LATIN AMERICA NEWS
August 15, 2013, 10:34 p.m. ET
How Mexico Ended Political Gridlock
Stream of Deals Revives Confidence in Country's Economy
by JUAN MONTES
MEXICO CITY— At a time when politicians in Washington struggle to agree on anything, their Mexican counterparts—who spent the past dozen years locked in bruising battles—sit down almost daily to talk about thorny issues.
Sometimes they tip a glass. Sometimes they share a pizza. And, increasingly, they reach agreements.
Mexican President Enrique Peña Nieto, center left, shown embracing PRD President Jesús Zambrano, with whom he is working to enact reforms.
This week, President Enrique Peña Nieto delivered a proposal to crack open Mexico's historically closed state-owned energy market to private companies. All three parties also began discussing the creation of a national election agency that oversees all federal, state and local elections—a key demand of the opposition.
The steady stream of deal-making, after years of partisan gridlock, is causing ordinary Mexicans to take notice and reviving international confidence in the country's economy even as interest in other big emerging markets flags. During the past 12 months, Mexico's stock index rose 5% and the peso strengthened 3.5% against the dollar, even while Brazil's leading stock market index fell 13% and its currency sank 14%.
Political leaders met last November to negotiate a pact to pave the way for major reforms. Attendees included representatives of Enrique Peña Nieto and top officials from the PAN and PRD parties.
In the coming months, Mr. Peña Nieto and the three parties plan to tackle a tax reform to boost revenues and reduce heavy reliance on income from oil exports, and end the constitution's ban on lawmakers serving consecutive terms. "I spend around 60% of my time with members of the opposition, discussing bills," says Aurelio Nuño, chief of staff to Mr. Peña Nieto. "We've all gotten to know each other very well. You come to see each other as people, not just politicians."
As he talks, the phone rings. It is the president, asking how the day's meetings with the opposition went. "He calls after every meeting," Mr. Nuño says.
Behind the change is a wide-ranging political agreement called the Pacto por México, or Pact for Mexico. Unveiled with little fanfare the day after Mr. Peña Nieto took office in December, the deal was signed by the all three major political parties, the ruling Institutional Revolutionary Party (PRI), the leftist Party of the Democratic Revolution (PRD) and the conservative National Action Party (PAN).
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The pact outlines 95 goals ranging from the tax overhaul to barring junk food in schools. The hope is to get all done before the politics of midterm elections in 2015 make deal-making more difficult.
"What we're seeing so far is a kind of legislative coalition, something remarkable in Mexico," said political analyst José Antonio Crespo at Mexico City's CIDE graduate school and research institute.
Many investors view the future of Mexico's economy as linked to the success of the pact. "Investors care a lot about the pact. You can't imagine how many questions I get about it," said Gray Newman, chief economist for Latin America at Morgan Stanley.
Obstructionist politics were the norm here over a bitter 15-year stretch beginning in 1997, when the country became a full democracy and the PRI, which had governed since 1929, lost control of Congress for the first time. Few major initiatives passed both houses, which were divided between the three big political parties, none holding a majority.
The bickering got so bad that the losing candidate in the 2006 presidential election, nationalist leader Andrés Manuel López Obrador, refused to acknowledge then President Felipe Calderón as president. Mr. López Obrador led months of street protests and declared himself the "legitimate president."
Bickering is bound to resurface. The pact's most crucial test comes as the parties sit down to discuss opening the oil industry, whose protected status has long been a point of national pride.
The chances of getting the initiative approved appear high. The opposition PAN party says it will back the proposal, giving the ruling PRI the two-thirds majority needed to change the constitution.
The wild card is the leftist PRD. The party will almost certainly vote against the reform—even possibly take to the streets to protest it, party leaders say. But they say they won't blow up the pact if they don't get their way on a single issue.
"We're not going to abandon the negotiating table," said Guadalupe Acosta Naranjo, a high-ranking PRD official who helps represent the party in pact negotiations. "We can protest in the streets against the energy reform, and at the same time talk with the government over tax reform."
While the political stalemate in Washington has become most pronounced in recent years, Mexico's politics were stuck long enough for the country to drift dangerously. Indeed, a big reason why the pact happened is that all three parties grew alarmed about how weak the Mexican state had grown.
For centuries, this land was ruled with an iron fist—from Aztec emperors to Spanish colonial viceroys to a succession of powerful presidents. That ended with the rise of democracy in the 1990s. The president was forced to cede power to institutions like Congress and the courts that had atrophied under centralized rule.
The result: a power vacuum filled by other forces, including drug gangs that killed an estimated 70,000 people in the past seven years and seized control of parts of the country. Some state governors, left unchecked, ruled their states like feudal lords, building up vast fortunes. Union leaders became enormously powerful.
Big business operated unfettered. Government attempts to regulate the country's monopolies and introduce competition in sectors from telecommunications to beer went nowhere.
"While politicians quarreled during these last 15 years, the space that the state's democratic authority left empty was occupied by private interest groups, be they monopolist firms, drug traffickers or the unions," said Jesús Zambrano, the president of the PRD.
While the parties have very different ideologies, they found common ground. All three parties, for instance, found that they shared a frustration that Mr. Slim's telephone companies charged ordinary Mexicans far higher rates than in comparable countries, and got around regulation by tying up rulings in the country's Byzantine courts. So the political parties agreed to create a new telecom regulator with powers to break up monopolies and whose decisions cannot be suspended in court until the appeals process ends.
Another factor behind the deal-making was the departure from the PRD of Mr. López Obrador, who left to form his own party last September. That gave the party a unique chance to rebrand itself as a moderate, open-minded left-wing group.
PRD moderates broached the idea for the pact, inspired by a landmark deal in Spain in 1977 that helped transform the country after the decadeslong Franco dictatorship.
It all began a year ago, around a month after the July presidential election, when PRD president Mr. Zambrano and his right-hand man, Jesús Ortega, held a secret meeting at the Mexico City house of José Murat, a senior PRI politician with friends across party lines. At the meeting was Mr. Peña Nieto's top adviser, Luis Videgaray, the current finance minister. He took the idea of a broad-ranging pact to the president-elect.
"Why not? What do we lose?" Mr. Peña Nieto responded, according to two people who talked to him on those days. For the president, the pact could broaden his popularity beyond his 38% vote share and get Mexico's economy moving again.
At the same time, the president-elect's team began holding private meetings with leaders of the PAN, which governed Mexico from 2000 to 2012.
"We didn't want revenge," said Gustavo Madero, the president of the PAN. When in power, the PAN felt constantly thwarted by the PRI.
By mid-September, a group of nine people from all three parties secretly started working on a draft at the house of Mr. Murat, the PRI politician.
The group laid some early ground rules. "First, we agreed negotiations must always remain private. Second, nothing is agreed until all is agreed. And third, negotiations shouldn't be affected by current events," said Santiago Creel, a former PAN interior minister who participated in the talks.
The group of nine politicians would agree on broad principles, and then a group of only three members—one from each side—would break off to hammer out the specific language of the pact.
An atmosphere of mistrust at the outset gave way to familiarity and even friendship. Some nights ended with leaders sharing improvised dinners of tacos or pizza.
"The key was to give the benefit of doubt to the adversary," said Mr. Ortega. "Not to be dogmatic and avoid as much as possible an ideological approach."
By late November, a 34-page draft was nearly ready. On a feverish last night of negotiations following the president's inauguration on Dec. 1, parties finally agreed on the wording of the proposed energy reform. At 2 a.m., Mr. Murat broke open a bottle of Johnnie Walker Blue Label and poured everyone a glass.
They raised their glasses and offered each other a toast: "To Mexico."
They raised their glasses and offered each other a toast: "To Mexico."
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