Mexico's New President Faces Big Challenges

Dec. 1, 2012— -- When Enrique Peña Nieto was sworn in as Mexico's president on Saturday, he agreed to lead a country of 115 million people that ranks as the world's thirteenth largest economy and has become one of the top ten tourist destinations in the world.

Peña Nieto will make use of such data when he seeks foreign investors. But when he looks inside his massive country, the new president will also have to handle a territory plagued by extreme poverty, drug violence and special interests that can block the road to prosperity.

So what does he need to fix in this up-and-coming nation? It's a long list, but after consulting with several economic and political experts, we've broken it down into the following:

Economy

In the months leading up to the presidential election, Peña Nieto aired an ad in which he told voters that his main objective as President of Mexico will be for people to be able to "afford more" with their earnings. Without batting an eyelid, the candidate also added that under his presidency people would "earn more," for the work they do.

How will this happen?

Only by promoting economic growth and prosperity, said Leonardo Curzio, a political analyst and radio show host in Mexico City. And Peña Nieto might have a window of opportunity to do this.

Economic analysts widely agree that competition from Chinese manufacturers, the U.S. recession, and the strange H1N1 virus that has hampered the Mexican economy in recent years, forced it to contract by a whopping 6 percent in 2009.

But as The Economist points out, the tide now seems to be turning in Mexico's favor. Higher labor costs in China and skyrocketing oil prices are once again turning this country into a good base for manufacturers who want to export goods to the U.S., and other places, too. Mexico now has free trade agreements with an astonishing 44 countries.

Eric Farnsworth, a Latin America analyst at the Americas Society/Council of the Americas think tank in Washington D.C., argues that to take advantage of this economic momentum, Peña Nieto must invest in infrastructure, widen the country´s tax base and tackle monopolies that generate significant economic inefficiencies.

"I think tax reform really needs to be a priority," Farnswoth said, noting that at the moment almost 40 percent of the Mexican government's budget is basically supplied by cash transfers from state-oil company Pemex.

"That's taking money from Pemex that would be invested in the energy sector. The energy sector is starving and that is directly impacting Mexico's global competitiveness," he added.

Oil production has recently tanked in Mexico due to low investment in exploration, shrinking from over 3 million barrels a day at the beginning of this century to just 2.5 million barrels last year. This helps to make gas and electricity more expensive in the country, and has some economists insisting that the Mexican government open up the oil sector to competition, so that other companies aside from Pemex can also look for oil in Mexico.