06/25/2013 06:55 pm ET Updated Aug 25, 2013

Mexico Plays the Waiting Game on Big Reforms

Summer in Mexico City is quiet, rainy, and tense.

Early 2013 saw one of the most productive one hundred days in Mexican political history and a burst of international press hype. Now, with Congress out of session, Mexico lies in wait. While the legislature has agreed to hold two special sessions in July and August to finalize details of previously agreed-upon reforms in education and telecommunications, new initiatives will be pushed off until the fall. The big ticket items to be addressed in several months are fiscal and energy reforms. In the meantime, Mexico's stock market reached its lowest point in a year in mid-June after disappointing growth figures. Fissures have appeared in Mexico's conservative National Action Party (PAN), an integral part of the Pact for Mexico (Pacto por Mexico) that facilitated reforms in labor, education, telecommunications, and public security. Mexico is playing the waiting game.

The legacy of President Enrique Peña Nieto, as well as Mexico's economic growth, hinges on fiscal and energy reforms. Fiscal reforms aim to improve enforcement of existing and future regulations in order to boost the country's tax intake. They will also increase credit levels with lower interest rates to a broader swath of Mexico's population. In his speech at the G8 summit in Lough Erne, Peña Nieto explained that fiscal reforms will "increase overall Mexican financial system stability and, as a by-product, contribute to building a more solid, transparent, fair, and efficient international financial system." This is a welcome change for Mexico, which, World Bank data shows, has some of the lowest rates of domestic credit to the private sector in the Americas.

While fiscal reforms have broad-based support, energy reforms promise a much livelier debate. Duncan Wood, the director of the Mexico Institute at the Woodrow Wilson International Center for Scholars, called energy reform the "mother of all reforms" because of its enormous potential for job creation and economic growth. Partly because of its importance, the opening of Petróleos Mexicanos (PEMEX), Mexico's state owned hydrocarbons company, to private investment is a polarizing issue.

Centrist and conservative Mexicans welcome the move in hopes that it will spur business and investment and make the notorious under-performer PEMEX more efficient. Many would like to see more exploration and new technologies in order to boost discoveries and production.

Members of Mexico's left-wing Party of the Democratic Revolution (PRD) party are skeptical. Beyond the political complications of amending Mexico's constitution lies a historical distrust of foreign competition in the energy sector. US and Anglo-Dutch oil companies operating in Mexico were expropriated in 1938 by then President Lázaro Cardenas, a source of national pride for most citizens. Some Mexicans believe that opening the oil giant will dramatically decrease government revenue, of which PEMEX currently provides approximately 35%. They fear that this, in turn, will reduce government spending on badly needed public services.

Another challenge to the speedy passing of energy reforms is the rupture of the political cohesion seen in early 2013. The PAN, party of former presidents Felipe Calderón and Vicente Fox, ousted its senate party leader, Ernesto Cordero, on May 20. The ousting, as well as July 7 local elections, has caused a shake-up in the party. Divisions are solidifying between two factions and tensions have come to a head in recent weeks. Yet, while the shake-up may delay the approval process, it is unlikely to entirely halt the passage of energy reforms.

As Mexico lies in wait, investors are anxious to know what the future will bring. The special congressional sessions in July and August will provide insight. In July, lawmakers will debate empowering Mexico's transparency agency and creating a new anti-corruption organization. They will also discuss state debt and appoint a new leader to Mexico's elections institute. In August, they will return to shore up education and telecommunications reforms. The level of multi-party cooperation seen in the special sessions will be a good indicator of what is to come in the fall.

Passing fiscal and energy reforms will almost certainly happen, as most parties involved recognize their importance to Mexico's future. The markets are likely to boom in the wake of the new legislation, reinvigorating the hope and high expectations seen during Peña Nieto's first one hundred days. But in Mexico the real challenge will begin after the reforms have passed. Implementation, particularly in opening PEMEX, will be complicated by an extensive bureaucracy with a traditionally lethargic approach to change. The challenges are numerous, but the payoff will be big. Mexico must endure the waiting game, revive political cooperation, pass meaningful fiscal and energy reforms, and then actually implement both. If it succeeds, all the hype will have been deserved. It will truly be Mexico's moment.