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Mexico Tackles Reforms

Prepared by: Stephanie Hanson
Updated: June 29, 2007

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The congressional brawls that preceded Mexican President Felipe Calderon’s inauguration did not bode well for his relationship with lawmakers or their constituents. Six months into his term, he seems to have won the respect of both. According to Mexico’s Reforma newspaper, Calderon’s approval rating in June was a strong 65 percent, up from 58 percent in March. Not bad for a man who squeaked into office by less than 1 percent of the vote over leftist Andres Manuel Lopez Obrador in a disputed poll that left the country deeply divided.

Calderon wasted little time in taking on Mexico’s considerable challenges. He deployed seven thousand members of the army and federal police to crack down on drug cartels in Michoacan state, and in January expanded the deployment to about thirty thousand officers and nine states. Drug-related violence has soared in recent years, and pervasive police corruption exacerbates Mexico’s problem with organized crime. Though Calderon’s crackdown precipitated a violent backlash from the cartels, the Dallas Morning News reports two major cartels recently declared a cease-fire and are discussing a division of the country’s drug routes. This may quell violence, but the larger problem of trafficking will remain. This new Backgrounder argues that if Calderon’s security reforms are to stick, they must be accompanied by police and judicial reform, as well as cooperation from the United States.

Mexico requires deep reform of its institutions, tax system, and even its constitution to spur economic growth and stem the flow of migrants to the United States, write Luis Rubio and Jeffrey Davidow in Foreign Affairs. Calderon appears to recognize this. “There is a clear awareness that we have to increase government income,” he told the Financial Times in January. But as Enrique Ochoa Reza, a law professor at Mexico’s National Autonomous University, argues in this podcast, Calderon needs to build a strong coalition in Congress if he wants to accomplish any of his policy goals. Perhaps that is why he waited nearly six months to unveil an ambitious fiscal reform package on June 21. The package (Economist) would cut government spending by $4.2 billion, give states the power to assess a sales tax, and imposes a flat tax to reduce business tax evasion.

Mexico collects a measly 11 percent of its gross domestic product in taxes (the United States collects 27 percent), which forces it to rely on revenue from the state-owned oil company, PEMEX. Passing a fiscal reform package is thus a precursor to any other major state reforms. CFR Fellow Shannon O’Neil writes in the LatIntelligence blog that the “political acumen” Calderon displayed when negotiating social security reform in April bodes well for fiscal reform. Reforma political columnist Sergio Sarmiento agrees Calderon will likely win congressional support for his package, but says he isn’t sure it goes far enough (NPR). Yet Mexican and foreign investors look favorably (Latin Business Chronicle) on Calderon’s leadership. Meanwhile, north of Mexico’s border, the U.S. Congress on June 28 voted against a controversial immigration reform proposal (WashPost). U.S. immigration policy has enormous implications for Mexico, which receives roughly $20 billion annually in remittances from Mexicans both legally and illegally employed in the United States. Calderon lashed out at Congress for failing to pass the bill, saying the United States made a “grave error” (Houston Chronicle).

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