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Mexico: President signals willingness to push forward with ambitious structural reform agenda

March 18, 2013

On 26 February, President Enrique Pena Nieto enacted a constitutional amendment on education after it was sanctioned by both federal and state legislatures. The education reform, which came on top of the labour reform passed in late 2012 by former president Felipe Calderon, is the first approved under the "Pact for Mexico", a non-binding political accord between the country's three major political parties -PRI, PAN and PRD- to jointly push ahead an ambitious structural reform agenda.

The education bill had met strong resistance from the powerful national teacher's union (SNTE), the largest union in Latin America. Against this backdrop, on 27 February, Elba Esther Gordillo, leader of the SNTE, was arrested on embezzlement and organised crime charges. Gordillo's detention has been widely perceived as a political move, signalling the government's determination to push forward with its structural reform agenda while sending a strong message to any other political group or lobby that might offer resistance ahead of the coming fiscal, energy and telecommunications sector reforms.

On 11 March, President Pena Nieto and parliamentary leaders of the three major parties presented a joint outline reform to deregulate the telecommunications sector. The reform envisages restructuring the regulatory body, the creation of two new private national television networks as well as allowing foreign companies to have a greater participation in the sector. The bill, which requires support of two-thirds of Congress and a majority of state legislatures, is expected to be approved before the end of April.

Moreover, in the second half of the year the government is expected to submit to Congress the long-awaited fiscal and energy reforms bills. The most controversial points in these reforms will likely be extending the general value added tax of 16% to food and medicines and permitting a larger participation of private investment in the protected energy sector.

Against this backdrop, on 12 March, credit rating agency Standard & Poor's raised the country's BBB credit rating outlook to positive from stable, citing improving prospects that the government will "successfully advance policies to further strengthen Mexico's fiscal room for maneuver and medium-term growth prospects".

LatinFocus Consensus Forecast panellists are optimistic about the governments' fiscal consolidation efforts and prospects of reform, expecting the fiscal deficit to shrink from an estimated 2.6% of GDP in 2012 to 2.1% of GDP this year, which is down 0.1 percentage points from last month's forecast. For next year, the panel sees the deficit shrinking further to 2.0% of GDP.


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