Better times may lie ahead for Mexico

Implications: The perception of the Financial Times looks overly optimistic in light of the many hurdles ahead for success on the security side of Calderon's policy, as well as on the achievement of support from all political parties for fiscal reform now being considered by Congress.

Analysis:

In general, President Felipe Calderon (FC) has a positive image in the international press. A good example is this week´s article on the Financial Times (FT), which makes a balance of the first six months of his administration. The text starts by contrasting the atmosphere of stability that the country is breathing now, with the almost political chaos that existed in Mexico just a year ago. FC “is governing his country with a sure touch”, states the FT.

Among the salient achievements of FC so far, this newspaper highlights the new public pension rules introduced in March and a recent Supreme Court judgement overturning legislation that could have enshrined the duopoly in the country's media sector.

The article joins ranks with those who welcome the proposed changes to the tax system announced last week, setting a minimum 19 per cent rate of corporate tax and a new tax on cash deposits designed to attract small, informal businesses into the banking system.

If approved by Congress, the reforms will help to clamp down on pervasive tax evasion by Mexican companies. Mexico's tax take stands at 11 per cent of GDP, one of the lowest levels in Latin America. On the other hand, they will provide much-needed resources for extra spending on social welfare and infrastructure. These economic reforms are considered to be “Mexico's most important for more than a decade”.

The article recognizes that the fiscal package has defects, among others, that it could send people away from the banking system, which is exactly the opposite of one of the goals that it supposedly seeks. And, most importantly, even if the government earned extra revenues from the reform equal to 3 per cent of GDP, it will still remain heavily dependent on Pemex, the state oil company.

The toughest challenge ahead for President Calderon is the cracking down on drug-related violence. Although much more remains to be done, he has at least brought greater energy to bear on one of Mexico's most intractable problems, a fact evidenced by a recent decision to demote more than 250 top-ranking police officers. It is estimated that nearly 200 police and soldiers and more than 1,000 other people have been killed this year in a wave of violence.

Mr Calderon must also now tackle the monopolies in telecommunications, T.V. broadcasting and many other business sectors, which hamper the competitiveness of the economy as a whole.

But on balance, Calderon has succeeded in imposing a more effective style of governing than Fox. He has demonstrated his qualities as an adept politician, able to negotiate effectively and willing to tackle the vested interests that have consistently dogged reform and blocked development.

This leads us to believe that perhaps FC is looking good partly because of the sharp contrast between his style of government and that of his predecessor. In recent weeks, criticism to Fox from every side of the political spectrum has been steadily rising. Of course, the sharpest critic of all has been Andres Manuel López Obrador - former presidential candidate from the PRD- who in a book published just this week strongly denounces Fox´s excessive meddling in the last Presidential election campaign.

In this context, it might be more appropriate to guard oneself from scenarios such as the one posed by the FT, which looks somewhat overly optimistic. There is no doubt that the achievements of FC augur well for this sexenio, but still much more is needed than just keeping the momentum.