Economic Growth Stalls in Mexico

Mexican President Enrique Peña Nieto is now at the halfway point of his 6 year presidential term. On Wednesday, he delivered his third State of the Union address, during which he highlighted his plan to boost the Mexican economy. Although a number of measures and reforms were proposed, many Mexican citizens believe that the President’s reforms have not succeeded due to the corruption and economic uncertainties present throughout the country.

Since he became president in 2012, Peña Nieto has pushed through nearly a dozen reform packages for the education, finance, and telecommunications sectors. Officials had initially estimated that changes could net 4 to 5% annual growth for the country, but the economy only expanded by 2.1% last year and is expected to grow by only 2.3% in 2015. While the turmoil in global oil markets has not directly affected Mexico to the extent of some of its South American neighbors, the slump in oil prices and weakening currencies in emerging markets has made it more difficult for the administration to rally for growth, despite the fiscal actions it has taken to cut down on inflation and debt.

Morale has suffered and has caused the public to be less enthusiastic towards the administration and its economic agenda. In a survey released Thursday by Mexican polling firm Parametria, it was revealed that 63% of Mexicans believed that the president had achieved less than what they expected from him during the first three years of his presidency.  57% of those surveyed believed that the economy had gotten worse within the last year, while 39% believed that current conditions will cause the economy to suffer even more over the next year. Only 41% approved of the President’s overall performance.

Economists are now eager to see whether or not the government will be able to implement changes to promote economic growth. Investors in particular are watching closely for any developments in Mexico’s energy reforms. In 2013, Peña Nieto pushed through a constitutional change to help open up the oil sector to private investment, in turn breaking the state-run 76-year-old monopoly on the oil sector. However, the decline in oil prices that began last year has discouraged many from investing. The Mexican Congress also passed changes to the tax code in 2013, which have helped the government be able to net more revenue to fund the remainder of its reform programs. Business leaders in particular are unhappy with the tax code changes due to the fact that they have placed a higher burden on those already paying taxes, rather than reigning in workers to keep economic growth stagnant.

There have also been major setbacks for education reforms. Peña Nieto has recently introduced a plan to overhaul the education sector shortly after coming into office, including teacher evaluations, merit-based pay, and stronger federal oversight. The plan was introduced as a method to transform the country in the long run by providing better quality education and diminishing any existing incentives to turn to crime. Unfortunately, one of the largest teacher’s unions in the country has put up intense resistance to the plan, launching protests combatting the idea of evaluating teachers.  

According to the deputy director of the Mexico Institute at the Woodrow Wilson Center, many of these reforms still potentially could pay off for the Mexican economy in the future, but it may take time. With falling energy prices and other headwinds in the global economy, Mexico has had a tough economic environment to move through. Although the public’s disappointment with the current administration will not necessarily hinder the government’s ability to pursue its goals, analysts believe there needs to be more of a focus upon building a robust anti-corruption scheme. Many believe that the government hasn’t worked hard enough to combat impunity, which has caused mass outrage in cases such as the disappearance of 43 students who were allegedly killed by drug gangs working with the police. Until these major issues are taken care of, it is unlikely that any progress will be made in regards to Mexico’s economy.