Pena Nieto 'Likely' to Win Tax Reform by 2013 Noe Torres and Jean Arce - Reuters
go to original July 7, 2012

MEXICO CITY - Economists see a decent chance that Mexico's next president will be able to push through tax reform during his first year but are skeptical about a quick overhaul of the state-run oil industry.

Incoming president Enrique Pena Nieto won last Sunday's vote after promising a clutch of fiscal, energy, Labour and competition reforms which aim to lift Mexico's economic growth to 6 percent a year.

According to the median of 13 analysts polled by Reuters, the new administration, which will take office on December 1, should make fiscal and energy reforms its top priority.

Pena Nieto's Institutional Revolutionary Party, or PRI, will not have a majority in either the lower house of Congress or the Senate, the latest projections show, meaning he will have to negotiate with opposition parties on reforms.

Fiscal reform is seen as "likely" during the first year of Pena Nieto's term, along with the establishment of a new state bank, but analysts thought other reforms would take longer.

"The mandate in Congress is not very strong and Pena Nieto will have trouble negotiating the reforms," said Pedro Tuesta, an analyst at consultancy 4Cast in Washington.

Mexico desperately needs to jump-start growth after its economy languished behind other emerging markets during the last decade.

Excluding oil revenue, Mexico has one of the lowest tax takes in Latin America and is heavily reliant on oil sector revenues, although state oil monopoly Pemex lacks the resources to properly exploit big off-shore fields.

LABOR, ENERGY LESS LIKELY

Opposition lawmakers from the outgoing National Action Party (PAN) told Reuters they would not take the same obstructionist stance as the PRI, which blocked key reforms during the 12 years it spent in opposition.

However, PAN demands to ventilate PRI-affiliated unions with more democracy and transparency could make a consensus Labour reform more difficult.

"Pena Nieto has obligations with interest groups that are not willing to accept competition, Labour or energy reforms," said Samuel Moreno, an analyst at Mexico City brokerage Invex.

Mexico is dominated by oligopolies in industries from cement to telecommunications and analysts, who were asked to rank the chances for reforms on a scale from "very likely" to "very unlikely," said progress on competition laws was unlikely in the first two years.

Economists polled by Reuters said it was unlikely Labour reform would sail through during the first year, but could make it during Pena Nieto's second year.

Social security costs in Mexico are almost double the Latin American average, according to a World Bank survey, and companies are slow to hire new workers since Labour laws make it expensive to fire people.

Pena Nieto will need opposition support to clinch the two-thirds majority required for constitutional changes, like the one needed to allow foreign companies to exploit Mexico's oil resources with state firm Pemex.

On balance, analysts did not see much chance of energy reforms succeeding in the new administration's first two years.

Progress on energy reform was seen as likely by the end of Pena Nieto's term in 2018. Analysts warn that Mexico could become an oil importer within a decade if it does not boost production.

Some analysts said the first year would be a make-or-break test for Pena Nieto due to the chance that congressional negotiations could soon be contaminated after the first year due to the race for mid-term legislative elections in 2015.

"What ever Congress doesn't approve in the first year of Pena Nieto's term, will not get approved in the whole term," said Nomura analyst Benito Berber in New York.

Writing By Michael O'Boyle; Editing by Vicki Allen

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