During the first two years of his administration, President Enrique Peña Nieto focused on addressing fundamentally political matters.
Alleged conflicts of interest deriving from the so-called “White House” scandal, the disappearance of 43 students in Guerrero (the official investigation of which was not convincing for many), and the escape of the recently captured Mexican drug lord, Joaquín “El Chapo” Guzmán, from a maximum security prison took center stage in his agenda, leaving aside important economic issues facing Mexico.
Unfortunately, Mexico’s structural reforms, specifically the Energy Reform, were implemented amidst inauspicious times. The worldwide decline in oil prices has obscured the benefits expected from the Energy Reform.
The current economic situation is one of the serious issues that should be addressed in 2016. Since 2013, Mexico’s Gross Domestic Product has been on the decline. For 2016, the President has announced a series of economic measures, including the creation of special economic zones in the southeast region of the country, the application of budget resources toward the fight against poverty and the creation of investment vehicles such as the Fibra E for tax-efficient investments in energy infrastructure assets.
The purpose of this investment vehicle is to allow private and public investors to monetize assets with predictable and stable cash flows under a tax system that reduces taxes and allows greater cash distributions. This mechanism is similar to the Master Limited Partnerships (MLPs) that have been successfully used in the U.S. since 1981. Agustín Carstens, director of Mexico’s Central Bank, recently stated that Mexico’s economy could grow by more than three percent as a result of the growth that is expected in the U.S. economy. Such optimism will materialize only if Mexicans see real increases in salaries and wages, along with improvements in living and working conditions. The government can play a significant role in this effort. This is clear given that despite all the problems it has faced, the government has been able to control inflation.
Editor’s Note: The main image accompanying this guest column shows Agustín Carstens, director of Mexico’s Central Bank. This column first appeared in CCN Mexico Report.