Financial Times - July 4 2000 21:38GMT | Last Updated: July 4 2000 22:34GMT
Fox aims for common market with US By Henry Tricks and Richard Lapper in Mexico City
Vicente Fox, Mexico's president-elect, on Tuesday said he would push to build an ambitious common market with the US as part of a marathon reform programme to transform Mexico after seven decades of one-party rule.
Speaking to foreign reporters for the first time since his surprise victory in elections on Sunday, he promised to overhaul the North American Free Trade Agreement (Nafta) with the US and Canada, with the aim of including the free flow of migrants and eventually co-ordinated monetary policies.
His remarks portrayed a man with a frenetic urgency to get to work. He promised to present a budget and announce a cabinet three months before taking office in December, which would be unprecedented.
He announced plans to visit world leaders, including President Bill Clinton, and the two candidates vying to replace the US leader in the November election. He also pledged to reduce corruption "to the limit" within his six-year term.
In a transition hailed as Mexico's "velvet revolution", Mr Fox has moved rapidly to ensure there are no ruptures as the Institutional Revolutionary party (PRI) prepares to relinquish power for the first time. It is rare in Mexican history for power to be handed to an opposition party without bloodshed, and so far Mexicans are astounded at the civility of the process.
But the former Coca-Cola executive, whose trail-blazing campaign showed he has an instinct for marketing, is also keen to persuade the world Mexico will be profoundly transformed under his leadership. "We think Nafta can do much better than it has done up to now," he said, revealing plans to deepen it to the level of small businesses. He also spoke of the possibility of a common currency in the region but said it could take as long as 40 years.
Referring to drug trafficking, Mexico's biggest source of friction with the US, he was sharply critical of the process by which Washington certifies countries for their seriousness and effectiveness in tackling drugs.
He said he had already spoken to Barry McCaffrey, the head of the US anti-drugs unit, and about a new international approach to drugs.
He said the existing policy was unilateral, and urged a multilateral approach. In Mexico the drugs war is chiefly handled by the attorney-general, whose office Mr Fox plans to transform. He said he would put policing in the hands of a new security and justice ministry.
Mr Fox stressed the importance of developing a consensual approach to the transition. His cabinet, which could include members of the PRI, would be announced in the next few weeks.
It will work with the outgoing team of President Ernesto Zedillo.
One of its first tasks would be drawing up next year's budget by September 1. Aides to Mr Fox say he would take note of business and investor suggestions about the next finance minister.
One of the most rumoured favourites is Luis Téllez, the energy secretary, who has fought unsuccessfully to privatise the electricity sector.
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Wall Street Journal - July 5, 2000
Mexican President-Elect Must Prove That 'Change' Isn't Just a Slogan
By PETER FRITSCH, JOSE DE CORDOBA and JOEL MILLMAN Staff Reporters of THE WALL STREET JOURNAL
MEXICO CITY -- Now that President-elect Vicente Fox Quesada has ignited a political revolution south of the U.S. border, his biggest challenge will be to fan the free-market revolution that's driving Mexico toward becoming America's largest trading partner.
Mr. Fox's upset victory in Sunday's presidential contest ended seven decades of uninterrupted rule by the ubiquitous and often-corrupt Institutional Revolutionary Party, or PRI. Now, the former Coca-Cola Co. executive will have to do something he has thus far sought to avoid: define the economic agenda for a country suddenly stripped of its familiar, if frequently feared, Big Brother.
Though many of Mexico's industrial assets have passed into private hands over the past decade, crucial components of the economy -- electricity, oil and airlines, to name a few -- remain inefficient and highly politicized. Others are still dominated by mandarins who have used their clout with the PRI to tilt the playing field in their favor. Then, there remains the daunting task of reclaiming the gum vendors, traffic-light clowns and others who inhabit Mexico's vast economic backwaters, paying no taxes and sensing no stake in the country's future.
Mr. Fox, 58 years old, has several factors working in his favor. Economic growth is humming along, while inflation -- at less than 10% -- is at its lowest rate since 1993. Foreigners are buying banks and building plants for the long term, instead of investing for the quick kill, which they did in 1994, leading to a disastrous devaluation of Mexico's currency. Fiscal austerity has taken hold, and the stable, free-floating peso is backed by a war chest flush with hard-currency reserves. The country now even enjoys an investment-grade rating from Moody's Investors Service.
Still, the economy has plenty of weak spots. Mexico's long-running bank bailout continues to siphon government revenue -- perhaps as much as $100 billion when all is said and done -- away from desperately needed social services, for which Mr. Fox has promised to increase funding. Mexico's trade deficits are widening, and the possibility of an economic slowdown in the U.S. and lower prices for oil -- which Mexico counts on for a third of its revenues -- could weaken its trade balance further. Meanwhile, local borrowing has effectively ground to a halt in the face of interest rates in the mid-teens.
As a presidential hopeful, Mr. Fox ran as the paladin of change with an effective, U.S.-style campaign, often providing voters with little more than off-color comments about a "hen-pecked" opponent. As president, Mr. Fox will need to get down to specifics quickly, or risk disappointing the millions of Mexicans who voted for change. Surrounded thus far by campaign spinmeisters, rather than accomplished civil servants, Mr. Fox will have to address the issues by appointing a credible cabinet. And its members will have to be comfortable both with Mexico's new, diverse political order and investors spoiled by years of hand-holding by Mexico's Ivy League-trained technocrats.
"The great irony of this election is that Mr. Fox won on a platform of change, but hasn't really said specifically what he wants to change," says Damian Fraser, managing director here for UBS Warburg. "He's been extremely weak and vague on policies."
That, some say, may make it hard for Mr. Fox to put together what he calls "an economy with a human face," a sort of Mexican Third Way whose goal is to marry free-market reforms with greater social equality in the mold of British Prime Minister Tony Blair. To achieve his goal of 7% economic growth and the creation of 1.35 million new jobs a year while also increasing social spending, Mr. Fox will have to go to the mat for money and reform like no Mexican president before him.
At the moment, Luis Ernesto Derbez, a former World Bank economist with a doctorate from Iowa State University, is the man holding Mr. Fox's economic compass. He says the boss plans deep fiscal reforms to squeeze more bang out of a bare-bones budget. Corporate exemptions from Mexico's value-added tax "erode 35% of those potential tax collections," he says. "We have to look at the special treatment some receive." Another idea -- wildly unpopular with the public -- is to extend the sales tax to food and medicine.
Meanwhile, Mr. Derbez says Mexico should consider emulating Chile by giving tax breaks to companies that re-invest profits in the country. "Foreign companies take $3 billion a year out of the country because they lack the proper incentives to re-invest," he says. Mr. Fox also wants to make spending more efficient, by doubling the amount of spending controlled by Mexico's 31 states to 45% of the budget.
Mr. Fox certainly makes the kind of noises Wall Street likes to hear regarding reform. Opening Mexico's tattered electric grid to further private investment is at the top of his agenda, says Mr. Derbez, as is the long-delayed privatization of state petrochemical companies. Mr. Fox doesn't plan to privatize state oil company Petroleos Mexicanos SA, but he might consider opening oil exploration to risk contracts much as Venezuela has done. He wants to streamline laws protecting foreign investment and to provide for the speedier resolution of commercial disputes. Still unknown is the extent to which Mr. Fox can light a fire under Cofetel, the slow-footed telecommunications regulator critics say has left Telefonos de Mexico SA with a virtual monopoly in many services.
"Now that he has the momentum, he can do a lot," says Bernardo Quintana, president of Empresas ICA SA, Mexico's biggest construction company. "But if he wants the economy to grow by 7% a year, he can't have any bottlenecks. That means a lot of investment in infrastructure."
Besides highways and waterworks, Mexico is in dire need of more electrical power. The government says about $25 billion must be invested over the next six years just to keep up with surging demand. Recent reforms have allowed private investment in the energy sector, a process that many say may get easier after Mr. Fox's takes office, on Dec. 1. Another politically complicated task: selling Mexico's inefficient and politically protected airlines. Mexico also needs to select a site and concessionaire for Mexico City's new airport. That project, estimated at well over $1 billion, has been stalled by political infighting.
Getting these things done won't be easy. Consider the 34,000 members of Mexico City's electrical-workers union. That group, like many others, is deeply beholden to the ruling PRI, which has protected it with lavish subsidies and sinecures. "Mr. Fox will find much resistance to free-market change from unions with strong government ties," says Francisco Hernandez Juarez, president of Mexico's independent telephone-workers union.
Others say Mr. Fox's wide margin of victory may sound the death knell for the alphabet soup of PRI-affiliated labor syndicates and peasant unions, which fed off the state and were often used by the former ruling party as instruments with which to exert political pressure. "With the size of Fox's victory, you have to believe a lot of official Mexico voted for change," says Claudio X. Gonzalez, chairman of Kimberly-Clark de Mexico SA, the local subsidiary of Kimberly-Clark Corp., the Dallas-based consumer-goods maker.
To carry out his agenda, Mr. Fox has promised to tap qualified personnel from all parties, including PRI technocrats now serving in senior positions at the Finance and Commerce ministries. He has even approached Energy Minister Luiz Tellez about remaining in an economic cabinet post. "I wouldn't be surprised to see people without political affiliation or people who Vicente doesn't even know now end up in his cabinet," says Carlos Arce, a Fox adviser. Mr. Fox's ace in the hole with foreign investors: Guillermo Ortiz, the well-respected central-bank president, who has said he will serve out his term, which extends through 2003.
Another good sign for investors: Mr. Fox and President Ernesto Zedillo have already met. Both have promised to work closely to carry out a smooth transition. Carlos Noriega, a deputy finance minister, says he will work with Mr. Fox's team to craft next year's budget, which must go to Congress in the fall.
Mexico's clubby business establishment is also lining up behind Mr. Fox. Latin America's richest man, Carlos Slim Helu, for example, says he isn't worried about a changing of the guard. The Telefonos de Mexico chairman, long a PRI supporter, says his politics are simple: "I want the same thing I've wanted for 35-years: growth without economic crisis."
So far, markets appear to like Mr. Fox's chances. Mexico City's stock market hit a three-month high Tuesday after surging more than 6% on Monday, and the peso closed stronger against the dollar after traders lifted it off a 52-week low Monday, reversing a 3% depreciation that took place during the run-up to the election.
Among the trade issues on Mr. Fox's plate, most concern the export of agricultural products to Mexico's biggest trading partner, the U.S. Despite the enormous growth of their bilateral trade -- close to $300 billion this year -- both countries have erected barriers to everything from avocados to apples. Meantime, the booming U.S. economy is attracting more Mexican migrants to jobs in the U.S., many risking death this summer by crossing the Rio Grande. Jorge Castaneda, a top adviser to Mr. Fox, says the incoming government will take a more active role protecting Mexican migrants.
For clues to Mr. Fox's management style, look to Coke. A tireless warrior in Mexico's soda wars, Mr. Fox joined Coke as a route salesman in 1964 and left it 15 years later as president of the company's Mexican unit. There he learned the tools that helped sweep him to the presidency: aggressive marketing and a lot of motivation.
"I'm going to govern Mexico with the lessons I learnt at Coke -- that business is done in the field, at the point of purchase," he said recently as his campaign bus hurtled through Yucatan state. "I will have a government that is close to the people. I will be in the jails, patrolling with the police, at universities and communal farms. I will be everywhere, promoting, pushing, moving people to act."
Within his party, Mr. Fox is a member of a tribe known as the "barbarians from the North," mostly apolitical businessmen drawn into politics by the late Manuel Clouthier, a charismatic entrepreneur. Mr. Fox was freezing broccoli for export and making cowboy boots at his family business in Leon, Guanajuato, when Mr. Clouthier recruited him in 1987. Mr. Fox's appeal was his social conscience. He has adopted four children, and, following the drowning death of a nephew, founded a home for orphans and abused children.
Elected to Congress in 1988, Mr. Fox quickly won the enmity of the PRI and the hearts of news photographers. Denouncing electoral fraud that year, he fashioned ballots into two gigantic ears, making mock of then-President Carlos Salinas's trademark protuberances. Mr. Salinas remembered that jest when, in 1991, Mr. Fox ran for governor of Guanajuato. That vote was marred by fraud and many thought Mr. Fox was the real winner. Amid massive protests, the PRI governor-elect stepped down. But Mr. Salinas appointed another member of Mr. Fox's National Action Party, or PAN, as a compromise candidate.
Elected governor of Guanajuato in 1995, Mr. Fox was a capable, if distracted, executive willing to delegate responsibility. He proved to be inclusive in government, naming two PRI members to his cabinet. He also started a bank that granted credits of as little as $50 to about 45,000 entrepreneurs and attracted important foreign investment. Critics said Mr. Fox oversold his achievements. Many dubbed the state "Foxylandia," a mocking reference to Disneyland.
As governor, Mr. Fox traveled constantly in search of converts. "He governed by cell phone from farms and villages," says Sen. Alfredo Ling, who was then state chief of the PAN party. He also went as far as Beijing in search of foreign investors. Critics complain he put the state on autopilot while he began his run for president in 1997.
In Mexico's incoming Congress, Mr. Fox will find a democratic stew in which his party won't have majorities in either house. To get things done, he will have to make alliances with the center-left PRD or the PRI, which still governs 20 of Mexico's 31 states and will be the second-largest force in the new Congress, after the PAN. That makes it likely that the Fox revolution will be a gradual one.
"An earthquake has hit, and everything is coming down -- boom," says Javier Livas, one of the president-elect's advisers. "But in slow motion."