May 2 (Bloomberg) -- Mexican President Enrique Pena Nieto hopes to use U.S. President Barack Obama’s visit to affirm one crucial theme: that his country is much more than the sum of its problems. During a whirlwind first 100 days, he has already pushed through significant reforms to strengthen Mexico’s notoriously mediocre educational system and to deliver Mexicans from costly and oppressive monopolies.
Yet for Pena Nieto to build on such achievements, he must be willing to take some big political risks. And to realize the newfound economic promise that has attracted billions of dollars in portfolio investment in recent months, he must address Mexico’s abiding poverty and inequality and help build a broader partnership with its neighbor to the north.
Dismantling the monopolies and oligopolies whose products devour close to a third of an average Mexican’s household budget (and more for the poor) is a good start. This week, the Mexican Senate passed a landmark bill that takes aim at America Movil SAB, which controls 70 percent of Mexico’s mobile-phone subscribers and has helped make Carlos Slim the world’s richest man. Grupo Televisa SAB, which garners 70 percent of the nation’s broadcast-television audience and -- oh, by the way -- has employed Pena Nieto’s actress wife, will also take a hit. The law gives a new regulator the power to force companies that control more than 50 percent of the telecommunications market to share or even sell assets, and allows foreigners to take majority stakes in landline phone and cable networks for the first time.
Underpinning such bold moves is a political entente that might make the stymied Obama weep with envy. Shortly after Pena Nieto won election with a plurality of seats in both houses, his Institutional Revolutionary Party (PRI) and the two biggest opposition parties, the National Action Party (PAN) and Democratic Revolution Party, agreed to adopt a joint platform of 95 goals called the Pact for Mexico.
This loose alliance has enabled each of the parties to take risky steps together. Yet the pact is hardly bulletproof. A recent vote-buying scandal involving the PRI in Veracruz forced a delay in introducing a banking bill after the PAN demanded an investigation. Elections in July will sharpen such tensions. And the toughest and potentially most rewarding reforms, broadening Mexico’s tax system and opening its insular state oil company Pemex to foreign investment, are yet to come.
Pena Nieto’s chief economic challenge is reorienting Mexico’s economy to work for the benefit of the many rather than the few. Despite its growing middle class, about half the population is poor, and inequality remains high. More than 60 percent of the workforce is still employed in the informal sector, i.e., outside tax and labor laws. Reforms on hiring and firing enacted on the eve of Pena Nieto’s inauguration will help. So will making it easier to start a business and find credit, changes that the stalled banking bill promised to promote. Mexico needs to incubate more small and medium enterprises and entrepreneurs to thrive.
With sustained growth, illegal immigration to the U.S. will begin to take care of itself. Since the end of 2009, Mexico’s economy has grown about twice as fast as that of the U.S. More of its workers have stayed there as a result: Net Mexican migration fell to zero from 2005 to 2010, according to a Pew Research Center study released last year.
The drug-fueled violence that has caused more than 60,000 deaths in the last six years is a different matter. Pena Nieto has shrewdly sought to downplay Mexico’s war on drugs and to focus on its economic prospects. That approach won’t succeed without a clear, forthright strategy for containing the violence. So far, his efforts to reorganize the police and to restrict anti-narcotics cooperation with the U.S. by channeling it all through the Interior Ministry seem more focused on public relations than results.
Like Pena Nieto, Obama has an incentive to “shift the narrative.” Doing so might help win more domestic support for goals that are critical for both countries, such as immigration reform and gun control. With increasingly intertwined economies and societies, Mexico and the U.S. have powerful incentives to cooperate on promoting global free trade and democracy, not to mention clean energy and economic development throughout the hemisphere.
Obama’s relative neglect of Mexico hasn’t helped. Mexico is the U.S.’s third-biggest trading partner, leading market for 22 of 50 states and ancestral homeland of about two-thirds of U.S. Hispanics. Yet in this year’s State of the Union address, it merited a sole reference: “Ford is bringing jobs back from Mexico.” That’s not exactly visionary. During his administration, Obama has allowed pesky disputes over cross-border trucking and tomatoes to fester; a promising agreement on transborder energy exploration signed with much fanfare and ratified by Mexico has languished in Congress.
One symbolic yet practical way to reaffirm the importance of expanded cooperation would be to re-establish the Cabinet-level U.S.-Mexico Binational Commission, which existed from 1981 to 2000. In addition, Obama could at last appoint the special envoy to Latin America that he promised as a presidential candidate in 2008.
Still, 24 hours on the ground in Mexico won’t do much to advance shared goals or redress a history of fitful neglect. For that, Obama will have to work more seriously. Pena Nieto’s actions thus far suggest such efforts could be well rewarded.
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