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Thursday, June 29, 2006

Mexican Watershed


New vs. Old

WSJ, June 29


Mexicans head to the polls on Sunday to elect a new president, and the choice they face is notably stark: Accelerate the pace of modernization that began in the mid-1980s or, because progress has been achieved a little slowly, revert to the economically populist and insular ways of old Mexico.

While there are five candidates in the race, polls indicate the presidency will go either to Felipe Calderon of the center-right National Action Party (PAN), who represents the first alternative, or Andres Manuel López Obrador of the far-left Democratic Revolutionary Party (PRD), who represents the second. The two are running in a statistical dead heat, some eight to 10 percentage points ahead of third-place candidate Roberto Madrazo of the Institutional Revolutionary Party (PRI).

Anything can still happen in a three-man contest, but the decline of the PRI candidate is remarkable given that that leftist party dominated Mexico from 1929 to 2000. But Mexico began to change some 20 years ago, chipping away at one-party rule and opening to the world. On the economic front, thousands of government-owned businesses were privatized and trade tariffs began to come down. Thirteen years ago Mexico signed the North American Free Trade Agreement. Six years ago it held free elections for president and unseated the PRI. Amazingly, that transfer of power was not accompanied by an economic meltdown, the usual Mexican pattern.

This is progress. But for many Mexicans the transition has been too slow. Over-regulation of business still damps animal spirits. Key parts of the economy -- telecom, oil, natural gas, electricity, cement and transportation, among others -- remain de facto monopolies, damaging productivity growth, job creation and Mexican competitiveness.

Mr. López Obrador has used this underperformance to tap into nostalgia for old Mexico, with its closed, centrally planned economy. He wants to renegotiate Nafta. He rejects the opening of Mexico's corn and bean markets to U.S. exports, now slated for 2008. He promises Mexicans an FDR-style New Deal that would include a massive public works program and a government-subsidized blitz to build one million homes for the poor. Critics also fear an authoritarian streak, based on his track record as a Mexico City mayor who defied judicial rulings and had a penchant for calling out the mob.

Left-wing populists are hardly new in Latin America, of course. In the worst case, they become more authoritarian and statist in power, like Hugo Chávez in Venezuela. Others discover they can't govern this way and turn pragmatic, as with Brazilian President Luiz Inácio "Lula" da Silva. Mr. López Obrador has fallen in the polls as his opponents have compared him to Mr. Chávez, and he has rejected any connection. A López Obrador victory would nonetheless be a stern test of how committed Mexico is to joining the global march toward freer economic and political development.

Mr. Calderon -- energy minister before winning the PAN nomination -- offers a very different program. He promises to simplify the tax regime, allow private "partnerships" for deep water oil exploration, and rid the country of monopoly privilege. He's also committed to preserving fiscal and monetary stability, the one area where current President Vicente Fox's administration has done well.

Mr. Calderon draws most of his support from the northern half of Mexico -- traditional PAN strongholds and prime beneficiaries of Nafta -- as shown in the nearby map of areas where each candidate is leading in the polls. He also does well with the Mexican middle class, which is finally getting on its feet after three decades of profligate government spending, corruption and the devastating currency devaluations of 1976, 1982 and 1994.

A stable peso has since led to low inflation, and interest rates have followed. In recent years markets for consumer credit and mortgages have developed. Retail competition has given Mexican consumers a taste of what is possible. Still, the benefits have flowed slowly and unevenly, and Mr. López Obrador continues to draw support from the leftist intelligentsia, government bureaucrats and the country's impoverished south.

For Americans, the stakes in this election could hardly be greater. Tom Tancredo and friends may believe that the only thought the U.S. need give its southern neighbor is the height of the wall it plans to raise between them. But if Mexicans are able to build on the liberalizing trends of the past 20 years, their appetite for El Norte is bound, over time, to diminish. And if they revert to the populist habits of yore, no American wall will be high enough to keep the flood of desperate workers out.

Mas sobre el tema aqui.

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