TOPICS: The trouble with Mexico’s economy

Mexico’s contentious and close election finally seems settled. On December 1, Felipe Calderón, of the pro-market National Party (PAN), will become that country’s new president. His main opponent, the left-leaning Andrés Manuel López Obrador, has not conceded, but he seems to accept that he will not be the official president.

American investors should welcome this result. With it, they have avoided a potential disruption to Mexican development and possibly a drift toward a less enthusiastic embrace of the North American Free Trade Agreement (NAFTA). But that is about the best that can be said about this result. Mexican politics remain too divisive to implement the fundamental reforms that might truly develop Mexico into a full trading partner, relieve immigration strains, and realise the country’s economic potential.

Along with Canada and the US, Mexico is a member of NAFTA, still the largest free-trade area in the world. Mexico is America’s second-largest trading partner after Canada. Mexico is far and away the major source of immigration, both legal and illegal. Mexican policy is indeed important to American finance and the US economy. Mexico’s election was fought almost entirely on economic grounds. After a rapid real per capita growth rate of 3.5 per cent a year between 1960 and 1980, the economy has remained stubbornly resistant to growth since. Between 1980 and 2005, per capita real growth amounted to a mere 0.7 per cent a year and has picked up only marginally to 1.2 per cent in the past 10 years. The lack of growth and jobs has driven many Mexicans north to the US. So it is no surprise that voters demanded growth strategies from each candidate. In meeting this demand, López Obrador and his left-leaning Party of the Democratic Revolution (PRD) eschewed the anti-American rhetoric typical of the Mexican left. On the contrary, he emphasised closer ties with the US.

The reticence to pursue substantive change, however, suggests that the new government will do little to address Mexico’s fundamental, structural, economic and industrial problems. New political realities make reform more difficult. In the Lower House of Mexico’s Congress, the PRD and PAN gained seats, while the PRI lost them. In this mixed political milieu, President Calderón would have to compromise. Making any reform even less likely, the leaders of three parties, including Obrador’s PRD, announced the formation of a coalition to block the new president.

Investors on both sides of the border may have dodged a bullet with Calderón’s victory. But the result leaves little hope that the country will make the aggressive changes needed to accelerate economic growth and allow Mexico to become either an engine of growth or a fully contributing partner in NAFTA. Neither do the results suggest a turn to growth that might discourage migration to the US. And that’s something people on both sides of the border will be watching carefully. — The Christian Science Monitor