Mexico's New President Faces Big Challenges

Dec. 1, 2012—, 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.

But monopolies in other areas must also be tackled. Mexicans are forced to get most of their bread from Bimbo and almost all their cement comes from Cemex. Companies owned by billionaire Carlos Slim control 70 percent of the mobile phone market, and 75 percent of all broadband internet connections. According to The Economist, this situation makes connecting to broadband in Mexico twice as expensive as in Chile.

If Peña Nieto truly wants to help Mexicans "afford more" with their salaries as his campaign ad says, he will have to tackle these monopolies, and confront their allies in the Mexican Congress.

Education

Irene Mia, from the Economist Intelligence Unit, argues that Mexico is not at a "state of development where it can compete on the costs of labor."

This means that if Mexico is going to continue to grow and provide its people with better paying jobs, it must transition from areas like manufacturing (where investors look for cheap labor) to areas like research and technology development, which rely on a more educated labor force.

But Mexico currently has one of the lowest educational standards among the world's larger economies. According to the Organization for Economic Cooperation and Development (OECD), only 18 percent of Mexicans aged 18 to 64 are college graduates. OECD figures say that in Chile, 24 percent of people in that age group have a college degree, while in Israel that number shoots up to 45 percent.

Another problem in Mexico, according to Mia, is that the number of engineering and science students is relatively low because curriculums that make subjects like math more interesting to students have not been implemented.

To improve Mexico's education system, Peña Nieto will have to tackle strong teacher unions that administer posts to family members, and not to those who are best qualified to teach. He will have to implement measures that are unpopular with the unions, like forcing teachers to take standardized tests, and linking teachers' tenure to results. It will be a complicated task, as many leaders from Mexico's one million-strong Education Workers Union have close links to PRI politicians at the state and national levels, and the union actually forms part of the PRI's electoral base.

Security

Peña Nieto takes over a country plagued by violence. NGOs estimate that more than sixty thousand people have died from drug violence over the past six years. The number of cartels with the capacity to export large drug shipments to the U.S. also increased from four to seven during outgoing President Calderon´s six-year term, according to the BBC.

However, security analyst Jorge Chabat says there is little the new president can do to change Calderon´s strategies, which included deploying the military in some areas of the country.

"He's got little margin to maneuver because [drug violence] problems are structural," Chabat said. "It's a problem that has to do with social exclusion, the corruption, and ineffectiveness of institutions that goes back many years."

One advantage Peña Nieto seems to have is that the wave of violence seems to be slightly decreasing. A recent analysis of government data shows that the number of preliminary homicide investigations reached a 24-month low in October of this year and was 20 percent lower than in October of 2012. This could mean that the homicide rate will drop in 2012.

To tackle the drug violence problem, Peña Nieto will have to work with the U.S. on decreasing the smuggling of weapons across the border. He'll also have to work with Mexico's northern neighbor on ways to reduce demand for drugs, and he'll have to decrease impunity in Mexico, where more than nine out of 10 homicides go unpunished.

"What we've had until now, with the Calderon administration, is a military force that detains a bunch of people," said political analyst and radio show host Leonardo Curzo. "They pass them on to prosecutors who don't have the skills or resources to build up a credible case."

Corruption

The growing influence of drug cartels in Mexico also means that the country has become more corrupt. In just two years, from 2009 to 2011, Mexico fell from 89 in Transparency International's "Corruptions Perceptions Index" to 100, where first place equals "least corrupt." Meanwhile, Mexico ranked only above Russia and China in the 2011 Bribe Payers Index, a survey that ranks 28 different countries according to the likelihood that their companies will pay bribes when working abroad.

One issue Peña Nieto will have to look at is how to make state governors more accountable with the money that they receive from the federal government. Currently there is no pressure on them to disclose what they are doing with those funds to the general public. Another challenge for the incoming president of Mexico will be to provide local government officials with incentives to please people and not local party leaders.

A recent article by the Economist suggests that this could be done by allowing mayors, governors, and state assembly members to get re-elected. The prospects of re-election could give these officials an incentive to respond to voters concerns instead of answering to the wishes of party leaders, at least throughout their first term in office.