The new Mexican president, Enrique Peña Nieto, will have a big advantage over his two most recent predecessors — he’s lucky.
Peña Nieto, 46, a politician from the traditionally authoritarian Institutional Revolutionary Party (PRI) who is better known for his handsome looks than for being a deep thinker, is starting his six-year-term under highly favorable economic and political conditions.
Just like South American countries that enjoyed a great ride in recent years thanks to high world commodity prices, Mexico seems now poised to benefit from a major increase in manufacturing exports and investments in coming years.
Consider some of the things that work in Mexico’s favor:
♦ After its worst economic crisis in recent memory, the U.S. economy is likely to grow slowly but steadily over the next two years, and — if the U.S. Congress gets its act together and cuts the deficit — could increase by more than 3 percent by 2014, according to most economic forecasts. That will be a boon to Mexico, which relies on the U.S. market for 82 percent of its exports.
♦ Growing numbers of multinational companies, including automakers and technology firms, are moving their production facilities from China to Mexico because of the rising labor costs in China. According to a Boston Consulting Group study, China’s wages in the technology sector will rise from 72 cents an hour in 2000 to $6.31 in 2015. Already, the gap between Chinese and Mexican salaries has narrowed substantially, the study says.
I witnessed firsthand how expensive China has become on a trip there last month, when I paid $10 for a cup of coffee at the Xian airport, and $4.50 for a cup of coffee at various Starbucks around the country, much more than I remember paying on a previous visit to China.
♦ Mexico may benefit from President Barack Obama’s proposed Trans-Pacific Partnership (TPP) trade deal among Pacific rim countries of Asia and America, which may be signed as early as next year and would become the world’s biggest and most ambitious free trade agreement.
The TPP would allow Mexico to update its 1994 free trade agreement with the United States and Canada, and get preferential access to South East Asian markets.
For the first time in more than two decades, the United States is likely to pass a major immigration reform, which would benefit millions of Mexicans on both sides of the border.
If the U.S. Congress gives legal residency to up to 11 million undocumented residents, a majority of whom are Mexicans, millions of them will get legal jobs and earn more money, which will allow them to send more money in family remittances back home. Already, Mexicans in the United States send about $20 billion a year to their families back home.
Domestically, Peña Nieto will benefit from the labor reform passed by the Mexican Congress in the final days of former President Felipe Calderon’s government, which will make it easier for companies to hire and fire workers.
This is likely to further attract domestic and foreign investments, and removes a politically thorny issue from Peña Nieto’s agenda, making it easier for him to focus on energy and fiscal reforms.
Peña Nieto will benefit from a significant change in the international drug policy debate. The Nov. 6 passage of amendments supporting recreational use of marijuana in Colorado and Washington state strengthens the demands by Mexico and other Latin American countries for changes in the four-decade-old U.S. war on drugs.
In an interview in Mexico City a few weeks after his election, Peña Nieto told me that his main priority on the narcotics front will be “reducing violence,” especially drug cartel-related mass murders, kidnappings and extortion.
“Overall, we have good reasons to be optimistic,” says Gabriel Casillas, chief economist of Mexico’s Banorte bank. “If the planned reforms are carried out, Mexico could be comfortably growing at 5 percent to 5.5 percent on a sustainable basis.”
My opinion: Granted, Peña Nieto will also face many obstacles to turn Mexico into Latin America’s new economic star, including his own party’s close ties with corrupt labor leaders and some excessively powerful business tycoons. But if Mexico fails to grow substantially and further reduce poverty over the next six years, he will have nobody to blame but himself.
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