The Reforms and the Future

INFOLATAM - Luis Rubio

With the formal announcement of the energy reform, President Enrique Peña-Nieto concluded the first step of his project of government. The series of reforms that were carried out, each with its characteristics and some more transcendent than others, creates a legal platform that is radically distinct from that which existed prior to Peña-Nieto’s initiating his mandate. Perhaps the label that some of his critics on the Left have imposed on him is not exaggerated: that he has overturned the essence of the Constitution of 1917.

Correct or not, this reading has merit at least in that two of the reforms constitute fundamental modifications to the previously existing legal framework and, in the case of the energy reform, the latter entails the end of the most revered sacred cow of the old system: the oil monopoly in the hands of the State.

The first stage over, it’s worthwhile to reflect on the what, the whys and the how of the reforms, to evaluate the transformer potential not of the laws but of what really is of import: the reality. In the last analysis, Mexico has laws and regulations for everything but very few of these apply in the reality. The fact of the law being modified does not imply that daily life, the business practices or the political rules of the game have changed.

First the why. The notion that, in order to achieve high growth rates again, the economy should be reformed, has enjoyed wide acceptance for at least twenty years. Although during that period there was less agreement on the content that those reforms should have than the political and academic rhetoric would suggest, there has been vast consensus on the need for reform. In fact, that consensus was so far-ranging that the vehicle employed to advance the reforms, the so-called Pact for Mexico, was the initiative of the PRD.

Some time before becoming the formally anointed candidate, Enrique Peña-Nieto had made clear his conviction of the need to undertake reforms. Nearly two years after the beginning of his presidential period, I have no doubt about his political conviction regarding the importance of reform, but the same conviction and clarity is less clear to me with respect to the implications of the reforms: about the changes and costs that these entail and that, were they to be fully implemented, they would imply extensive affectation of interests at high places, many of these an integral component of the traditional PRI coalition.

The first stage of the reforms, the constitutional plane, advanced without great dispute. The main parties participated in the majority, in others only two parties, but none of the reforms was a reason for major political confrontation among the political parties. The PRD objected to constitutional reform in energy matters but, judging by the lack of mobilization in the streets, this was possibly a form of avoiding an internal breakup more than a protest sustained on fundamental principles. The sole constitutional reform that was, and continues to be, conflictive was the educative one, in which the Coordinator of the Mexican Teachers Union (CNTE), a dissident caucus, continues to mobilize against it. Meaningful for those attempting to foresee possible future scenarios, the government has done even the unimaginable to neutralize that reform to not stir up greater conflict.

Disputes flourished, as was to be expected, as soon as the abstract, even ethereal process, typical of constitutional language, had been gotten through, to the regulatory laws. There the directly affected interests, those who expect to be benefited and those who intend to scale back the essence of the reforms, participated with singular intensity. In the telecommunications law competition could be observed between the factotums of the sector –Telmex and Televisa- and the way politicians formed alliances for or against these enterprises. In the case of the energy reform there were many relevant vignettes, but two are especially revelatory: on the one hand, the PEMEX union made its weight felt at the end of the process, above all in matters of perquisites and pensions. On the other hand, the PRD, which did not participate in the constitutional reform, concentrated on reverting everything possible of that in the regulatory law. It’s not that its impetus lacked support or sympathizers in the government or in the PRI, but the regulatory law is infinitely less ambitious and attractive for potential foreign investors than what the constitutional reform would appear to promise.

At the end of the day, PEMEX will continue to be the factotum of the oil industry and, with the exception of areas in which the entity does not possess the capacity, experience or technology, it is to be expected that the greater part of the private investment that materializes will be in the form of contracts with the former oil monopoly. I have not the least doubt that, at least in the medium term, the true impact of the energy reform, perhaps the most important of all of the reforms, will be the result of the liberalization of trade in everything related to energy, oil and derivatives, which will permit access to cheap gas from the U.S. and of other goods previously banned from the Mexican private sector. The potential that this change supplies is immense and, no less important, very fast in materializing.

With an eye to the future in terms of what can be anticipated from these reforms, President Peña’s great asset has been his extraordinary capacity of political operation. The evidence is powerful concerning his skill in employing all the resources –from arm twisting to buying votes, passing through exchanges of legislative support- in order to advance his agenda. It is ironic that the PRI was the party that advanced the reforms, many of these very PANist in spirit, but that the PAN was unable to bring forward during its time. On the other hand, it is paradoxical that despite the PAN’s being in office for twelve years, the structure of the old PRIist presidency continued intact, making it possible for a president with greater political adroitness to recreate it into the political control machine that it once was. In contrast to the transition in Spain, where there was an integral change of the political regime, in Mexico the old PRIist system is alive and well and in a frank process of reconstruction.

The future will depend on two factors: on the one hand, the capacity of execution that the government demonstrates, a process much more decentralized than that observed to date. On the other hand, the willingness –and capacity- to affect interests comprising the beneficiaries of the old order. The former implies basically technical processes, reorganizations, modification of regulations, etc. The latter constitutes a political process –potentially very conflictive- of negotiation, imposition, control and the elimination of privileges in ambits as diverse as, case of PEMEX, the union, the mafias of engineers, the contractors, the politicians who live on favors and, no less important, the federal government itself that has become addicted to oil profits. The potential for conflict and even violence is not minute.

The formal reform process is over. Now begins the genuine dispute: that of the interests. That’s what will go down in history.


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