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Mexico: Why the Upcoming Election Matters June 15, 2006 21 21 GMT

Summary

Sixteen days before Mexico's presidential elections, the two leading candidates -- leftist Andres Manuel Lopez Obrador and conservative Felipe Calderon -- are still in a dead heat. Roberto Madrazo, the Institutional Revolutionary Party candidate, remains in third place but he is not so far behind that a Madrazo victory can be completely ruled out. Polls also indicate that no party will win a majority in Congress. This will restrict the next president's ability to pursue any policy in the short term; but the candidates' positions on policy issues are so different that the outcome of the upcoming presidential election will matter in the long run.

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Analysis

Mexico's next presidential election will be July 2 -- just over two weeks away -- and polls show that the two leading candidates are practically tied. Felipe Calderon of the incumbent National Action Party (PAN) and Andres Manuel Lopez Obrador of the leftist Democratic Revolution Party (PRD) each have the support of about 35 percent of the voters; support for Robert Madrazo of the formerly dominant Institutional Revolutionary Party (PRI) is in the upper 20s. In Mexican presidential elections, there is no runoff; only a plurality of the votes is needed to win. If the candidates maintain their current standings through the last days of the campaign, no candidate will be likely to break the 40-percent threshold.

Polls also indicate that no party is likely to win a majority in the congressional elections, also slated for July 2. A divided government -- which Mexico has had since 1997 -- means that whoever wins the presidency will have difficulties in advancing his agenda. Lack of a congressional majority and other restrictions, such as the North American Free Trade Agreement (NAFTA), will result in few real policy differences in the short term. However, the candidates' stances on the main issues are so different that in the long term, it will matter who wins the presidency in the upcoming election.

Though the divided electorate and divided Congress will make it difficult for the next president to have an effective mandate, whoever wins the election will claim one. The victor might have learned from current President Vicente Fox's experience in 2000, when he won with 43 percent of the vote against the 37 percent obtained by PRI candidate Francisco Labastida. Fox could have claimed a mandate on the basis that almost two-thirds of the people voted against the PRI and sought an alliance with the PRD. He also could have chosen to work with the PRI to advance most of his economic agenda at the cost of possibly handing the presidency back to the PRI with the next election. Fox chose neither and accomplished little. Granted, maintaining macroeconomic stability in a region historically prone to financial crises is no easy task, and Fox does have a good record on some anti-poverty policies, but he did not accomplish any of the economic structural reforms he had promised during his campaign. Mexico's next president will need to make the kinds of strategic decisions Fox chose not to make.

Given that whoever wins the July 2 presidential election will face difficulties in translating that victory into a mandate, does it matter who wins? It depends. In the short-term, the political, legal and external restrictions will mean that there will not be any fundamental policy differences; cosmetic or superficial changes will be in order. However, the path the new administration chooses will affect Mexico's long-term growth prospects and thus has a direct effect on issues such as immigration to the United States.

One of the driving issues in some Latin American countries has been resistance to free trade agreements with the United States. This is not an issue in Mexico, which signed NAFTA 12 years ago. None of the presidential candidates seeks to break that agreement. Lopez Obrador, invoking part of NAFTA's safeguard mechanism, is asking to delay the import of duty-free corn and beans into Mexico, slated to start in 2008. He also has mentioned his intention to propose a scheme of development funds in North America similar to the EU method of giving money to the least-developed areas. This could help develop areas that now produce the largest number of immigrants to the United States.

In terms of maintaining macroeconomic equilibrium and solid public finances, Calderon and Madrazo are both considered safe. Lopez Obrador has claimed that he does not want to tinker with economic stability and will maintain budgetary discipline. Concerns about his bad personal relationship with the governor of Mexico's Central Bank, Guillermo Ortiz, have forced Lopez Obrador to tell the public he will respect the bank's constitutional independence.

Mexico's economic reforms of the past two decades successfully diversified the economy and ended its dependence on oil; however, the federal government is highly dependent on oil revenues. Though Fox did not succeed in pushing through fundamental tax reforms, Calderon and Madrazo -- to different degrees -- are pushing for such a reform that would give the Mexican government a more stable source of revenue. However, as with any tax reform, the short-term transition could be costly. Lopez Obrador does not propose any tax reform; he says that forcing all businessmen to pay the taxes they do not pay now would suffice. A lack of tax reform would prove more costly over the long term and would further reduce the Mexican government's ability to pay for social programs -- of which Lopez Obrador proposes many.

Regarding energy, Mexico poses no risk of nationalization or expropriation of private investment; Mexican law does not allow such investment in the energy industry. The differences among the presidential candidates on this issue are about the opportunities for future investment. Lopez Obrador wants to maintain the status quo and adamantly opposes allowing any private (much less foreign) investment in the energy sector. He talks about substantially increasing government investment in the sector, but given his opposition to tax reform and his promises of social programs, he would have to increase public debt again to accomplish this. Calderon has proposed opening up the system for complementary private investment while keeping Pemex under state control, but even if Calderon wins the election he will have a hard time convincing a divided Congress to change anything. If there are changes, they will not be immediate.

Mexico's main foreign policy focus is its relationship with the United States and the rest of Latin America. The Mexican community in the United States will represent a growing political constituency in Mexico, and that will shift Mexico City's relationship with Washington. The three main presidential candidates have recognized that the immigration problem is caused by the lack of jobs in Mexico, and they all claim they want to solve that problem. The question, then, is which candidate can generate enough confidence and investment to improve Mexico's economy. (Lopez Obrador has thus far refused to meet with business organizations during his campaign.)

As long as the Mexican economy does not show a sustainable high rate of growth, people will keep moving to the United States. This will not change in the short term, regardless of who wins the July 2 election. But again, the long-term consequences of today's policy choices will make a fundamental difference. Addressing the migratory issue will continue to be one of the main themes in the U.S.-Mexican relationship.

Another main concern in Mexico is crime, particularly drug cartels and organized crime. No candidate offers a credible solution to this issue. Lopez Obrador has proposed a soft approach, pointing only to the economic causes of crime but avoiding mention of the drug cartels. His constant questioning of various court decisions puts a question mark on his respect for the rule of law. Madrazo has vowed to take a tough line on crime, but he has a huge credibility problem since some of his supporters have been implicated in drug cartels (there is an ongoing investigation involving the PRI's current candidate for governor of Jalisco, for example). Calderon will inherit the same structure Fox has, which has been unable to effectively fight the cartels and organized criminals. The outlook is not inspiring.

When Mexico's new president assumes power Dec. 1 -- Mexico has one of the longest presidential transition periods in the world -- he will be limited by a fractioned Congress and economic constraints. There will be no fundamental differences initially, but the voters' choice could affect how Mexico relates to the United States and the rest of the world in the future.