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 Editorials | At Issue | July 2006 
Politics Aside, It’s Business as Usual for Mexican Business
 Elisabeth Malkin - NYTimes
| | Without stronger growth to create new jobs and raise wages, Mexicans will continue to migrate to the United States in search of work. |
Mexico’s political class is riveted by every twist in the country’s contested presidential election. But Wall Street has already moved on.
Election officials say that Felipe Calderón, the market-friendly candidate, squeezed out a tiny margin of victory. But the leftist candidate, Andrés Manuel López Obrador, has refused to accept the election results and demanded a recount. Analysts at investment banks are predicting that the country’s nascent democratic institutions will withstand the upheaval and that Mr. Calderón will prevail.
Indeed, in the almost two weeks since the July 2 election, the peso has been stable. The stock market has zigzagged, but analysts say Mexico’s index is driven more by global concerns than domestic politics. The Bolsa fell 3.57 percent on Thursday, in line with a broad sell-off on global exchanges.
In large part, investors have remained calm because the economy’s underpinnings are stronger than they have been in decades. The country’s fiscal management is prudent and rising oil revenues finance social programs and roads and other construction. The central bank’s reserves of nearly $80 billion are higher than the country’s foreign debt.
American and other foreign companies ignored the bitterly fought presidential campaign and continued to move work to Mexican plants. The economy is on track to create a million new jobs this year.
“Foreigners looking at it from the outside say that López Obrador is making a lot of noise but why should I worry?” said Jonathan Heath, chief economist for HSBC Mexico. “The part that is consolidated is macroeconomic stability. That’s helping us not to feel the contagion effect from the politics.”
Still, while Mexico may have solid economic numbers, several analysts are warning that the country can no longer afford the legislative gridlock that has bedeviled President Vicente Fox.
The short-term outlook “really pales in comparison to the challenges facing Mexico in the medium term,” said Gray Newman, Latin America economist for Morgan Stanley.
High oil prices and a strong American economy whose consumers buy Mexican imports now work in Mexico’s favor. And yet the economy is likely to grow just 4 or 4.5 percent this year — far too slow for a developing country where almost half the population lives in poverty.
“They should be growing at a much faster rate,” said Joydeep Mukherji, a sovereign-debt analyst at Standard & Poor’s in New York.
Without stronger growth to create new jobs and raise wages, Mexicans will continue to migrate to the United States in search of work.
So, the next president will need considerable political skill to overhaul Mexico’s tax, energy and labor laws, measures that economists say Mexico needs to bolster its competitiveness and assure growth in less favorable conditions.
Mr. Calderón has said that he believes that he will be able to form alliances in Mexico’s Congress and is talking about including opposition party members in his cabinet. But because he won barely 36 percent of the vote, it is not clear how much he will be able to do.
Mr. Newman argued that Mexico’s political class suffers from a complacency caused by what he calls the “curse of abundance,” which takes the pressure off passing hard reforms.
“The stronger the inflows, the less progress we have on reforms,” he said. “The market was concerned for a while that Mexico would face some kind of crisis and asked would it withstand a negative shock.
“It has learned how to withstand negative shocks,” Mr. Newman added. “But how do you withstand the positive shocks of workers’ remittances, strong direct foreign investment, strong tourism and strong oil?”
Ricardo Amorim, the head of Latin America strategy for WestLB, a German bank, said he believed that Mr. Calderón would be able to sell some kind of tax overhaul. But he was more skeptical that Congress would do much about energy legislation, which he sees as an even more urgent task.
“With the lack of structural reforms, Mexico has lost its competitiveness,” Mr. Amorim said. “Given that, I don’t think there will be much advance in terms of structural reforms. I don’t think much is going to change.”
Mr. Mukherji argued that many investors had missed the fact that “Mexico’s biggest political party is a conservative party.”
Still, he, too, was unwilling to predict much progress. “We should be very open-minded about what happens in 2007 onward.” |
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