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Rodrigo Aguilera

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Mexico Under the New PRI: The Best and Worst of All Worlds

Posted: 08/01/2012 5:29 pm

Despite a turbulent post-electoral environment which has been highlighted by accusations of fraud and intensifying social unrest, Mexico's markets have reacted rather favorably to the victory of Enrique Peña Nieto of the PRI on July 1st. Under the "consensus view" (which markets ultimately reflect), Mexico's political environment has never been better for achieving the structural reforms that the country needs, and its institutional maturity ensures that any attempt by the PRI to return to its old authoritarian ways would be kept in check. But what the consensus view ignores, unfortunately, is that history doesn't always take the middle ground. Knowing this, what would a Peña Nieto presidency look like in the best and worst of all possible worlds?

The best case scenario: breaking the deadlock and unleashing growth

It would be ironic to say that the PRI's greatest achievement could well be breaking the legislative deadlock that it inflicted on the PAN during the past two administrations. After all, the prospects for structural reform have not been brighter for any party in power in a long time: it would not be unthinkable to picture them getting the PAN on board for those reforms which require constitutional changes. The PAN, resisting the temptation of repeating the same obstructionist tactics that the PRI wielded as opposition, could bet on cooperation in the hopes that it would be seen as a party that put the country's interests ahead of its own. If the PRI is smart enough, it could also attempt to curtail the influence of Elba Esther Gordillo, the powerful teachers union boss, by striking a deal on education and labor reform with the PAN in the hopes of eroding union influence. The PRI has long known that Ms. Gordillo's support can make or break a presidential candidate, but the price to be paid has been very high for Mexico and its reform prospects

With the congressional scene in its favor, the new government could end up promoting an economic agenda which could combine the macroeconomic and monetary stability of its predecessors, but with a greater willingness to use public resources efficiently for the purpose of promoting growth and reducing poverty/inequality. This could be by extending credit to SMEs, investing in infrastructure, and broadening the social security system. Perhaps growth would not reach the vaunted 6 percent or 7 percent promised so often by Mexico's presidential hopefuls, but even a structural shift of just one percentage point by the end of the term would make a massive difference in the longer run (Mexico's GDP would be over 40 percent higher by 2050).

A pro-market but socially oriented agenda would also do wonders to converge the economic debate into more centric grounds after two elections of increasing political polarization. If all goes well, Mexicans could go to the polls in 2018 voting for the best candidate, rather than the "least worst," for a change.

The worst case scenario: the perfect dictatorship gets another shot at perfection

At best the new PRI administration could come close to replicating the success of its post-war governments in terms of promoting growth and social progress, but at worst it could take a great leap backwards to the old PRI's authoritarian tendencies and economic mismanagement. For example, Mr. Peña Nieto has been unapologetic about his role in squashing the Atenco uprising early in his term as governor, even despite the documented cases of human rights abuses. The PRI's long streak of political scandals over the past decade is also unmatched by any other party and sets a bad precedent for the tolerance that the new government may have towards corruption within its own ranks. The PRI's financial debacle in the state of Coahuila (the state debt increased nearly 90 times during Humberto Moreira's term, with almost all of it incurred in his last year) could be harbinger of 1970s-style fiscal irresponsibility as well.

Should the PRI choose to follow the path of the past rather than take a more democratic and conciliatory tone, it would have its work cut out for them. It has already cultivated a dangerously symbiotic relationship with the mainstream media, the primary source of information for the majority of Mexicans. Mexico's independent media is small and vulnerable to pressure and a control-obsessed PRI could go to great lengths in order to silence its critics. This would not be limited to the media. Facing an increasingly vocal student movement which has questioned Mr Peña Nieto's legitimacy, it could seek assert its authority by clamping down on the protesters under the guise of maintaining public order and defending the rule of law particularly if the protests get disorderly or even violent (possibly by provocation).

For those convinced that the PRI resorted to massive, systematic fraud in order to win the July 1st election, the prospect of using the lavish resources of the federal government for electoral purposes in the future is perhaps the ultimate nightmare scenario. Having ensured its continuity (at least for a while), it could worry less about promoting the reforms that Mexico needs and instead tweak an already perversely inefficient political-economic system to suit its own interests, and those of its cronies.

Will either of these scenarios play out or will history indeed take the middle ground? Mexico's future is unwritten... but those with a stake in it should be prepared for anything.

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