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May 08

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Is Mexico (finally) Serious about Tackling Corruption?

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Mexico’s new President Enrique Peña Nieto has started his six-year presidency with a bang.  Not only has he struck a ‘grand bargain’ with the two opposition parties, but only months after inauguration the most powerful and most corrupt woman in Mexico, former head of the National Education Workers Union, Elba Esther Gordillo was arrested.  Warning shots are now being fired across the bow of the leader of the Oil Workers’ Union, Carlos Romero Deschamps.

Peña Nieto’s grand bargain – or what in Mexico is referred to as the “Pact for Mexico” — was signed by all three major political parties, Peña Nieto’s Institutional Revolutionary Party, the more conservative National Action Party which governed for the past 12 years, and most surprisingly the left-wing Party of the Democratic Revolution, and was unveiled on his first day in office.  This Pact lays the ground work for much needed reforms in areas previously considered untouchable by Mexico’s politicians including education, energy and telecommunications.  These reforms are arguably more politically and socially divisive than the U.S.’s need for entitlement and tax reform.

Step one appears to be neutralizing the leaders of the powerful workers’ unions that have controlled purse strings and political fortunes for decades.  In late February, within 24 hours, an education reform bill was signed into law and Elba Esther Gordillo, known as The Teacher, was arrested when her private jet landed near Mexico City after visiting one of her mansions in California.  As leader of the 1.5 million strong teachers union since 1989, she is accused of stratospheric amounts of embezzlement, corruption and organized crime.  The new education reform law strips the education workers’ union of the power to hire, fire and promote teachers and aims to improve teaching standards across the board.  In a country where only about 45 percent of students finish high school, this is no simple challenge.

Less than two months later, reports are starting to surface that the Secretary General of the powerful Mexican Oil Workers’ Union, Carlos Romero Deschamps, is again under scrutiny. Although claiming he has “nothing to hide”, one has to wonder how someone who officially makes approximately US $1,900 per month can afford to own a number of properties including a French castle and a collection of cars according to an article published in Vanguardia.  And Mexico’s top newspaper, Reforma, alleged on the front page of its Sunday edition that Deschamps has created his own little family business within Mexico’s state-owned oil company, PEMEX.  According to the article, his sisters, brothers-in-law, and numerous cousins hold jobs and draw large salaries and benefits for positions that don’t actually exist.  These fictional positions can be passed down to their heirs and are allegedly secure under contract until 2999.  Now that’s job security.

At the same time, lawmakers are formulating reform proposals and public relations campaigns that will allow some private investment in Mexico’s state-owned oil industry.  While no one is suggesting full on privatization, without new private-sector investment in exploration and exploitation technologies, infrastructure and production chain efficiencies, Mexico, with all its energy potential and oil reserves, will become a net fuel importer in less than 15 years.  While few deny that changes need to be made, 30 percent of the government’s budget is paid for with oil profits and the idea that national sovereignty depends on national monopoly over oil is engrained in every Mexican.  Needless to say there is little room for error.

If these two major initiatives weren’t enough, Peña Nieto has also vowed to dismantle Mexico’s telecommunications monopoly.  In which case, step two could include taking on the world’s richest man – Carlos Slim.

Make no mistake, these reforms are vital to Mexico’s future and will not be easy to implement. Although Mexico is the world’s 14th largest economy, it has the potential to become the world’s 8th largest by 2050.  However, pervasive poverty combined with one of the world’s largest gaps between rich and poor (according to the OECD, the differential between the top and bottom 10 percent is 27 to 1 in Mexico) is obstructing this goal.  Energy reform that brings greater economic growth and education reform that brings equality of opportunity is indeed a vision for the future.

 

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