CEO’s Note: The anti-Mexico sentiments evident at the Republican National Convention coincided with more positive developments in U.S.-Mexico relations, including a one-day official visit by President Peña Nieto to Washington that highlighted our close, productive, and friendly bilateral relationship. Last month also witnessed the final approval of the national anticorruption system, Mexico’s first comprehensive system of laws to identify and sanction corruption. Granted, effective implementation will be a major challenge, but civil society activists and a new attitude in the presidency toward corruption portend tangible results. The Mexican economy continues to encounter strong international and domestic headwinds this month, including a further drop in oil revenues, renewed depreciation of the peso, and another delay in the bidding on the government’s wholesale wireless network. And yet, adroit macroeconomic management has helped sustain growth, albeit slow.
U.S.-Mexico Relations
As expected, the GOP platform calls for the construction of a wall to secure the U.S.-Mexico border, and Donald J. Trump’s acceptance speech reiterated his depiction of NAFTA as “one of the worst economic deals ever made by our country.” This message contrasts with a new survey of border residents showing that security is not a prominent concern among those Americans, that the individuals who would be most affected strongly oppose the construction of a wall, and that the vast majority have a positive view of their counterparts across the border. Meanwhile, binational efforts to upgrade border infrastructure continue with the mid-July opening of a new pedestrian port of entry in San Ysidro, CA.
The day after the convention closed, Mexican President Enrique Peña Nieto made an official visit to Washington at the invitation of President Obama. This timing, coming less than a month after their last encounter at the North American Leaders Summit in Ottawa, convinced some analysts that the meeting was a response to the tone of the Republican Convention regarding Mexico. The presidents’ joint press conference highlighted the strategic importance of a close, productive, and friendly bilateral relationship. Their private meetings made the High Level Economic Dialogue a permanent feature of the bilateral relationship and formalized the recently created Energy Business Council. A post-meeting fact sheet issued by the U.S. Embassy in Mexico noted the wide range of matters on which “we are working together” to advance our shared interests and address our common challenges.
On Friday, July 22, 2016, the United States and Mexico exchanged diplomatic notes to bring their new Air Transport Agreement into force. This agreement eliminates government interference in commercial airline decisions, providing open, unlimited routes between the United States and Mexico. It also expands opportunities for cargo flights between the two countries. The agreement, which will enter into force on August 22, 2016, also provides new rights to all-cargo carriers, allowing them to establish new routes and provide faster services at better rates for shippers. These new routes will also create new opportunities to expand the U.S.-Mexico cargo market.
Mexican Politics
In a July 5 special session, the Mexican Congress gave final approval to a new anticorruption system. It upheld a presidential veto of a widely criticized provision that would have imposed onerous transparency requirements on everyone who receives government funds. The resulting law creates a comprehensive system to detect and impose sanctions on corrupt acts—something that has never before existed in Mexico. How the measures are implemented remains to be seen, of course, but there are reasons to hope that their positive effects will be felt soon. An array of civil society actors played a central role in pushing the legislation forward, and they seem likely to remain involved in the reform effort. Also, there are signs that attitudes towards corruption may at last be changing at the highest levels of the Mexican government.
The Peña Nieto government has begun to speak differently about corruption. In the President’s speech announcing the new anticorruption system, he “humbly” asked forgiveness of the Mexican people for his lapse in judgment with regard to the improprieties surrounding the purchase of his home, known as the “Casa Blanca” scandal. More significantly, he said that he now understands that a perception of impropriety matters more than technical legality under the law. And the attorney general’s office made the following statement at the press conference announcing the new law: “No institution and no public servant, regardless of the level of government they serve, can be outside the law.”
Peña Nieto also took action. His attorney general filed a constitutional challenge to block legislation recently approved in two states that would shelter outgoing PRI governors from prosecution for corruption. The President accepted the resignation of Virgilio Andrade, the Secretary of Public Administration who concluded that no law was broken in the Casa Blanca case. And as noted in last month’s update, the President made Enrique Ochoa, Electricity Commission (CFE) director, president of the PRI in an effort to clean the party’s image with an electorate fed up with corruption.
In his first public act after stepping down as PRI President in June, Manlio Fabio Beltrones met with the PRI politicians he led as coordinator of the party’s federal deputies in 2012-14. Together they formed a new “civil association” whose stated aim is to analyze the future of the PRI. However, most analysts see this development as part of Beltrones’ strategy to become the PRI’s 2018 presidential candidate.
Finally, the conflict with dissident teachers in southern Mexico continues unabated, undercutting regional business activity and motivating business leaders, frustrated with the slow pace of negotiations, to publicly call on the government to end the protests.
Mexican Economy
According to the Bank of Mexico’s survey, growth estimates for 2016 declined a bit, from 2.44% to 2.36% as second quarter preliminary growth registered 2.4%. And despite reduced volatility in July, the peso continued to lose value making it the second worst performing major emerging market currency in 2016 (behind Argentina) with little hope of significant improvement in the coming quarter.
Mexico’s fiscal reliance on petroleum revenue continued to fall in the first half of 2016. Oil revenues reached their lowest level since recordkeeping began in 1990, totaling just 13.3% of federal revenues—they were over 40% of revenues as recently as 2012. But in the same period and thanks to the 2013 fiscal reform, non-oil revenues reached a record high. In conjunction with two rounds of budget cuts, this prevented what could have been a fiscal crisis this year.
In electricity news, the CFE authorized a small electricity rate increase to cover rising natural gas and fuel oil costs. This increase affects industrial, commercial and high-consumption residential customers but exempts the vast majority of residential users. CFE director general Enrique Ochoa’s move to the PRI has left Jaime Hernández, Director of Finance at the firm, as interim director general. The impressive list of candidates to succeed Ochoa includes Hernández, Héctor de la Cruz, Director of Administration, Guillermo Turrent, Director of Modernization, and Cesar Hernández, Undersecretary for Electricity.
In the telecom sector, on July 15, the Mexican government announced another delay in bidding for the construction and operation of Red Compartida, a wholesale communications network that will expand wireless connectivity throughout the country. This third delay reportedly reflected financing difficulties among the firms interested in bidding. Bids are now due October 20 and winners will be announced November 17.
Events and Publications
Monday, July 25: A Latinvex article on the likely implications of U.S. presidential candidate Donald Trump’s threats against NAFTA featured comments by MJGS Chairman, Amb. James Jones.
Wednesday, July 27: The featured Q&A of the Latin American Advisor on the new PRI party president featured comments by Amb. Jones and by MJGS Senior Adviser, Pamela Starr.
August 3-6: U.S.-Mexico Summit, organized by MJGS client the BorderPlex Alliance, in El Paso, Texas.
