Mexico’s Split Vote: What Will It Mean for Sustainable Economic Growth?
For the 41 million Mexican voters who went to the polls on July 2, the major decision was whether they were going to continue to follow the same free-market model with limited spending and greater foreign investment that the country has had for the past six years, or opt for change. Felipe Calderón, the political heir apparent of Vicente Fox, represented the conservative National Action Party (PAN). Calderón was the candidate of continuity and free markets, while Andrés Manuel López Obrador -- of the Party of the Democratic Revolution -- was the candidate of change.
Enrique de la Garza Toledo, coordinator of social sciences at the graduate school of Mexico’s Autonomous Metropolitan University (UAM), says that Lopez Obrador “rejects the logic of leaving things entirely to the free market. He thinks that the State is important. He criticizes the model and the way it has functioned until now, because stable growth has not been achieved. Nor has there been an appreciable decline in poverty. He believes that a change in the model is necessary, involving greater intervention from the State.”
Before the election, the polls showed a tie with the two main candidates, which was confirmed after the voting took place. When the Federal Election Institute (IFE) announced its first results, it gave Calderon a slight advantage -- barely one percentage point (36.38% versus 35.34%). The controversy then began: A technical tie made it necessary to recount the more than 130,000 polling sites in the country. López Obrador openly criticized the IFE for having taken only 24 hours to scrutinize the July 2 vote. Ultimately, both candidates proclaimed themselves the winner, which meant that a nerve-wracking electoral recount was in store for the country.
During the recount, the initial results were overturned in favor of the leftist candidate. For 20 hours, López Obrador had a slight advantage over Calderón. The Mexican peso and the country’s stock exchange fell as a result. Days earlier, investors had celebrated the likely triumph of Calderón, the clear favorite of financial markets and the business community.
However, on July 6, the scale tipped definitively in Calderon’s direction. Four days after the voting, Calderón was declared the official winner, by a mere margin of 236,000 votes. López Obrador responded by announcing that he was challenging the results, demanding a vote-by-vote recount of the ballot boxes. Mexico’s Electoral Tribunal can accept challenges within a period of four days. It has until August 31 to hand down its ruling, and until September 6 to declare the president-elect of the country.
A Weak Legitimacy
Most analysts agree that no one benefits when election results are this tight. Nor will this outcome help to strengthen Mexico’s democracy which, in 2000, did away with the more than 70 years of rule by the PRI, the Party of Revolutionary Institutions. Although international observers said that the elections occurred under entirely normal conditions, many Mexicans believe that the elections were fraudulent. De la Garza explains, “There are doubts about the impartiality of the IFE; about the way that the electoral process takes place; about the role that television played; and about the accusations made during the campaign (corruption and so forth). You still cannot say that this political system is all that free and democratic. Some factors tilt the balance toward one side [in a race] or another.”
According to De la Garza, the Mexican government was used to playing an enormous role in election results. In this case, he says, “The state apparatus expected that Calderón would win by a convincing margin, but that’s not what happened. It was a surprise that Calderón did not win in a convincing fashion. In the best-case scenario, he will win by only one percent of the votes. This margin is going to leave a lot of doubts about the legitimacy of the election.” How will it affect the next president and his government? “One sector of the population, more or less one-third of the people, is not going to be satisfied with the result.” De la Garza believes that the winner will have no other recourse but to build bridges with his rivals in order to rebuild national unity. “We may never know who really won these elections. No political group has a clear majority. The healthiest thing would be to take the other side into account because it is [also] very strong.”
Nevertheless, Carlos Malamud, chief Latin American researcher at the Real Instituto Elcano, has no doubt that the electoral system functioned perfectly, in a way that was both transparent and efficient. Beyond all the doubts that may exist, he notes, “It is symptomatic and odd that when it came to the rapid counting made at 7,000 polling places, the results were similar to the existing polls made by PREP (Preliminary Program of Election Results). That means that the trend was clearly revealed from the outset.” In his view, given the tiny margin between the first and second candidates, “Calderón starts off with weak legitimacy, especially after the denunciations of fraud made by the opposition.”
Malamud agrees with De la Garza that a possible offer by Calderón to create a unity government could be a good solution for the current political polarization. However, in his opinion, “Ultimately, what is going to be imposed is a negotiation process between two different parliamentary groups -- the PAN and the PRI -- to bring about one of the most important reforms needed by the country.” The electorate would be dubious about such a process, however, because when the PAN arrived in power six years ago, its stated intention was to do away with the PRI, the party that had monopolized government for decades.
Rafael Pampillón, a researcher on Latin America at the Instituto de Empresa in Madrid, warned in a forum in the Spanish newspaper Expansión that it will not be easy to negotiate with the PRI. Nevertheless, Pampillón believes that negotiation is necessary “so that you don’t have a country that is divided and paralyzed. During the Fox administration, a totally divided congress impeded reforms that were necessary for increasing tax revenues and promoting economic growth. If he wants to govern, Calderón must give some continuity to the stability policies applied by the two previous governments, but he must also negotiate with the PRI so that the reforms are made.”
Poverty and Jobs: The Two Key Issues
Calderón will inherit a country whose economy is relatively healthy, and which grew by 5.5% during the first quarter now that the price of petroleum, one of its main sources of wealth, is sky high. Nevertheless, he will have to tackle Mexico’s endemic ills -- poverty and jobs.
De la Garza explains that the main challenge for the next president is to achieve more stable economic growth, in order to generate decent jobs. In the official figures, he says, “There is a lot of cheating. In Mexico, there is no unemployment insurance, so the numbers [of registered unemployed] are always very low, about 2.5%, which is quite different from the number of registered unemployed in Europe, for example. The problem is that people invent [low-paying] jobs and it seems that they are not unemployed.” The only way to eliminate that problem, he adds, is through very high, sustainable economic growth. “In Mexico, there are times when growth rates are very high, but then they take a big drop.”
The unemployment problem is closely tied to the poverty rate, “which is currently at about 50%, although it is not extreme poverty,” notes De la Garza. Today, he explains, there is no short-term way to provide decent jobs to that 50% of the population. During Calderón’s campaign, he says, “One of the slogans he used was ‘The Job Candidate.’ Nevertheless, he did not clarify how he was going to provide incentives to create jobs. Nor were López Obrador’s proposals convincing.”
The candidates’ initiatives for reducing poverty, including such issues as unemployment, public services and housing, consisted largely in expanding social assistance programs for the poor, explains De la Garza. He says that López Obrador “had already created subsidies in the Federal District” when he was mayor of the Mexican capital city. In addition, “Fox had already put other programs of this sort into place, which were endorsed by the World Bank and the International Monetary Fund.”
Reforms and Continuity
When it comes to reforms, Calderón will have to face up to such key issues as energy, taxes and labor laws, says Pampillón. In his view, “The last two areas are the most necessary. Tax reform is indispensable for increasing public revenues and social spending. This spending should be directed toward the poorest regions in order to improve income distribution, education and public security.” As for labor reforms, he says, “they will help to avoid heavy emigration.”
According to Pampillón, the PAN and the PRI “agree that Mexican exports have to be diversified even more, and Mexico needs to diversify its markets” so that it does not depend so much on the U.S. “China represents another strong threat for Mexico, especially in the manufacturing sector. Perhaps the Central Bank of Mexico should buy more dollars on the market [the way the Central Bank of China does], in order to avoid the appreciation of the peso.”
Malamud agrees that it is important to reform the energy sector. One of the basic pillars of modern Mexico, he notes, “is PEMEX, the state-owned petroleum company, which needs to be restructured. At the same time, they have to pass legislation regarding how they will permit deregulation in this sector. This is a very important area where Mexican politicians will have to get involved.”
De la Garza believes that Calderón’s victory will mean continuity in its relations with the U.S. However, he believes that such a policy will not benefit Mexico’s agricultural sector, which will have to deal with the total opening of the sector envisaged by NAFTA, Mexico’s free-trade treaty with the U.S. and Canada. When that opening takes place, he says, “Products from the United States are going to take over this sector because their productivity is several times higher, and because North American agriculture receives subsidies from the government. In addition, Mexican agriculture, which is the weakest sector in Mexico, has both inferior technology and lower productivity.”
According to Pampillón, “The Fox government was very weak when it came to its relations with the United States. It demonstrated its support on many occasions in recent years, expecting to receive preferential treatment [from the U.S.] in return. That did not happen, however. This is an area that causes a great deal of concern in Mexico, as does emigration.” With Calderón in power, he says, these trends will not change.
There is not much of a difference between Fox and Calderón when it comes to their political and economic visions. “They are quite similar,” says Pampillón. “Calderón is a young politician (43 years old), but Fox is not. This gives Calderon more vitality and energy when it comes to governing and moving ahead on reforms. Fox was incapable of making an agreement with the PRI, but Calderón will do that. Among other things, that’s because the PRI is now [a weaker] political force, whereas it was [stronger] during the Fox era. However, both presidents are very well-educated, easy to get along with, and conservative. And they both have a track record of favoring markets and the private sector.”
According to Pampillón, “Spanish companies that operate in Mexicoare very much at ease about the victory of Felipe Calderón over López Obrador. That goes for the banks as well as construction firms and energy firms.” On the contrary, the business sector would have been quite nervous if López Obrador had won the elections, because “he would have undertaken a policy of revising contracts” following the models of Hugo Chávez in Venezuela and Evo Morales in Bolivia “and [he] would have set prices” along the lines of Nestor Kirchner in Argentina.
“The long shadow of populism covers Latin America,” Pampillón notes. “After six years of Felipe Calderón, will López Obrador be the next [populist to reach office]? That possibility has to be considered.”