FT: Mexico, new darling of investors

Mexico is becoming the latest darling of international investors, emerging from the shadow of Brazil, whose economy has lost its luster. Mexico’s economy expanded almost 4 per cent last year, about double the average annual growth rate this century.

This month, Larry Fink, who heads BlackRock, the world’s largest asset-management company, called Mexico an “incredible growth story”. Lisa Schineller of Standard & Poor’s, the rating agency, says the country’s BBB sovereign debt rating could be poised for an upgrade if Mexico enacts critical structural reforms.

Foreign investors have poured money in. During the first nine months of 2012, they funnelled $57bn into Mexican stocks and bonds – more than five times the amount they invested in Brazil during the same period. Little wonder the country’s IPC stock market index hit a record high this year.

It is all a far cry from the gloom that hung over the country a few years ago when some US commentators, unimpressed by low growth and alarmed by drugs-related violence, began to suggest that Mexico could become a failed state. So what has happened to turn Mexico’s prospects around? And is the optimism in the centrist Institutional Revolutionary party (PRI) justified? After all, the last time that there was so much excitement about Mexico’s economic prospects, during the 1988-94 PRI administration of Carlos Salinas, the country ended up in the throes of the so-called tequila crisiswith its sharp devaluation and swingeing recession.

The most recent answer to the first question is Enrique Peña Nieto. Ever since the 46-year-old former state governor won July’s presidential election for the PRI, investors have seen him as the best chance to free up the congressional gridlock that has blocked the structural reforms that many analysts believe could transform Mexico’s often sluggish economy into an Aztec tiger.

International interest in Mexico has so far focused on the country’s prowess as a production base from where companies can export to the US. But Mr Peña Nieto’s reforms are intended to cultivate a healthier environment for far broader investment throughout the domestic economy. He is seeking to introduce more competition in telecommunications and energy while taking steps to shake up the notoriously inefficient tax and educational systems.

Much of the hope that he may be able to push through his reforms rests on the PRI itself, which ruled Mexico for 71 consecutive years under a quasi democracy until losing the presidency in 2000. During that period, many Mexicans associated the PRI with corruption and vote-rigging as the party used its octopus-like reach to smother the democratic process and retain power. At the same time, however, many saw the party as the only political force with sufficient depth of human capital and experience to govern effectively.

It is far harder to say that of either the leftwing Democratic Revolution party (PRD), which has never held the presidency, or the conservative National Action party (PAN), which, during the past two administrations of Vicente Fox and Felipe Calderón, promoted structural reform but ultimately lacked the political nous to work with a divided congress. As Luis Rubio of the Centre of Research for Development, a think-tank, says: “The real problem of Mexico is that for years we haven’t had a president who could get things done.”

On the campaign trail and now as president, the clean-cut and business- friendly Mr Peña Nieto has worked hard to distance himself from the PRI’s poor historical relationship with democracy and transparency, in particular under Mr Salinas, even though Mr Salinas has the ear of the new administration. Mr Peña Nieto has tried to associate himself with his party’s reputation for efficiency and effective governance.

Some of that is just a question of form. At a recent meet-and-greet breakfast of papaya and pumpkin-flower omelettes, José Antonio Meade, Mexico’s foreign secretary, briefed foreign reporters on the country’s trade plans. But a more subtle message was on offer. Flanked by sharply dressed assistant-secretaries, and with a presidential spokesperson on hand to ensure that everyone remained “on message”, the meeting oozed old-style PRI professionalism and slickness – worlds away from the improvisation that characterised the past two PAN administrations.

The image of efficiency has travelled quickly. When Mr Peña Nieto met Barack Obama in November, the US president expressed confidence that he would develop a close relationship with the Mexican leader, who “has an outstanding reputation for wanting to get things done”.

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