President Pena Nieto's Reforms - Crib Sheet

Since taking office in December 2012, Mexican President Enrique Peña Nieto has embarked in an ambitious reform drive, which has so far bolstered investor sentiment towards the country and has the potential of significantly improving the long-term trajectory of the economy. Key to Peña Nieto's ability to push through major structural reforms has been a tripartite coalition known as 'Pact For Mexico', which was formed by the country's three main political parties, the ruling Partido Revolucionario Institucional (PRI), the centre-right Partido Acción Nacional (PAN), and the left-leaning Partido Revolucionario Democrático (PRD). Peña Nieto requires two thirds of the votes in both the lower house and the senate in order to pass reforms that require amendments to the constitution. Under the current party composition of congress, this means that the PRI needs the full backing of either the PRD or the PAN to enact such reforms. Peña Nieto's flagship proposed energy sector reform, which seeks to open up the state-owned energy sector to foreign investment, has been subject to fierce opposition by the PRD and by a large segment of the population. However, we expect energy sector reform to be approved by end-2013, as we believe it has enough votes from the PRI and the PAN to move forward. While the impact of Peña Nieto's reforms will begin to feed through in 2014, when we forecast real GDP growth to accelerate to 3.3% from 1.6% in 2013, upcoming secondary legislation will be crucial in shaping the long-term success of reforms.

Latest Developments:

  • Polls reveal that Peña Nieto's approval rating fell to 44% in November from 52% in July, mainly due to popular opposition to the recently approved fiscal reform bill, which increases taxes on sugary drinks and junk food, and raises income taxes on the top bracket.

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This article is tagged to:
Sector: Country Risk
Geography: Mexico, Mexico

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