, but they will come.
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