THE BLOG
01/15/2014 12:25 pm ET Updated Mar 17, 2014

Mexico: What to Expect in 2014

After a year of unprecedented change, Mexico faces a post-reform landscape in 2014. Attention will focus on bringing the economy back to life after 2013's downturn, improving security after a number of glaring setbacks and ensuring that political stability is maintained, despite staunch opposition from numerous social groups that have rejected many of the new reforms. Given these challenges, 2014 will be crucial for setting the tone of Enrique Peña Nieto's next five years in office, as both the government and the opposition adjust their strategies to the new rules of the game.

Jump-starting the economy

Despite the hype surrounding "Mexico's moment," the so-called Aztec Tiger failed to roar in 2013 as the economy recorded its worst year of GDP growth (estimated at just 1.2 percent) since the 2009 recession. Although external factors (namely, a sluggish US economy during the first half of the year) contributed, domestic issues played a strong role as well in keeping growth subdued. First and foremost was the ongoing crisis in the construction sector, particularly in relation to social housing. The other main cause for the economy's underperformance was the unnecessarily strict reining in of public spending during the first few months of Mr Peña Nieto's term. This fiscal hawkishness has since given way to more prolific spending plans over the next few years. While this could serve as a useful stimulus, questions remain as to whether this extra spending will actually be focused on productive investments.

In the longer term, the government is undoubtedly banking on the structural reforms to deliver on the promises of higher growth, possibly of around 4 to 5 percent annually in an ideal scenario, with investment coming in as a result of the energy-sector reform adding the biggest boost. However, a big question is whether Mexico will remain dependent on an economic model based on cheap labour for export-geared manufacturing. There are signs that the government intends to play a more active role in economic policymaking (with both the positive and negative consequences that this entails) and may be poised to tackle some of the country's main structural shortcomings, such as lack of credit to small and medium-sized enterprises, weak competition in the domestic market and poor educational outcomes. But with the major reforms mainly out of the way, work needs to begin on defining the country's future economic ambitions and on addressing its main legacy of underdevelopment: a population of which nearly one-half remains mired in poverty.

Dealing with unrest and resurging crime

On the political front, the spirit of consensus that began with the signing of the Pacto por México has been slowly unravelling, and it is difficult to see even the PAN remaining as a government ally far into 2014, particularly with mid-term elections in 2015 looming in the distance. On the positive side, the departure of Andrés Manuel López Obrador from the PRD will serve to moderate Mexico's largest leftist party, and it is unlikely that the party will present anything more than a rhetorical support to Mr López Obrador if he and his supporters take to the streets, as he has vowed to do.

Nonetheless, as witnessed by the uptick in social protests in 2012-13, the return of the PRI to power has invigorated many social groups and these are likely to remain active in 2014. They include teachers opposed to the education reform, leftists rallying against the energy reform and possibly students as well. The fact that many of these protests take place in the capital, Mexico City -- the jewel in the PRD's political crown -- poses a significant risk to the popularity of the mayor, Miguel Ángel Mancera, who will be keen to limit the impact of unrest, given his possible presidential aspirations for 2018. Unfortunately, the old strategy of offering interest groups the carrot and the stick may no longer work; there's too few carrots to go around and using the stick now runs the risk of a public backlash in these more democratic times.

The one area in which few would question the need for a more hard-line approach is the war against the drug cartels, which has now entered its eighth year (with a casualty count of over 70,000 dead and countless more disappeared). Despite some early victories, such as the capture of the brutal Zetas cartel leader, the administration's anti-drug record has been quite disappointing, as made evident by the complete breakdown of security and rule of law in the state of Michoacán, currently in the midst of a mini-civil war between self-defense militias and the cartels. Here, the incompetency of law enforcement agencies (from federal level down to the municipalities) is embarrassingly manifest, notwithstanding the fact that it was the home state of the previous president, Felipe Calderón. Additionally, security in Mexico City has also deteriorated, and recent official reports suggest that the scale of kidnapping and extortion on the national level is far worse than feared.

Making matters worse, a much-vaunted plan to create a European-style gendarmerie has been delayed, and there is a notorious lack of new or radical ideas to combat criminality. Indirect factors that have contributed to this include the lethargic adoption of a 2008 judicial reform and rampant corruption, as well as disorganization among police institutions. Crime ranks high among most Mexican's main concerns, and its effect on standards of living in many parts of the country is significant. It is therefore difficult to envisage the PRI not suffering some electoral backlash if it does not do more to bring down crime in 2014.

Changing the rhetoric

Perhaps one of the most important but less talked about impacts of the reform agenda is that it has shifted the goalposts in terms of each party's traditional stance on key political and economic issues. This is because many of the reforms have challenged and upended longstanding party dogmas that previously underpinned their agendas. The left's position on energy reform is perhaps the best example, but to a lesser extent the PAN will also have to deal with the reality of a more economically proactive government. The PRI will not be without loss either, owing to the weakening of one of its staunchest political allies -- the public-sector unions -- and could also face more restrictions on its all-too-frequent electoral mischief if the new political-electoral reform is followed up properly.

In the end, these changes could force all three parties to swing their rhetoric toward issues that arguably have a greater impact on the prosperity and well-being of ordinary Mexicans. Ultimately, Mexicans stand to gain far more from a political debate that prioritizes the fight against poverty, reducing inequality, and extending the reach and quality of public services, than it does on whether or not private investment in the oil sector is allowed.

In the best case scenario, 2013 will therefore be considered in hindsight as a year zero; a year in which taboos and dogmas were broken, and new, more sensible debates took their place. However, this is Mexico after all, and there is always the latent risk the country's political class could descend instead into pointless bickering, obstructionism and legislative paralysis as has been the norm over the past few decades. What happens in 2014 will decide which path the country's lawmakers and authorities take, and whether the structural reform agenda will be part of a larger and more enduring policymaking success.