The Pact for Prosperity

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After roughly one year in office, Mexican President Enrique Peña Nieto still has a lot to do about his state’s full-fledged transformation agenda. It was established by the Pact for Mexico, an agreement signed in December 2012 by the state’s major political forces. In a panel discussion with former Dominican Republic President Leonel Fernández at the World Economic Forum on Latin America held in Panama this April, President Peña Nieto discussed the role the reforms will play in boosting Mexico’s economic growth and their impact on the entire region’s prosperity.

Leonel Fernández: I would say this is a memorable moment to talk about the achievements during the first year of your presidency with your reform package. It is very interesting because four years ago, in 2010, Mexico was celebrating its independence bicentennial, which marked the creation of the nation state. It also coincided with the hundred-year celebration of the Mexican Revolution and the Constitution of Mexico, which introduced a social component for governance. Later, it was mentioned by your party, the Institutional Revolutionary Party (PRI), which had ruled for 71 years, that some sort of political alternance was needed, which started to happen. Now the PRI is back in power with you with a very important reform agenda for the transformation of the country. You have accomplished the Pact for Mexico, a pact that has five key points divided into 95 commitments. And I would like you, President Peña Nieto, to talk to us about how the Pact for Mexico will bring about social, economic, and cultural transformation in your country.

Enrique Peña Nieto: Thank you very much, Mr. President. Let me share with you what is happening in Mexico. Mexico is a country that has been consolidating its democracy in the past decades. Few countries, in Latin America or the rest of the world, can boast of the same economic, political, and social stability that we have had since 1934. Living in this increasingly consolidated democratic climate, Mexico is a country that is now more diverse and more pluralistic. It is a country where all voices are recognized and represented within the different arenas of the political sphere.

This allowed political democratic mobility in 2010 after roughly 70 years of rule by one political party – my party, the PRI – in Mexico. So we had political alternance. We had two administrations beginning in 2000, and in 2012, the party I represent won the presidential election again. Regardless, the country’s political reality is very different from when we had hegemony in the government. Now we have plural, diverse participation of political forces.

Within this context, it was fundamental to establish conditions that would allow the country to change, to affect structural changes that would make it possible for Mexico to attain greater developmental growth in the upcoming years. This is what gave rise to the Pact for Mexico you mentioned.

The Pact for Mexico is nothing more than an agreement of political wills between the government and the main political forces in the country. We agreed jointly to an agenda of structural changes that the country had postponed for years, and it was fundamental to undertake it within the framework of the Pact for Mexico.

The pact has provided Mexico with important structural changes that I would like to address. First, there was the labor reform in the transition period - from the end of the previous government’s tenure to the beginning of mine. It is a reform that makes Mexico’s labor market more flexible and opens up hiring opportunities – especially for women and young people who, with little experience, may have greater ease in joining the workforce. From there, we enacted reforms on a consensual basis. One is the reform to improve the quality of education. Now, the challenge is to ensure its quality, and that is the goal of education reform in Mexico. It is not only done by altering constitutional order, but also through secondary legislation.

In regards to energy issues, first, it is very clear in last year’s reform that the ownership of the hydrocarbons is and shall be Mexico’s. However, we are open to the possibility of allowing the private sector to participate in the exploitation of this. The Mexican state-owned oil monopoly Pemex has established conditions to allow for greater capacity and bolstering of it

We all know Mexico has macroeconomic stability with low inflation and interest rates. However, you have faced economic growth challenges. How do the Pact for Mexico and your government intend to launch economic competitiveness and economic growth?

I think there have been several ways, including the ones that I listed, whose fundamental goal is for Mexico to achieve greater economic growth. Because the truth is that even though Mexico had had a positive economic growth rate – on average 2.4% per year in the past few years – it was below its potential. Even so, it is in contrast with other regional economies that have experienced far superior growth.

Facing this potential, there are reforms that will certainly influence economic growth for Mexico. I’ll list some. First is telecommunications reform, which is intended to open the sector up to greater competition, to achieve digital inclusion, which is indeed a challenge today, and to ensure the entire population can enjoy these services in any part of the country.

Then there is an economic competence reform, which intends to fine monopolies and establish optimal conditions within a legal framework to promote greater economic competition. Financial reform will basically target achieving more credit to promote small- and medium-size businesses. There is fiscal reform that is directed at bolstering the economic capacity of the state and its governments, and also to lessen dependency on oil revenues.

And there is energy reform, which is perhaps the most important, which was achieved within a sphere in which no legal modifications had been introduced in at least 50 years. It will also become the most important element for Mexico’s economic growth, job creation, and regional development. This energy reform will make it possible to have greater competition and exploitation of new energy sources, especially clean energies. It also ensures – and this is an important goal of this reform – that Mexico, its population, and its small- and medium-size companies, which once generated the most jobs in the country, will have access to energy supplies at better prices. This in turn will make our country more competitive. I believe that this is the most important transcendental reform that Mexico has achieved within the reform agenda we have just spoken about. Right now, Congress is debating several of these issues.

The reforms have taken place within the constitutional framework, but now Congress is taking care of enacting secondary legislation to ensure implementation of these reforms.

As you indicated earlier, Mexico will continue to own hydrocarbons, and therefore the reform is not a privatization. How can a private sector participate in the reforms, especially the ones in the energy and the telecommunication sectors?

As to the telecommunications sector, the reform primarily establishes that there will be a regulatory body that will open up more competition. There will be more television stations. We currently have two, and an additional one owned by the Mexican state. There will be more, and this will open up competition.

Will there be foreign direct investment there?

There will be foreign direct investment in terms of the percentage corresponding to reciprocity with other countries where the original capital comes from.

In regards to energy issues, first, it is very clear in last year’s reform that the ownership of the hydrocarbons is and shall be Mexico’s. However, we are open to the possibility of allowing the private sector to participate in the exploitation of this. [The Mexican state-owned oil monopoly] Pemex has established conditions to allow for greater capacity and bolstering of it.

This will open up participation regarding hydrocarbon and energy sources to this effect. A regulatory body will be created and it will first establish a zero round in which Pemex sets up the areas that will be developed. Certainly in the beginning of the next year, they will establish and open up another round to establish the possibility of participation by the private sector. I mean a mechanism by which the ownership by the Mexican state prevails over hydrocarbons. But it also generates mechanisms for the private sector to participate, based on the success of other countries, especially in the Latin American region. Here, I can mention countries such as Brazil and Colombia, which undertook structural changes in this sphere to achieve greater yields in the energy sector.

Why is this such a relevant reform? Because today we observe the world, the global map when it comes to energy production, and see that it has changed. Today we see that the North America, particularly the United States, has achieved greater self-sufficiency in energy matters. They now have new sources for exploitation, especially shale gas, and this has created a more competitive market.

This forces Mexico to undertake structural changes to be in conditions of greater competitiveness. Otherwise, we will be losing investment opportunities in our country. I must repeat that the purpose of this reform is for energy supplies to be cheaper in order for Mexico to be more competitive, making it easier to generate more jobs and create greater economic growth in our country.

Mr. President, regarding the energy reform, we are talking about oil, natural gas, and electricity sector reforms. But you also added the fact that there is shale gas. This, perhaps, requires a new regulation because it is a new element. How can there be participation in the reform of the electricity sector and what regulations have you thought of regarding shale gas?

That is exactly what Congress is debating. As soon as the initiative is present to secondary legislation to maintain the spirit of the constitutional reform that has taken place in the energy sector, how can we translate this into secondary legislation ensures that Mexico will maintain ownership over hydrocarbons? And, second, as also established in the Constitution, what mechanisms will there be to speed up exploitation of other energy-generating resources like shale gas?

And in matters of electrical energy, the same as in oil, a regulatory body has been created to promote the participation of the private sector in taking advantage of the federal authorities’ distribution networks so that energy can be distributed to more regions of the country. And, more importantly, to ensure that electric power is cheaper. At the end of the day, the Federal Electricity Commission will be the main energy-generating body, but the private sector might also become an energy co-generator.

In Mexico, we do electricity co-generation, but this benefit essentially reaches only those who have the financial capacity to generate electric power. But small- and medium-size businesses and the major users don’t see the benefits of being able to generate more energy with economic mechanisms at a lower cost and achieve the result of paying less for electric energy.

Mexico is an extremely diverse country. It is a privileged country because it contains nearly 10% of the the world’s biodiversity. It is a country with many species that you can’t find elsewhere. That is a part of our natural wealth

Mexico has to become more competitive, and the reform regarding energy is aiming for this goal. I mean ensuring that energy is cheaper in Mexico so that hydrocarbon exploitation may become more competitive. I mean for our country to develop an industry with greater technology, and the innovative capacity to compete in Mexico and simultaneously generate more energy with the participation of the private sector. This reform also makes sure that this benefits all Mexicans, especially small- and medium-size businesses, which are the ones that generate the most employment in our country.

A faithful promoter of free trade

Looking at Mexico’s development model, when you analyze the situation of Latin America in the last 10 years, you speak about this bonanza we have had. We had a lot of raw resource exports to China, but there is also manufacturing in Mexico. There is high technology, software, aerospace, and the automotive industry tied to the US economy. How do you view the sustainability of a Mexican economic model that is based on a capital-intensive approach?

I think that the right path, which Mexico followed and must continue to follow, is to be a great promoter of free trade. We are perhaps the most open country in Latin America with the agreements we have with different regions and countries around the world. Consequently, this has generated the structural changes to increase other countries’ competitiveness and to allow for a greater capacity of our own Mexican-made production, which would allow us to compete in other markets.

What I can say about Mexico is that we are a country that, without a doubt, has been incorporating and has achieved greater development in different areas, such as specialized manufacturing. For example, we are the eighth largest producer and the fourth largest exporter of vehicles in the world. We have been advancing in the aerospace industry, thereby becoming the sixth largest provider for the United States in this field. And without a doubt, our trade with North America has grown.

I can say the same about other specialized industries where we hold a prominent place. We are the main producer and exporter of TVs, plasmas, and electrical appliances. So Mexico has been effectively building and creating a platform for its economic growth based on becoming a logistical center due to our geographic location. This position allows us to participate in different markets and to make our state a platform for other countries’ participation so they can access those other markets. Mexico has free-trade agreements that provide the opportunity to access a billion-person market. To illustrate it with an example, our colleges graduate about 100,000 engineers per year, which doesn’t happen in other countries.

Mexico is an extremely diverse country. It is a privileged country because it contains nearly 10% of the the world’s biodiversity. It is a country with many species that you can’t find elsewhere. That is a part of our natural wealth

This gives you an idea of what we are focusing on in developing our country’s economic growth. Mexico has been following this line for a few years. It is the same path we continue to take and promote. Today, we work to ensure that, as a result of educational reform, we will have the skills, and our students the capabilities, to incorporate ourselves into this specialized labor market that has been built in Mexico. And also to ensure that they break away with the tradition of [the assembly of imported component parts for re-export], which are jobs that perhaps are not well compensated. So today we are working to generate better paying, higher quality jobs, and this demands greater specialization from our graduates. The path is really to enter these very competitive markets that Mexico has prepared and continues to prepare for.

As the role of Mexico in the Pacific Alliance opens up new perspectives, what will Mexico’s participation in the trans-Atlantic partnership be if it involves North America, the United States, and Europe? How will that impact your country?

That is in total agreement with Mexico’s vision of being a faithful promoter of free trade. That is why our country is so open to the world. This position is completely in line with the agreements that have already been signed and the Pacific Alliance, which is one of the most recent innovative agreements that we entered with three other Latin American countries, namely Chile, Peru, and Colombia. It allows us to have an integrated market, not just for a flow of goods and for trade, but also for transit of people and to share capital markets – and also to make this greater integration platform a more competitive platform to launch, to enter the Asia-Pacific market. A market that without a doubt for the last few years has been growing faster and has been experiencing greater development than other regions of the world. And we want to participate in it with those countries that believe in free trade.

So the Pacific Alliance, we believe, promotes the integration of member countries, those who eventually might join it because they are consistent with principles that inspire this Pacific Alliance agreement, which is in the process of being ratified by the countries’ legislative congresses, and after this consolidation will enter the Asia-Pacific market.

We also participated in negotiations for the Trans-Pacific Partnership (TPP) with some of the countries that already participate in the Pacific Alliance. That is another mechanism for integration of American countries with the Asia-Pacific region. That probably has a lot of potential. Within this negotiating table, Mexico currently participates with great enthusiasm and with full conviction that this mechanism shall materialize as quickly as possible. Mexico has committed to support this agreement, reaffirming a position of openness that we want to continue.

President Peña Nieto, Mexico has traditionally played a very active role on the international scene. It is the second most important economy in Latin America with a capacity of generating wealth of roughly $1.3 trillion per year. It is also a member of the G20, which is a source of pride for all Latin Americans. How do you visualize Mexico’s new role as a global actor? Its ties to Central America and the Caribbean, to all of Latin America? What can we expect from your mandate for Mexico as a global actor?

For Mexico, and especially for the government that I am honored to lead, there are five main priorities. One of them is for Mexico to fully assume its global responsibility. I have been working to that end, first by trying to forge closer ties with our neighbors in Central America and the Caribbean, as well as with the rest of Latin America. I believe this is confirmed in the diplomatic relationships that we have been working on. This is ratified by the meetings I have held with presidents of Latin American and the Caribbean states. I mean determination of mechanisms for greater cooperation.

Also, Mexico is a country that is clearly committed to international law. We are a country that is committed to sustainability and respect for the environment.

Next, I must say that Mexico is an extremely diverse country. It is a privileged country because it contains nearly 10% of the world’s diversity. It is a country with many species that you can’t find elsewhere. That is a part of our natural wealth.

Mexico is committed to the fight against global warming. Our own contribution to global warming could be less. It is only 1%, however. Mexico has assumed its own legislation in several of its public policies to make a commitment to sustainability and respect for the environment. We want to be a leader in this effort. At the end of the day, scientists have recognized that this is happening because of human beings. Sadly, we have affected our environment and Mexico has assumed its responsibility in facing this phenomenon.

Mexico shows solidarity toward the course of human kind. It has shown solidarity in the fight for nuclear disarmament, to efforts looking for peaceful solutions to conflicts everywhere in the world. Born out of this conviction of respect to the principles written in our Constitution, Mexico shall continue to work consistently. And of course assume its responsibility within the order and peace we want for the whole world.

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