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Corruption: Tackling the Root of Mexico's Most Pervasive Ill

Ask the experts what they think the root of Mexico's problems is and you'll get a myriad of responses: an economy that despite its export success, suffers from big local monopolies which stifle internal competition; the inability to achieve a sustainable reduction in poverty and inequality even during periods of growth; an education system hijacked by its notoriously powerful union; the dominance of organized crime groups significantly impairing governability; a political system that is notoriously inflexible and subject to chronic legislative paralysis. However, ask the average Mexican the same question, and the answer will most likely be corruption.

The experts may be right on the details but in a broader sense, it's hard to think of any other issue that, besides corruption, has had such a toxic pervasiveness in Mexican society. Unfortunately, hopes that the establishment of democracy in 2000 would inevitably lead to the strengthening of the rule of law have fallen short.

A ubiquitous problem

Discontent with the government's chronic failure in eradicating corruption and establishing the rule of law in Mexico has reached new highs amid the surge in drug-related violence since 2007. It has also been highlighted more recently by the allegations of fraud against the PRI, following the July 1st victory of its candidate, Enrique Peña Nieto, in the general election. Although small-scale electoral fraud is not uncommon in Latin America, Mexico appears unique among the region's established democracies in having not one but two straight presidential elections legally challenged by the opposition. With the PRI keen on presenting itself as a renovated political force, it was not surprising therefore, that Peña Nieto announced an anti-corruption bill as one of his first initiatives.

The bill, sent to Congress on November 14th, seeks to create an anti-corruption commission (Comisión Nacional Anticorrupción or CNA) which will be tasked with investigating corruption cases at a federal level and against individuals. It will also have the ability to tackle cases at a state and municipal level, but only if they have national repercussions. Crucially, the commission will be able to sidestep legal hurdles such as bank and fiscal secrecy which would, in theory, make it a powerful tool against money laundering. In order to avoid duplication of roles, the existing Secretaría de Función Pública (a public administration ministry) would be eliminated, and its current duties shared between the CNA and the treasury.

Questioning the PRI's commitment

In creating this new commission, Peña Nieto's team appears inspired by the success of other developing countries in setting up similar institutions, such as Indonesia and Georgia which has been reflected in the significant jumps they have made in Transparency International's Corruption Perception Index (CPI) over the past few years. However, there is reason to fear that Mexico's CNA, as currently envisioned, will struggle to replicate this success.

First of all, Mexico's track record on institutional development -- be it in creating new institutions or reforming existing ones -- is disappointing. For example, its competition bodies, such as the Cofeco and Cofetel have been shown to be toothless, as witnessed by their failure in standing up to the big domestic monopolies. The IFAI has given an important boost to federal-level transparency, but similar bodies on a state-level (where opacity is even more pervasive) have been slow to set up. The all too frequent establishment and then disbandment of federal police forces (the latest victim being the AFI) is a further proof that the problem of creating trustworthy and efficient institutions goes further than simply changing name and logo.

Second and perhaps most important, is that the PRI's commitment to fighting corruption appears rather hollow, given the sheer number of scandals its state governors have faced over the past decade, the electoral controversy, and the recent negotiation on the labor reform bill. During the latter, the PRI's legislators essentially sabotaged a number of key clauses which attempted to introduce transparency and democratic practices to the unions. That the corruption bill was introduced by the PRI at the very same time that its legislators were making their final efforts at maintaining the status quo for one of Mexico's most powerful interest groups, speaks volumes about the party's willingness to stamp out corruption among its closest allies -- let alone within its ranks. Crucially, the CNA's five commissioners are to be appointed by the executive, casting a serious doubt over its independence.

Can Mexico be successful despite corruption?

Contrary to conventional wisdom, the economic evidence appears to show that countries can be corrupt and successful at the same time. So why not Mexico? Unlike countries such as China and (to a lesser extent) Brazil, Mexico's recent administrations have appeared woefully lacking in ambition, showing neither the power nor the will to impose their agenda. And unlike low-income India, Mexico's middle-income economy does not have the convergence potential which would allow it such rapid growth.

Even then, it should be noted that Mexico actually ranked below these three countries in Transparency International's latest CPI, and also ranked a dreadful second worst among Latin America's "big seven" (only behind Venezuela). According to the latest WEF Global Competitiveness Report, corruption was the single most problematic factor in doing business in Mexico. For China it was only the fifth, and for Brazil, a distant seventh. It is clear that in Mexico, corruption matters, and it will take more than a new commission to raise hope that the rule of law will reign supreme anytime soon.

Rodrigo Aguilera is Editor/Economist Latin America for the Economist Intelligence Unit.