In the space of just 13 months, President Enrique Peña Nieto has accomplished more in terms of economic reform than his two immediate predecessors managed in 12 years. Although the so-called Pact for Mexico — the broad alliance of the president’s PRI, the conservative PAN, and the center-left PRD — is effectively a dead letter, Peña Nieto managed to obtain approval of important reforms.

He first secured approval of fiscal reforms with the support of the PRD. Secondly, he joined forces with the PAN to achieve passage of energy-sector reforms that hold the potential to transform Mexico’s economy.

At the insistence of the PAN, the energy legislation passed in December 2013 included a broader array of possible contractual relationships than the profit-sharing model proposed by the administration in the original draft of the bill. However, the legislation affirmed the state’s ownership of oil and gas, and the meaning of some of the options available to investors, in particular, licenses, is not altogether clear.

The inability of oil companies to book reserves could become a significant deterrent to attracting foreign investment.

The inability of oil companies to book reserves could become a significant deterrent to attracting foreign investment, and more importantly, the expertise and technology required to develop Mexico’s untapped reserves. Much will depend on the details regarding contracts and regulations in the industry, which will be fleshed out in secondary legislation that is scheduled to be debated when the Congress reconvenes this month.

At a party congress last month, the PAN leadership hammered out a political strategy in advance of the mid-term congressional elections scheduled for July 2015. The PAN’s current leader, Gustavo Madero, who is favored to win re-election, has expressed dissatisfaction with the fiscal reforms, and suggested that the PAN would apply pressure on Peña Nieto to make changes to the latter.

Although it is unlikely that the PAN would jeopardize the success of energy reforms that were high on the agenda of the PAN administrations that governed between 2000 and 2012, the possibility cannot be ruled out. This is especially true if the party summit produces an unexpected shakeup of PAN leadership.

The benefits of the energy reforms will not be realized immediately. However, a recent credit-rating upgrade is indicative of a general sense of confidence that the conservative fiscal policy approach embraced by successive administrations over the past decade will improve the chances of achieving energy reforms.

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The PRS Group
About The Author The PRS Group
The PRS Group is a leading global provider of political and country risk analysis and forecasts, covering 140 countries. Based on proprietary, quantitative risk models, the firm's clientele includes financial institutions, multilateral agencies, and trans-national firms.




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