Mexico: Pushing Past Pessimism

Antonio O. Garza (Ambassador to Mexico, 2002-2009)

Cross-posted from Ambassador Garza’s September 2015 newsletter.

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With drug kingpin El Chapo’s escape from a maximum-security prison and a disappointing first-round energy auction, Mexico’s summer was far from idyllic. As we move toward the end of the year, the Peña Nieto administration appears to be making an effort to chart a more responsive course, both with respect to its energy sector and in trying to contain what many have characterized as a political free fall. 

In Mexico’s energy sector, the second phase of round one will take place on September 30, for five production-sharing contracts across nine shallow water fields. The first bidding round, held this past July amid low global oil prices, awarded a disappointing two of the available fourteen fields. To avoid a repeat of these dismal results (and to compete with Brazil’s October 7 energy auctions) the Mexican government is responding to industry input. The changes—including clarifying controversial parts of the contracts (such as early termination conditions), lowering equity requirements, and announcing the government’s desired production share ahead of time—are all positive steps, suggesting that officials are now listening more closely to feedback.

As the government addresses energy issues, it has also been slow to deal with the fallout from a range of controversies. On August 21, the investigation into President Enrique Peña Nieto and Finance Minister Luis Videgaray’s home purchases from a government contractor concluded that no conflict of interest existed, spurring a skeptical public response. To compound matters, a group of experts from the Inter-American Commission on Human Rights released a report this week that rejected the official narrative surrounding the 43 students’ disappearance last October. Their findings certainly deepen the uncertainty surrounding what actually happened that tragic night, and also call into question the government’s ability or willingness to conduct a serious investigation.

Mexico’s central government has begun to slowly act—or perhaps better said react—to the scandals. Peña Nieto issued an apology for the pain caused by the housing scandal, shook up his cabinet, and recently ordered his team to take another look into the students’ disappearance. Yet while these responses are more vigorous and indeed unprecedented, it’s too early to tell whether they will begin to turn the tide of public opinion. Currently, Peña Nieto’s approval rating stands at 35 percent, his lowest level ever, and 63 percent of citizens believe that the country is headed in the wrong direction.

There are also other reasons playing into the country’s pessimism. The benefits from Peña Nieto’s reform agenda—which defined his first years in office—will take years to materialize. And in the meantime, a barrage of criticism will be present at every turn. Further, reform promises set economic growth expectations at 5 to 6 percent, which are almost double Mexico’s current reality. On this last point, however, there may be some good news. As the U.S. economy picks up steam, some of its momentum could spillover across the border, spurring industries to the south.

In the United States, the 2016 presidential campaign has already been full of twists and turns, including Mexico’s unexpected prominence in so many debates. While there are many great news outlets for following the news and candidates’ views, I’d recommend RealClearPolitics and Politico for up to the minute, clear-eyed analysis.

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