Mexico’s New Leader Tries to Shift Dynamic

By JUAN MONTES and DAVID LUHNOW

Peña Nieto Pushes Economic Message in Washington Ahead of His Inauguration, Seeking to Take Focus Off the Drug War

Enrique Peña Nieto takes office Saturday with a clear goal for his six-year presidential term: Get people to see the country less as a killing ground and more as a dynamic economy.

The 46-year-old head of Mexico’s former ruling party brought that message to Washington Tuesday in his first meeting with President Barack Obama, telling the U.S. leader he hoped both sides can work more closely on economic issues, as well as on perennial topics of immigration reform and the drug war.

Mr. Obama pledged closer economic ties and hailed the “incredible contribution that Mexican-Americans make to our economy, our society and to our politics.”

Mr. Peña Nieto, a former state governor, takes power amid Mexico’s bloodiest period in recent history, with an estimated 65,000 dead from a war among rival drug gangs during the six-year term of President Felipe Calderón. The gruesome battle has damaged the country’s image abroad.

Mr. Calderón, constitutionally barred from re-election, made the assault on drug gangs his top priority, even as the Mexican economy grew at an average of 2% a year during his term, hit by the global financial crisis. The weak economy was a big reason why voters in July ousted Mr. Calderón’s conservative party and gave Mr. Peña Nieto’s Institutional Revolutionary Party, or PRI, another chance. The PRI ruled Mexico from 1929 to 2000.

The message wasn’t lost on Mr. Peña Nieto, who has pledged to make reducing violence rather than capturing cartel leaders the focus of his antidrug strategy.

Rather, he is staking his presidency on an ambitious agenda of economic reforms to lift growth, including tax reform to raise revenue to invest in areas like infrastructure and education and overhauling laws that curtail private investment in the energy sector—a touchstone of Mexican nationalism.

It won’t be easy: Three Mexican presidents have tried and failed to pass the same two big reforms in the past 15 years.

There are several signs of hope for both Mr. Peña Nieto and Mexico. Violence seems to have peaked, with killings estimated to have fallen 7% this year from last, according to the government and Mexican newspapers.

The economy is growing at about 4% a year now—above the global average—with low inflation and debt. As China labor costs rise, Mexico is getting a second look from many companies, including car makers and aerospace firms.

“We already have the economic platform to unleash growth,” said Bank of Mexico Gov. Agustín Carstens. “Now, the real challenge for the new administration is to establish the correct sequence to send to Congress the necessary reforms to attract investments.”

No Mexican president has had a majority in Congress since 1997, when the PRI’s hegemony began to fade, and nor will Mr. Peña Nieto have one, with the PRI and its chief ally, the Green Party, falling just short of a majority in the lower house and the Senate.

The big difference this time around is that the major opposition party, Mr. Calderon’s PAN, supports the economic overhauls. This past month, both sides came together to pass the country’s first major economic change in years: A labor reform making it easier for companies to hire and fire workers.

“We won’t stop the reforms. Mexico can’t wait,” said top PAN lower house lawmaker Ricardo Anaya. But he warned: “We won’t be a passive opposition.”

Allowing for greater foreign investment in the energy sector, dominated by state monopoly Petróleos Mexicanos, could double Mexico’s 2011 tally of $20 billion in foreign direct investment and add substantially to economic growth, economists say.

Mr. Peña Nieto also has a more favorable context in relations with Washington. Unlike six years ago, net migration between Mexico and the U.S. is now close to zero, with as many Mexicans returning to Mexico as new ones crossing the border. The renewed focus on Hispanics as a crucial U.S. voting bloc favors immigration reform.

“I think the Peña Nieto team wants to change the relationship from one where the focus is on Mexico as a source of drugs and people—a problem—to one where Mexico’s economy is a source of opportunity for the U.S. to create jobs,” said Christopher Wilson, an associate at the Mexico Institute at the Wilson Center in Washington, D.C.

As the U.S.’s number two trade partner, Mexico is the logical choice for the U.S. to compete against China in manufacturing, economists say. About a third of every dollar in export goods from Mexico to the U.S. is sourced in the U.S., compared to just 3 to 4 cents for goods made in China, according to Jaime Serra Puche, a former Mexican trade minister.

“China really is outsourcing, whereas Mexico is a partner,” Mr. Serra said.

Mr. Peña Nieto’s team says it hopes to pass reforms within months of taking power. Such changes will be difficult in a country where oil nationalism runs strong and leftist firebrand Andrés Manuel López Obrador can summon hundreds of thousands to the street to protest. Even members of Mr. Peña Nieto’s own party may block some changes either from ideology or cronyism. Even now, for example, some top oil union officials are also PRI representatives or senators.

“It won’t be easy: not only because the PRI fell short of a majority in Congress, but also because the PRI’s old-fashioned, nationalist politicians will bring pressure to maintain the status quo,” said political analyst José Antonio Crespo.

Members of Mr. Peña Nieto’s team say they are confident they have the political touch that eluded Mr. Calderon and previous presidents.

“Much of the success will depend on our political ability to sell the reforms to all players involved, and to do it with the right timing,” said Ildefonso Guajardo, a top economic advisor in Mr. Peña Nieto’s transition team and seen as a likely next economy minister.

 A version of this article appeared November 27, 2012, on page A11 in the U.S. edition of The Wall Street Journal, with the headline: Mexico’s New Leader Tries to Shift Dynamic.

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