American Enterprise Institute

May 3, 2006

[Edited transcript from audio tapes]

10:45 a.m.	Registration
11:00 a.m.		Panel I: The Players and the Potential Outcomes
	Panelists:	Luis Rubio, Centro de Investigación para el Desarrollo, A.C. [Center of Research for Development]
		Mario Villarreal, AEI
	Moderator:	Roger F. Noriega, AEI
Noon	Luncheon
12:30 p.m.		Panel II: Implications for Mexico and the Rest of the World
	Panelists:	Francisco Acuña, ManattJones Global Strategies
		Armand B. Peschard-Sverdrup, Center for Strategic and International Studies
		Arturo Valenzuela, Georgetown University
	Moderator:	Roger F. Noriega, AEI
1:30	Adjournment

Proceedings:

Roger Noriega:  We do thank you for coming.  We have a very interesting panel, a couple of panels, that we have assembled to talk first and foremost about the shape of the elections in Mexico – the details, the candidates, the messages, the themes in the campaign.  Then we’ll talk about implications, whatever the results might be, for Mexico in the world and Mexico at home.

There is perhaps no region in the world more directly important to U.S. security and prosperity than the Americas.  That is why we have focused considerable attention on a series of elections in the region that will really determine the fate of the hemisphere.  Of these, none is more important than the campaign underway in Mexico today.  Mexico is the world’s twelfth-largest economy, our second-largest trading partner, and a key source of energy at a very critical moment.  Despite years of economic growth and the benefits of NAFTA, Mexico is home to many who live in genuine poverty.  A Mexican friend of mine made a startling confession not too terribly long ago that “we have our own Africas in parts of this country.”

While Mexico’s democracy has changed in dramatic fashion in the last decade in particular, it has had some growing pains.  Fox remains quite popular and has earned a spot in Mexico’s dramatic political history.  Nevertheless, his term has not met the perhaps impossibly high expectations that we had all set for it.  On key issues vital to the development of a modern state and economy and global competitiveness – such as fiscal reform, energy sector reform, labor code reform – Mexico’s political class has been unable to produce significant structural modernization under the Fox administration.

The good news is that a million Mexicans were on the street recently demanding good jobs and good government and justice.  The bad news is they were marching in someone else’s country.  Every day thousands of Mexico’s most industrious people leave their families behind to take a chance at improving their lives or just surviving as illegal immigrants in the United States.  Every year Mexico receives $14 billion in remittances from these immigrants who live here in the United States, leading many to wonder why Mexico’s political class is not capable of creating economic opportunity for its citizens in a land rich in mineral wealth, hydrocarbons, agricultural potential, and human capital. 

Thanks to those in Mexico who struggle for representative democracy over the years, on July 2nd Mexicans have a right to choose a new future for their country in one of the most competitive elections in that nation’s history.  Even if they choose the most capable president among those who are running, many wonder whether that new leader will be able to form an effective coalition and consensus to effect the kind of profound economic changes that are required for Mexico to reach its full potential.

We have a panel that’s going to discuss the campaign that’s underway, starting with our colleague here at AEI, Mario Villarreal, who will talk a little bit about the candidates and their message.  Mario is a former Fulbright Fellow.  He’s a research fellow here at AEI and researches health economics, entitlement programs, economic development and political economy issues.  Before joining AEI, Dr. Villarreal was a research associate at the Tomás Rivera Policy Institute, studying political projects and bi-national issues between Mexico and the United States.  Mario has taught at the Instituto Tecnológico y de Estudios Superiores de Monterrey in Mexico, one of that country’s most prestigious private universities.  Professor Villarreal has prepared a presentation to give us a better understanding of the key candidates who are running in Mexico today, and we turn it over to him.  Thank you.

Mario Villarreal:  Thank you, Roger.  Welcome, everybody.  It’s a pleasure to be here, although AEI is home for me.  It is good to me here.  Welcome to Luis, too, I’m sure Roger is going to introduce him in a few minutes.

I am going to present just a brief overview of the candidates and some of their ideas and some of their background, so we have a better understanding of what is going on with the main candidates.  Before that I would like to present a few basic things.  Election day is July 2, 2006.  We’re going to elect a president and congress.  We’re going to renew our congress, senators and congressmen too.  In 2000, the last presidential election, we had 60 percent turnout, around 37.6 million people.  For this election we have 71 million registered voters.  I assume almost everybody knows that, but to be registered to vote you need an official voter ID to be able to vote.  From that electorate, 56 percent is under 40 years old, which is interesting.  It’s a pretty young electorate.  We have a one-round presidential election, which means that the winner does not need to get 50 percent or more of the vote.  In my view, I think that’s what’s going to happen, we’re going to have a minority president.

We have five registered candidates.  I’m just going to talk about the top three.  There is two more I’m not going to talk about.  One is Patricia Mercado from Alternative Socialdemocrata y Campesina, and the other one is Roberto Campa from Partido Alianza, which are relatively smaller players, although they participated in the last debate.  I’m just going to cover the top three.

How does the political spectrum look?  If we do the typical left and right, we’ll find something like this.  On the left we have a coalition of the PRD, the Democratic Revolution Party, the Labor Party, and the Convergence Party (Convergencia).  That’s on the left.  Then a little more toward the center-left, we have the Alianza por México, which is like the Institutional Revolutionary Party, the PRI, the one that ruled the country for seventy years.  It’s in a coalition with the Green Party.  It’s worth saying that PRD, one of the leaders of the left coalition, was created by a group of former priistas.  Of course on the right we have the National Action Party, the PAN.

In strictly alphabetical order, these are the candidates.  Felipe Calderón, he’s the conservative, is the conservative candidate.  Those are his campaign slogan – “Passion for Mexico,” “So We Can Live Better,” “Clean Hands,” and “President of Employment.”  All these somehow reflect how he wants to position himself, as a strong leader looking for more equitable economic development, social development, and how he’s honest – he has clean hands – which is important in Mexico, the Mexican electorate’s perception.  And how the job creation, employment, economic development is a big concern.

A little bit on his background.  He’s 44 years old, he’s married.  He’s a lawyer in Mexico and he also has a master’s in public administration from Harvard.  All his life, he’s been a party man.  He started from youth party organizations to president, and a whole bunch of activities within the party.  So he knows very well its structure.  As I said, he was president at a time where the PAN experienced its biggest electorate success or expansion.  He’s been congressman twice.  When he was in Congress, he was the leader of PAN’s parliamentary group.  More recently, at the start of the Fox regime, he was the director of Banobras, which is a public financial institution for development of infrastructure.  After that he was the secretary of energy.

Of course, it will be really difficult in a forum like this to fully explore the candidates’ political platform or campaign platform.  To do justice to their ideas and proposals we would need much more time.  However, I would like to share with you at least the basics of what is at the core of their proposals.  You can find these at their websites.  By the way, they are very good, very extensive.  They have a lot of information.  Unfortunately, none of them have anything in English, at least not that I found anything that was interesting.  I barely speak English, too.

At the core of his proposal is the rule of law and crime.  As you know, it’s a very important topic for Mexico.  The rule of law and crime is at the top of the priorities that the Mexican electorate considers as an important issue that needs to be tackled down.  PAN, Calderón, presents this as a need, a condition, in order to reach sustainable development – an adequate rule of law that includes property right protection, fighting crime and corruption, in order to provide certainty for citizens and investors.  This goes hand in hand with the promotion of investment and an investment-friendly climate in order to be competitive and create employment, create jobs.

Also he includes what he calls equal opportunities, regardless of income differences and gender.  It’s a view of poverty as a self-reinforcing cycle, where children of the poor have a lower chance of advancement and access to better education and better health.  So that’s an important part of their proposal, to create basic infrastructure in education, basic infrastructure in health, facilitate the access.  By doing that, to try to promote equal opportunities and promote competitiveness and employment.  As I say, that goes hand in hand with sustainable development.  He also includes a long-term vision for the use of natural resources, particularly energy resources and environment.

Finally, an important component of the platform is what is called effective democracy and accountability, and what is called responsible foreign policy.  Particularly on effective democracy and accountability, that’s an important issue that they highlight a lot.  They have a very detailed plan about how to fight corruption through accountability and transparency and how democracy is the tool to reach a more effective government.

In his own words, these are a few quotes that I took from the speeches that are on their own website and also from newspapers, particularly Reforma, where Luis Rubio writes.  It’s a fantastic newspaper. 

“If somebody can produce energy more efficiently than this CFE” – which is a publicly owned energy commission – “that should be allowed.”  So this somehow hints that he’s friendly to the idea of private investment on energy generation, which is somehow taboo, at least in some aspects, in Mexico.

“Public spending has to be primarily on social programs.”  This reflects also his idea of how that will be a tool to facilitate equal access, especially for those that are trapped in that poverty cycle I described before.

“The first condition to promote investment is an effective rule of law.”  Here it reflects their idea of how the institution of rule of law reduces uncertainty, especially in investment decisions, and how that’s important.

“Now fewer Mexicans pay more taxes.  We need more Mexicans paying fewer taxes.”  Fiscal reform is a very important topic.  This is right at the target of fiscal evasion, which is a big problem in Mexico.

“We need a flexible labor market that provides more opportunities for the Mexican woman.”  This is a very interesting one.  “If I win the presidency and don’t have majority in Congress, I will create a political program that will not be mine or PAN’s, but a platform for a coalition government.”  I heard him say this in Monterrey Tech four or five weeks ago.  He was there giving a speech to the students.  One of the questions was, how are you going to enact all the reforms that are needed if you have a divided Congress?  He said, I will form a coalition government.  I will sit at the table and negotiate with them and we’ll create a political program that is not mine or PAN’s but a platform for a coalition government.  I think that’s interesting.

Now, the left.  Andrés Manuel López Obrador.  His campaign is [indiscernible].  As I say, this is a coalition of three parties, although the main one is the PRD.  “For the good of all, for the poor first.”  “Delivering is my strength.”  “Brave honesty.”  Those are his slogans that reflect concern for the poor and minorities and how he’s positioning himself as someone that can deliver and he’s honest.  Similar to “Clean Hands,” the slogan of Calderón.

His background.  He’s a 53-year-old widower. BA in political science and public administration from the Mexico National Autonomous University (UNAM).  He started his political career – if you recall, I said that the PRD was formed by a group that separated from the PRI.  He started his political career at the PRI but then he joined the movement that created the PRD.  He was president of the party and after that he was elected jefe del gobierno, or mayor of Mexico City.

Again, this is a very small taste of the campaign platform, which is rooted in fifty commitments to recover national pride.  That’s how it is called.  So these are a few of them.  The second one, to establish like in the jefe of Mexico City, the [indiscernible], the right to a food pension for people over 70 years old.  This was one of his main programs in Mexico City, to guarantee access to health and some direct transfer to elders in Mexico City.

Commitment 19 is “we will try to reach an agreement with U.S. and Canada to stop the free importation” – which will start in 2008, according to NAFTA – “of corn and beans, essential crops for millions of Mexican farmers.”  “We will modernize the energy sector without privatizing the electric industry or the oil industry.”  “In three years we will stop important natural gas and gasoline and these products will have fair prices.”  And, “we will be competitive in the global market.”

As you can see, they are very specific commitments in the campaign platform.  “We’ll respect the autonomy of the central bank.”  That was a big concern of some people in Mexico about him being friendly toward macroeconomic [indiscernible].  So there’s a commitment here, “we’ll respect the autonomy of the central bank,” “we’ll maintain macroeconomic equilibrium.”

This is an interesting one, too.  “After three years we’ll have a national poll to confirm or recall the president’s post.”  So kind of like confirm the mandate or not after three years.  He did that in Mexico City, although there was a question about the methodology, but still, he did that.

It’s hard to mention all of them, but at the core of all of them is a high importance to minority rights, an important role of the state, how important it is to fight corruption and all privileges.  One of the commitments is to eliminate the pensions for former presidents and to reduce the salaries of public officials, which are really high.  A concern for social justice and the creation of a just economic system.

Again, in his own words, “We will support free public education because that’s the best investment.”  He’s a big supporter of free public education.

“We will implement a frugal government.  There cannot be a rich government with a poor population.”  He has a specific plan of how they will save money and how they will use that money for implementing other social programs like the food pensions.

“My cabinet will be at least 50 percent women.”

“I am not a populist, but I do believe in the necessity of a popular political platform.  The way the budget is allocated to favor not minorities but everybody.  It is necessary that the state give direction to the economic development.  This doesn’t mean hindering the role of the civil society and the private investment from national and foreigners.”  Which again, was another concern, like the type of what has been happening in Bolivia, nationalizing everything.

“We have 50 percent fiscal evasion.  We don’t need new taxes, we need to apply the current ones to everyone that is eligible.”

The last of our candidates will be Madrazo, which I’ll call the old school.  Some people don’t find it fair but I think he’s old school.  He’s a candidate from PRI and the Green Party.  Campaign slogans are “Roberto can,” “Knowing how to rule,” “Well-paying jobs,” and “Fair pensions.”  There’s more targeting of specific groups like students, workers, women, but those are the main ones.

He’s 54 years old and married.  He’s a lawyer from UNAM and he has graduate studies in urban development and demography at UCLA.  He’s also, like Calderón, a party man.  He started from youth organization and he became president of the party.  He’s also been congressman, both at the state, in Tabasco, and federal level.  He’s been senator and governor of Tabasco. 

His campaign platform starts with what he calls a Mexico vision, where justice, freedom, equality and solidarity are at the core of the vision.  He identifies three challenges.  The challenge of democracy and rule of law – again, this is very similar to Calderón’s in the sense of putting the rule of law as the main component of economic development in consolidating a democracy. 

The second challenge is called competitiveness, human development, and justice.  This goes along with the idea of the social justice and economic just development, while being competitive to care about human development and justice.  Along with that is the third challenge, which is called social commitment to abolish poverty, which is a very important issue in Mexico.

Explicitly in his platform he uses the word social democracy, a democracy that serves the people.  That is at the core of his proposal.  That’s what he’s advocating, to create a social democracy, a democracy that serves the people.  He wants to create a market economy with a place for everybody and where you conciliate economic efficiency with social efficiency and the rule of law.  And to break the poverty cycle with better education and better health service.  Access is a big topic in his platform, access both to education and better health services.

Finally, political responsibility, accountability, transparency, where he devotes a very detailed plan, probably because that is one of his weakest points, at least from previous experience or at least from the electorate’s perception.

Madrazo in his own words.  “The tax reform objective should be to increase the tax base.  To do that we need to simplify the way taxes are paid and collected.”  This is a common topic of the three candidates, although at least to my knowledge Madrazo and Calderón have more detail on specific proposals.  In fact, I heard Calderón say that if he wins, he will implement a flat income tax, which hopefully will be followed by the United States, but that’s another issue.

“The state cannot do everything but society needs a strong state.”

“To solve the immigration problem we need to create jobs here.”

“We need to avoid the strains” – and of course in this one he’s targeting his rivals – “we know to avoid the strains, economic neoliberalism and populism.  We need an economic policy that promotes social development.”  So he’s presenting himself as the option in the middle.

“To promote strong property rights and rule of law – that’s the strategy for economic prosperity.”

This is a very interesting one.  “The old PRI doesn’t exist anymore.  We learned a painful lesson.  We’ve learned from past mistakes.”

Obviously to discuss this again and present a lot of conclusions will first take a long time and second steal some of Luis Rubio’s ideas, and I don’t want to do that.  But it will be a close election.  I’m not sure how clear the choices are.  At least from the analysis I made, some of the choices are clear.  There are clear distinctions in some of the choices.  But some of them are pretty blurry, mainly because that’s the nature of a political campaign, to remain a little bit on the surface and go to big topics.  There’s difference on the how, in my view.

If I highlight some of the candidates’ problems, this will oversimplify the situation, but hey, I’m an economist.  As we economists do, we oversimplify things.  Then we explain why we were wrong.

But Calderón’s problems will be, in my view, Fox.  How there’s a certain level of – Fox, when he was elected, a lot was expected from him.  People somehow are not very satisfied with the things that were delivered, despite the start of democratic life, if I can say that.  To some extent, some people view that the regime – the PAN already had its chance and failed.  So he’s trying to present himself as a fresh and new option.

Madrazo’s problem is lack of credibility.  It doesn’t matter how good his platform is, it’s hard to believe in, especially taking into account the past of the party and some of the people he’s been working with in the campaign. 

López Obrador’s problem, in my view, is López Obrador.  He tends to be a victim of his own words and his own speech. 

Mexico’s problem is who can better bridge the diverse interests.  It’s going to be an interesting election.  In doing that, I think the congressional election, the election of Congress, is going to be very important.  It will determine the likelihood of creating alliances and enacting reforms as we badly need.

That’s it.  Roger?

Roger Noriega:  Thank you very much for setting the table for us, Mario.  Dr. Luis Rubio is the director-general of CIDAC, the Center for Research for Development of Mexico, an independent research institution devoted to the study of economic and political policy issues.  He is a prolific writer on political, economic and international subjects.  For example, he writes a weekly column for Reforma and is a frequent contributor to the Washington Post, the Wall Street Journal, and the Los Angeles Times.  His latest books in English include, Mexico under Fox and NAFTA and the Environment: Seven Years Later.  We have asked Luis to share his views on how the campaigns of the various candidates are playing in Mexico and to discuss the implications of possible outcomes.

Luis Rubio:  Thanks, Roger.  Good afternoon.  Before I start, let me give you an anecdote that I think is applicable to Mexico.  In the mid-1980s, in 1985 I believe, there was a big earthquake in the city of Tashkent, in Russia.  There’s a story, probably apocryphal but was nonetheless told in a major Russian, then-Soviet paper, that a man was walking down the street, he got into his home.  He put his things together and in the moment he turned on the light, at that very moment the earthquake hit and there was horrendous movement. 

Everything collapsed and everything kept on moving for a couple of minutes.  Eventually, a few minutes later, when he was able to get out of his home and he saw the scene outside and there was total devastation, there was nothing left, no stone was left in its place, the comment that was recorded of his was that had he known what would have happened, he would never have turned on the light.

I think the same can be said for the Mexican process of political change that we have been undergoing over the past couple of decades.  Things have happened.  There have been of course a few decisions that various governments have been making over time that have changed or sped up the process.  But there has been no plan for this transition.  There is not even an agreement on when the transition started, and that’s a real topic of debate – when did it start?  What stage are we in, in a nonexistent plan?

Just consider that in comparison, in contrast with Spain or – not to talk about Germany’s reunification, where everything was planned German-style, in a book that didn’t actually play out that way at the end of the day, but no matter.  The point is simply that Mexicans are still figuring out where we’re going next.  Part of the problem and the effect of all this is that we have a very messy process.  I think that’s what this election, this campaign, actually reveals.

Let me dwell on three points, on the settings, the electoral issues, and what in my view are the implications of this.  Needless to say, and Mario has already made a very good presentation, this is going to be a very complex election and likely a very close election.  That remains to be seen but it looks like being a very close election on the list. 

Most important is the dynamic of the election.  López Obrador has been in the running for three years now – really for six, but three years permanently.  He’s setting the agenda and it’s his agenda that everybody’s relating to.  Now that the polls – I’ll come to that in a minute – the polls don’t put him at the helm anymore, an important question is whether the really important issues are going to start being debated or whether it will remain with an agenda that is ultimately not only settled by López Obrador but that entails something very odd and very relevant and very interesting at the same time – which is that the dynamic of the current race has much more to do with what has happened over the past thirty years than on what to do about the problems of the country today, or for the future. 

There is no agreement on what happened over the past thirty years.  He personally has a lot to do with raising all those questions about whether we were so much better before than the liberalization of the economy began in the mid-1980s.  So this dispute is much less about the future than about the past, which it turns the scenarios about the post-electoral period that much more complex as well as relevant. 

I see three features in this election.  First, this is not a typical election which we have three or five candidates.  Two of them are fighting for the life of their parties and that’s the nature of the process.  The access costs for new parties in Mexico are very high.  This is not about just candidates, it’s about two candidates and one social movement.  That’s what turns this election very different than others.  It is in that sense that it’s similar more to Bolivia than it is to other countries. 

I don’t mean to push that simile any further.  Simply, this is a social movement that started long before this electoral season started and is going to end much later than when the polls close on election day.  Whatever happens on election day, this process is going to continue and will remain in place thereafter.  Whether López Obrador is in the presidency or not, it’s going to be a big issue, to which I’ll come back later.

A second very important issue is that most of the structures and institutions of the old political system, the old PRI system, remain in place.  Those have a major impact on both the election and the aftermath.  This is important in many ways.  One of the elements of the old political system was the corporativist nature of the political structures, the fact that there were organizations that were the instrument of the party, of the PRI, to exert leadership, to maintain control, to channel demands and so on.  Those organizations after the end of the PRI era have remained in place but have taken a life of their own. 

In the past there were some checks and balances of these organizations to the presidency and the presidency against these organizations.  In the absence of a strong, old-fashioned PRI presidency, nobody constitutes or nothing constitutes a check on these organizations.  We’ve seen this in the last week or so with the workers.  The demonstrations of May 1 were very important in this regard.  There’s a real challenge against the government and there is no check on the power of these organizations.  I can come back later if you want me to, but the point is simply that we have organizations that are in the business of maintaining power, that extract enormous rents from society – in this case from the unions. 

Individuals who are extremely powerful because of their own sources of power, and those are all related to elections, all related to the unions themselves.  They extract benefits while maintaining control, often mafia-style, without delivering much in exchange but to themselves and to their political allies.  This includes the unions, some of the unions; the all-powerful bureaucracy; the political parties – in other words, all the authoritarian structures of the past.

By the same token, not everything from the past remains the same.  There’s a new democratic legitimacy that people don’t want to damage and if anything one of the interesting features of Mexicans today is that they don’t want violence, which is an old element, but the other is that they don’t want to damage and they do appreciate the value of real elections and properly conducted elections, which we didn’t have years before.  That’s something that might be an element of surprise to those who are willing and likely to challenge the results if they don’t accommodate to their preferences.

The third element is that what is clear about this election is it’s less about the candidate or party or platform than how fed up Mexican voters are with the status quo.  Mexicans are fed up with the whole thing.  In fact more than 90 percent don’t like any of the three candidates that are leading the pack.  So to a large extent this is going to be an election about the lesser evil.  Of course there are people who swear by each one of them, but the majority of Mexicans don’t like the slate of candidates they’ve been presented with.

Ultimately what’s at stake is that – this is the context – this is a political class that at the end of the day has had it too easy and therefore has proven incapable or unwilling to deal with the real-life issues, largely due to two factors.  One is the informal economy that has been absorbing much of the Mexican new commerce to the labor scene, or to immigration.  Both of these have made it possible to maintain political stability, which is not a small accomplishment, but without facing up to the structural challenges that the country is facing.  This has created an environment in which no policy issues have to be dealt with, no policy issues have to be decided, because ultimately there are other means to settle and solve problems. 

But by the same token, the larger the number of immigrants, the larger the number of people in the informal economy, the less relevant it is to solve the problems for the formal economy, for those who are law-abiding, for those who do pay taxes, for those who are in the mainstream and so on.  Because ultimately the larger the constituency of informal people and illegal people and so on, the less pressure there is on solving the problems for the more structured economy, for those who could become the foundation for a much more competitive economy in the future.

So issues that have to do with the performance of the economy, with protection of special interests against the consumers, with the difficulties that an individual has to create a company for example – all these kinds of things have less to do with the debates that are ongoing in this campaign.  But it’s also true that these are issues that are of ever less concern to the members of the Congress and the Senate, because that’s not where many of the constituencies are. 

The same is true of the wealth that some people have amassed.  When people like Carlos Slim show up in the media every day for many weeks, it ends up provoking an obvious question: why can’t I have the same?  Why can’t I have the same opportunity that he has had?  That’s what creates the environment in which people are fed up with the status quo and that may eventually be the source of much of the strength that López Obrador comes with.  His genius has not been to create the reality of Mexico, his genius has been to exploit it much more successfully.  He understands the Mexican voters much better than the others.  He understands the fears, the concerns, these uncertainties that Mexicans feel, which deep down are not very different than what other people are feeling elsewhere in the world.  Americans are feeling similar fears.  It’s been the fact that he has been a very good catalyst for those fears and uncertainties to become a political movement.  Ultimately what the last month has proven is that his character may end up undoing that genius of his, but that’s another story.

What are the electoral scenarios?  Up to a few weeks ago, there was hardly any question that López Obrador would win the election.  Today it’s not certain and it’s perfectly possible that he might lose it.  I still believe that it’s his to lose.  Today Calderón now has three polls over the last few days where he’s ahead.  But he’s ahead within the margin of error, which means anything still can happen.  Because of both the complex terrain of Mexico and the fact that there are many more – it’s very difficult to calculate who is actually going to vote on election day, actually go to the polling station, the margin of error is much bigger in Mexico than it is in the States, where there’s a long tradition of polling.

López Obrador has been losing steam largely because of his own style, which has been very well exploited by the other candidates, particularly by PAN.  Though interestingly, in polls taken about the advertisements, particularly negative advertisements, most of the blame for those ads is PRI’s rather than PAN’s, even though PAN has been putting those ads before the media.

So what this tells me is that the competition has really just started.  We are likely to have the next month [indiscernible], the next debate on June 6, which my sense is that most of the people will end up making their decision on how to vote.  There are many things that could alter the polls today.  Only a month ago López Obrador had ten points lead, today he’s two or three points behind, depending on what poll one follows. 

The real question, whatever happens on election day, is in my mind whether López Obrador would recognize the results if he were to lose.  I don’t believe this is an idle question, his being not only a candidacy but a real social movement.  The way he’s conducted his campaign suggests to me that he might very well challenge the results.  So if he were to lose, we would find ourselves in a very complex scenario after July 3 which would have to be managed by two institutions, or one institution and one government, that are not necessarily strong and competent or have not proven to be so far. 

One is the Fox administration that would have to deal with this and which has not proven to be particularly competent at these kinds of things.  The other is the Federal Electoral Institute, which has been proven extremely competent and fool-proof in terms of running the election but not very good at dealing with the challenges that it has been facing through this campaign.

Therefore, should the numerical advantage of the winner be very small, the outcome could be heavily disputed.  The point here is not to suggest that there will be a major mess, but that such a scenario cannot be ruled out, and I think it has to be built into any thought process.  It is here where the relative weakness of the Mexican existing institutions becomes clear-cut.

Let me go into some of what I see the likely features of any one of the three administrations, and I’ll try to mostly complement what Mario said before.

A López Obrador administration would imply a radical redefinition of fundamental values and strategies.  The role of the government in the economy would be changed, particularly as a promoter of economic development with all the means at its disposal.  It would mean a partial retraction of the current trading regime.  It would mean an attack on vested interests, both political and economic, partly for media purposes, partly in order to build a strong foundation for his own, more centralized rule.  A centralization of power in the presidency, which again would change course from what we’ve been witnessing over the past decade and a half or so.  He would rebuild the old party, trying to re-merge parts of PRD and parts of PRI to create the foundation for a more stable and more permanent rule under the presidency, under him.  And a radical restructuring of economic policy.  He does mean business.  Some of the things that Mario put forth here suggest much deeper changes that will occur under his presidency. 

What he’s said is that he would accept as limits three things.  One is he would like to avoid conflict with the U.S.  Two, he would rather renegotiate than do away with NAFTA.  Renegotiate of course is a code word.  The third is he would not increase deficit spending dramatically.  What the limits of that are is an issue that one could easily discuss.

A Calderón presidency would mean an acceleration of the country’s integration into the world economy. He would focus on the structures, both political and economic, that have become obstacles to growth.  Trade with the United States would be seen as opportunities for long-term development.  He would see consolidation of democracy and an increasingly decentralized political system as the way to go.  His would be a presidency that would try to build on what exists today, would try to continue the programs that do work and would try to break away from the obstacles that limit that development.

The question about Calderón, in my mind, has more to do with his ability to carry and push for such a course.  He’s the least experienced of the three by a long shot.  He has, I think, a very clear mind about what to do but not necessarily the experience to do it, which brings to an issue that Mario mentioned in passing – I think that he now understands – whether he understands the full content of it or not – but he now understands that he would need a very strong, what he calls coalition government, which may mean something that his party would feel totally alien to.  Which would mean bringing really tough types from PRI to run key parts of the government and not only the secondary components, but some of the main features – something that many members of PAN would not feel comfortable with.  That could prove to be the element of success of his government, if he were to accomplish that part.

A Madrazo presidency would imply an attempt at restoration to a large extent, but within the established parameters, both economic and political.  I think his attempt would be to do something very quickly, reforms that would pass very quickly, to try to deliver economic growth soon.  Very much like Salinas did in his time.  I think that in fact his cabinet would look very similar to Salinas’.

Where the real question is what would happen with the foundations, the elements of support of his campaign and his platform, which are the most disruptive vested interests of Mexico’s economy and political system.  So how would he deal with those vested interests that make it impossible to break with the obstacles to growth and development, particularly the largest unions of the sectors that hold the monopoly, whether legal or simply natural. 

He would of course try to strengthen the structures that are key to PRI’s power but ultimately would have to deal mostly with PAN.  He and López Obrador simply cannot work with each other.  He heads the faction that is most antagonistic to PRD in general. 

As this suggests, the next election could imply radical redefinitions for Mexico.  I think that’s what we should be focusing. 

Also, let me end with one final thought.  There’s a debate about whether the Mexican institutions can deal with the challenges that the outcome of this election might bring.  It suggests that the institutions are not that strong, and that’s another point we should be focusing on.  Thank you.

Roger Noriega:  Thank you.  We’re going to go to questions for about ten minutes.  Let me just, if I could, start with a question for both of you to comment on.  At least some commentators in Mexico have begun to describe this essentially as a two-way race between Calderón and López Obrador.  I’d like to get your thoughts on that and whether you think there will be this trend where Madrazo supporters will start to look for other options.  Not just as individuals, independent voters making decisions, but even parts of the PRI apparatus that might look to cut some deals, maybe with the PRD in particular.  I’ll just throw that scenario out and ask both of you to comment on that.  Shoot it down entirely or give your own horror stories.

Luis Rubio:  I wouldn’t think at this stage that PRI is dead, at least not yet.  If the numbers come very close for both Calderón and López Obrador on the one hand, and if the abstention rate is very high, PRI, which has a much stronger base, could end up delivering a winning result for them.  So I don’t think it’s a likely scenario but I think it’s a scenario that one cannot forfeit.

Second, ultimately, as you pointed out, everybody is going to make calculations here.  Some of those who run the machine may begin at some point to think about the possibility of doing something different.  My sense is that they will not do much until the final days before the election and then do something.  Certainly there are many governors that the last thing they want is either a López Obrador or a Madrazo administration, because they’ve had – for a system that held very tight control of governors and didn’t give them leeway, they’ve had nirvana for the last decade.  So for them the best possible outcome is a Calderón administration.  So I don’t think they would go against Madrazo but I don’t think they can push that much of a vote in favor of somebody else.  If they let their base too free on its own, much of it might end up with López Obrador, not with Calderón.

So it’s a difficult calculation to make.  [indiscernible], the leader of the teachers union, who hates Madrazo – their only motive in life these days seems to be killing Madrazo – he clearly is close to Calderón, largely because López Obrador didn’t accept her, didn’t want to have anything to do with her.  So she’s trying to play with him.  How much of a role can she move in that direction is anybody’s guess.

The thing with PRI is that it’s a very tight base.  I’m not sure – there’s been some erosion.  The lowest numbers that Madrazo has shown are 24 or 23, I believe, in one poll, which is 6 or 7 points below what everybody estimated his core vote to be.  I’m not sure how much more it can be eroded.  My sense is that that vote is going to be there on election day and that it follows more the interests of their own unions, their own governors and so on.  Again, at the very end, maybe some governors will move in a different direction.  Certainly I know some that would much rather go with Calderon, not because they prefer him but because they dislike profoundly the other two.

Mario Villarreal:  I would just add, I do agree with Luis about not completely ruling out the PRI chances, although that’s not very likely.  I would just say that there is something going on in what is called the [indiscernible], the youthful vote.  Luis mentioned it.  Especially from priistas, some of them prominent priistas that are aligning themselves with López Obrador and saying, hey, don’t waste your vote.  Madrazo is not going to win, use your vote in a wise way. 

As far as how fruitful that strategy would be, it’s too soon to say.  But on July 7 I could tell you exactly what will happen.

Question:  Will Amatruda, Columbus School of Law.  This is a technical question relating to the law in Mexico which forbids polls within a certain time prior to election day.  First, how many days is it?  Does the law prevent taking a poll at all or simply releasing the results?  If it allows polls to be taken but forbids releasing the result, how do you prevent the results from leaking out in the Internet age?

Luis Rubio:  It’s one week and it prevents them from being released.  So far nobody has released them, because ultimately it’s in the interest of the parties not to release them.  But anybody can carry out a poll and many of the governors will be doing that, without any doubt.  But yes, the question is rather legitimate.

Mario Villarreal:  Although the validity of some of them have been questioned, too.  Some people mentioned that voters will not reveal their actual behavior at the voting poll.  They will just say whatever.  So the conclusions will not be as robust as we would like.

Roger Noriega:  Great.  I don’t know whether Mexico has a Drudge page or not.

Question:  Edward Cowan, I’m an independent editor and writer doing business editorial services.  I’d like to ask the panelists to anticipate if they can the outcome of the election for Congress, because it appears from what you tell us that the PRI candidate for the presidency is the least likely to win.  So we have to expect some sort of divided government.  What’s the likelihood that the PRI will again win a majority in the Congress and what are the implications if it does or does not?

Luis Rubio:  Odds are that nobody will win an outright majority.  Odds are that PRI will have the largest contingent in the Congress, just short of a majority, probably around 220 or so seats out of 500.  That includes a combination of direct and proportional representation, which is a very odd hybrid system.  The ability to build a coalition depends largely on sheer politicking.  That’s something that both Zedillo and Fox proved totally incompetent at but I don’t believe that it’s impossible to build a majority.  I think López Obrador could have a majority certainly in the Congress within a few weeks, a working majority.  I don’t believe it’s impossible for any real politician to simply work things out the way any politician does anywhere in the world.

Mario Villarreal:  A PRD-PRI alliance, if Obrador wins, could also be a PRI-PAN alliance.  There is some convergence on some of their stances on some issues, particularly economic ones.  I would think that the difference could be worked out but it’s for sure nobody will have just a majority by themselves per se.

Question:  Rodolfo Sosa, Galilei Consulting.  I refer with Luis Rubio about the PAN economic proposal because we have analyzed the economic proposal and it seems to me that he has the same programs as Fox, with the result of 2 percent GDP growth rate during five or six years.  We have analyzed PRI and PRD and they are proposing more changes.  I think, as you were saying, that maybe PRI with Madrazo and the group of Pedro [indiscernible] and all his advisors will be close more to looking for reforms.  I defer with your opinion about that.

I also want to mention, for example, if the PRI could win the elections because they have 19 governors elected from PRI and they have the capacity to move people.  Last year, for example, they won many elections.  So they can maybe establish a relation with PAN and take control of the Congress, with [indiscernible] also, with this group of governors, to pass through reforms in Mexico.  I don’t know what is your opinion about it.

Luis Rubio:  The governors – I think what you were mentioning is that the components of the possible coalition which has been there for the last 12 or 15 years, since 1997, but nobody has known how to exploit it.  I think it’s perfectly feasible to build a working majority.  Anybody can do it.  I think it would be easier for somebody like Lopes Obrador than for the other two, simply because he would be able, as Mario said, to bring part of the contingent of PRI to his side very quickly – something that would not be easy for Madrazo to bring part of the PRD to his side.  But nonetheless, I think the combination of various members of Congress plus the governors – not only the PRI governors, every governor – would be fairly easy to bring together if the proposal is one that tries to sum up rather than to simply impose a view like Fox did.

On the economic platform, I wouldn’t trust the platforms that they are publicizing very much.  What I would do is follow those who are likely key pieces in each one of the cabinets.  In such a non-institutionalized society as Mexico’s has become, the individuals matter more than the party platforms.  Most of those are negotiated with the harsher elements of each one of the parties rather than with people who actually know what to do.  At this stage we can argue a lot about who might be the secretary of this or the other, but at the end of the day it would be speculation only.

Roger Noriega:  I think we’re going to have to break now for lunch.  Those who can stay, can ask their questions for the next panel.  I want to thank our panelists now.

[break for lunch]

Roger Noriega:  Thank you very much for staying with us here for this very important second panel, made up of three experts on Mexico who can give us an even broader treatment, building on the very important base that was established by our panel this morning.

Armand Peschard-Sverdrup is the director of the Mexico Project at the Center for Strategic and International Studies, a small organization here in Washington, I think, right?  That’s a joke.  He is responsible for analysis of Mexico’s domestic politics, trade and investment, national and border security, and U.S.-Mexico bilateral relations.  Armand is a guest lecturer at both the Mexican Advanced Area Studies Seminar at the Foreign Service Institute of the U.S. Department of State and the National Defense University in Washington.  He has also written extensively on Mexico, including Mexican Governance: From Single-Party Rule to Divided Government and U.S.-Mexico Border Security and the Evolving Security Relationship.  Armand will share his views on the implications of these elections on Mexico’s governability and the environment for Mexico’s political modernization.

Armand Peschard-Sverdrup:  Roger, thank you very much for your kind invitation, despite the fact that I’m from a think tank that hardly anybody knows.  Especially whether it’s in Washington or not.  Roger and I go back and so I appreciate him kidding me.

I also appreciate, Roger, the fact that you wanted me to address the very simple question of focusing on the impact of the various scenarios of Mexico’s political evolution and, not to mention that, but governability.  I can probably do that in two minutes.

All kidding aside, it is an interesting question.  I thought, how would I go about addressing that question?  I thought the way I would do it is split it into the two, focusing first on the political evolution and then secondly on what to me is actually the more important question, which is governability.

On the political evolution, I think it’s important, and I think people sometimes lose sight of this fact, that Mexico is a relatively young democracy.  If you look at the electoral reforms, you have electoral reforms that started in 1977, 1991, 1996.  Mexico, with the election in July, is really there today as a result of a series of electoral reforms.  As Luis mentioned, you can question as to when this political transition commenced.  Most would say it commenced in 1997 with a series of electoral reforms.

So Mexico’s political evolution has actually been very gradual and it’s one that commenced many years ago.  Where Mexico is today, one should not take lightly.  Because in Mexico today you have two institutions that are quite strong.  You have the Federal Electoral Institute, which is the institution that is responsible for administering the election.  It’s an institution that when originally conceived was thought to be perhaps not the most impartial institution and today it is recognized as an impartial institution and not just by the political class but by society at large, based on public opinion data.

You have the Federal Electoral Tribunal, which is the last word in adjudicating electoral disputes, that when conceived originally was thought to be perhaps also somewhat partial.  But I think over time has gained the credibility of Mexican society at large.

You have a society in which for the first time you had political debates in presidential elections – 1994 is the first time you had a political debate in Mexico.  Here we talk about debates and we reference the Kennedy-Nixon back in 1960.  So Mexico can only go back as far as 1994 when comparing presidential debates.

Polling, the role of polling in elections relatively new.  Never really been used or resorted to in Mexican elections.  In 2000 it was very much an instrument that was used.  I would say that today Mexican society has probably given too much weight to polling data.  I almost sometimes wonder whether Mexican society thinks that elections have become very scientific and that polling data are the perfect measuring instrument.  Wrong.  Mexican polling has gotten most of the elections wrong.  Chances are they’ll get this election wrong.  But Mexican society at large is placing too much emphasis on polling data.  But I still consider it a positive development in Mexico’s democratic evolution.

The role of the media.  The media has evolved as well.  There was a time when the media really was controlled by the state, both electronic and paper media.  You have now media that is fairly liberal and questions all candidates, all parties.  There may be certain very subtle biases and very subtle interests between the various media outlets but overall one can say that the media is fairly impartial – or let’s just put it this way, maybe not impartial but they do play a role in questioning the political actors and their platforms.

Going negative – Luis Rubio mentioned going negative.  Going negative is actually a relatively recent import in the Mexican electoral world.  Imported primarily from the United States.  We’ve seen it recently with the negative ads that have been launched against López Obrador.  It’s interesting because it’s not something that Mexican elections have been accustomed to, going negative.  I don’t think, especially if we focus on López Obrador, they have a full appreciation for the impact it can have on the psyche of voters, whether they’re Mexicans, Americans, Germans, or whatnot.  But that’s a relatively new development, some would say positive, some would say negative, in Mexican democracy.

So that’s on the political evolution.  I’d like to point to two things that I think are worthy to keep in mind.

One is the state of the political party system in Mexico.  This is something that actually carries over to the second column on governability.  The political party system in Mexico – I think it’s been in flux.  It’s divided.  If you look at the three major parties, there are divisions within the three major parties.  As I get into the governability aspect of this talk, you will see how actually what we’re seeing today in the election, I think, is nothing compared to what we’re going to see post-election.  I’ll get into the scenarios and explain that.

Just to give you some context, up until 1997 you had 67 years of a rubber-stamp congress.  Since 1997 you’ve had more or less a congress that started to evolve to play more of a true legislative role.  You first had a lower house that became divided.  In 2000 you had both a Senate and a lower house that became divided, and as a result no longer a rubber-stamp congress.  The legislature in Mexico has now become a true political actor, no longer just signing off on the president’s wishes.  That will most likely continue.

In terms of the governability, which I thought was the more interesting question, Luis touched on it but I don’t know to what extent it registers with people.  You have to remember, Mexico was ruled by one party for 71 years.  There’s two things that happened during that period.  Luis referred to one, which is the institutions, the structures and institutions as he phrased it.  Those institutions were the result of 71 years of party rule.  They’re not institutions that were necessarily conceived under a democratic environment nor are they institutions that can function effectively under a democratic environment.

The other is Mexico’s political culture.  Mexico’s political culture was shaped by 71 years of single-party rule.  The political culture is not something you can change overnight.  I would say that for the most part Mexico’s political culture has been evolving favorably in the last few years, with the onset of democratic change and political pluralism.  But it’s something that is gradual and it’s not something that can bring changes to a country overnight.

What are the factors for governability?  Why am I not the most optimistic person when it comes to what Mexico’s next president and Mexico’s 60th Congress will be facing and to what extent will they be able to govern effectively and get most of the reforms that they need to through?  I’m not very optimistic, and I’ll tell you why.

Very simple.  We tend to place a lot of emphasis on the presidential election.  Remember what I said: now you really have a true legislative branch in Mexico that plays a key role.  It’s no longer the old, all-powerful president.  What’s important to keep in mind is that under this election the political parties, in negotiation with the candidates, had to submit their lists for candidates for Congress.  There are a total of four scattered dates.  Not scattered – well, they’re scattered.  There isn’t just one fixed date.  But between March and April, parties and candidates together had deadlines to submit their lists for candidates for Congress. 

What does that mean?  What that means is that a lot of the political horse-trading that had to take place in Mexico took place before Friday or Saturday.  April 30 was the last date to submit lists to Congress.  The lists are broken down between majority and proportional representation.  So what people don’t realize is that a lot of the horse-trading already took place.  It ended actually on April 30.

What does that mean for governance?  It means that the political parties and the candidates offered candidacies to individuals not because they were like-minded and believed in their platform.  They gave them candidacies because they represented their best possibility for helping them to capture the presidency in July.

What does that mean?  That means that whether you’re the PRI, the PRD, or the PAN, chances are you’re going to have candidates in Congress or members of Congress that don’t necessarily row in the same direction that you, if you win the presidency, is rowing.  Despite the fact that you might win the presidency and you might have your party faction in Congress, your party faction in Congress may be comprised of union members, who obviously aren’t going to be that thrilled about labor reform, and the like.  So chances are – it’s important to look at the lists, who the candidates ended up being, what interests they represent, and ultimately you will reach the conclusion that I’ve drawn, that at the end of the day we’re pretty much looking at more of the same.  That’s one point.

The other, which has not been mentioned today, and I mentioned it briefly, the health of the political party system in Mexico.  We went into this election with a PRI that has been divided since 2000 – two warring factions, Luis mentioned them.  One headed by Roberto Madrazo, the other by Gordillo.  That’s a party that has been fiercely divided since 2000 until today.  Just ask yourself this question: if they don’t win the presidency, what will the state of that party be?  What will the state of the warring factions be?  What does that mean for governance?  I’ll tell you one thing: it means a lot and I’ll get into it very quickly in the scenarios.

I tend to think that the PRI is actually going to get its act together.  Luis alluded to the fact that you shouldn’t rule the PRI out.  I definitely don’t.  We’ve seen the worst of the PRI up until now.  You have to remember, go back to what I said about the lists, the deadline for the lists.  All of the inter-party – in the case of the PRI – all of the turmoil within that party really comes to an end or at least subsides as of April 30. 

Why?  Because priistas had less options to jump ship to go to either the PAN or the PRD.  So between now and the election you’re going to see a completely different PRI.  This is not to say that the divisions have gone away.  The divisions are there and they’re very strong and will remain post-election.  But now the very pragmatic priistas is going to have very less options – will have less options or no options until after the election.  So you’re going to see a PRI that is going to become very disciplined and rally behind Madrazo whether they like him or not.

Should the PRI not win, and let’s say that López Obrador wins, what you will most likely see is a López Obrador that will try to capitalize – or even Calderón for that matter – on those divisions in a post-election scenario and draw priistas out.  What does that mean?  I’ll tell you, there’s a lot of question marks in terms of the health of the political party system in Mexico.

In the case of the PAN you have divisions.  They’re very subtle.  Not many people know about them.  They’re not as publicized as the PRI because those are fairly bitter.  But the PAN also has its divisions between the candidate and the president of the party.  There are divisions that, again, will probably be magnified if they don’t win the presidency.

In the case of all three parties, their divisions will be magnified if they don’t win.  The one that wins will actually have the best chance of at least maintaining more party discipline. 

In the case of the PRD, you have a party that is fascinating.  I tend to look at the López Obrador candidacy as one that I would even argue is virtual.  His lead is virtual.  His lead is based on polling and on media coverage.  Luis referred to it as a movement.  But I would argue that it’s not really even a movement because it’s not a movement really based on conviction, on a doctrine, on an ideology.  He has for the most part positioned himself as the candidate of the have-nots.  To tell you the truth, López Obrador’s candidacy, I look at it as a warning system to the political party system in Mexico, to the PRI and to the PAN because at the end of the day, López Obrador has been able to position himself by carving a very interesting niche within the electorate.  That is a niche that both the PRI and the PAN have failed to address, and that is the have-nots in Mexico, who have not felt that at least the two predominant parties in Mexico have really addressed their needs.

So there’s a whole range of questions that are brought up by López Obrador.  But needless to say, there’s a lot of resentment within the PRD because at the end of the day, he has relied on his polling strength to put the party aside.  If you look at the lists, there are a minimal number of PRD members both in the lists for Congress and the Senate.  Why?  Because López Obrador has been carefully trying to create a centrist coalition, broaden his base, to actually win the presidency.  But the health of that party is very much dependent on the one thread, which is the tread of polling data, at least pre-election.  Post-election, if he loses, I agree with Luis that there will be a post-electoral crisis scenario. 

I’ll make two points.  One is that it’s normal.  Why is it normal?  Because in Mexican political history and in the political culture, you create crisis as a way to strengthen your bargaining position.  López Obrador will not accept the result, that’s my own opinion, because at the end of the day he would be diminishing his bargaining position and being able to retrieve concessions from the party that actually wins.

However, I do anticipate that that post-electoral crisis will be short-lived because at the end of the day his movement is virtual.  It’s based on thread.  It’s not a movement of conviction. 

I think I’ve said a lot in a short period of time and we’ll leave it for Q&A.

Roger Noriega:  Sure, appreciate that excellent presentation.  You’ve raised a lot of questions for me, so I’ll ask you when we come around.

Francisco Acuña is managing director at ManattJones Global Strategies here in Washington, where he works on matters both in Mexico and in the United States with an emphasis on international trade, business and government relations.  As a matter of fact, he competes with me, which is why he was the last person we added to the panel.  Mr. Acuña focuses on facilitating successful strategic partnerships and foreign investment between U.S. companies and foreign states.  We’ve asked Francisco to focus on the economic implications of the upcoming elections.  He will also share his views on the need for a political coalition in order to advance Mexico’s competitiveness by modernizing, among other things, its energy and fiscal regime.

Francisco Acuña:  If you cannot understand my Mexican accent, you can ask me a lot of questions at the end.  Ladies and gentlemen, I thank you for the opportunity to come and speak with you at the American Enterprise Institute.  I thank Ambassador Noriega for organizing this event. 

Today’s panel takes place at a very crucial time for Mexico and its relationship with the United States.  Recent events have highlighted the truly complex relationship between these two nations and will have an impact on the rest of Latin America.  Next July, Mexico elects a new president.  However, change in our nation goes beyond who wins the presidential elections because achieving meaningful reform requires that winners and losers share the responsibility of governing.  This can only happen through the formation of a broad political pact.

The next presidential administration, no matter who wins, will begin its term in the midst of great hope but will face great challenges.  Since every indicator shows us that no one party will win the governing majority in the Congress, the next president together with the rest of the political parties must rise above their own political platform in order to successfully tackle five main challenges facing the country today, which are: fiscal reform, energy reform, education reform, labor reform, and rule of law.  Which by the way were the same challenges we faced during the previous presidential election.  Clearly little progress has been made.  Let’s briefly outline these challenges.

Fiscal reform.  We take oil revenues out, Mexico collects in taxes only around 9 percent of GDP, which is a third of what Brazil taxes are.  Without collecting taxes it is very difficult to make the necessary investments in education and other needed areas.

Energy reform.  Energy prices are very high in Mexico and it’s affecting the competitiveness of domestic businesses.  These same businesses are migrating to Texas and other parts of the United States.  Reform is needed and companies like PEMEX are in urgent need of dramatic reform by encouraging it to operate more as a business rather than a government fundraising instrument.

Education reform.  We need to seize the opportunity to properly educate one of the largest young populations in Mexican history by requiring more accountability from our teachers.

Labor reform.  There is a need for more flexibility in the labor market and create the necessary incentives to boost the formal economy.

Finally, judicial reform.  The lack of transparency at the state level and the need for a competitive regulatory framework for business and investment are more evident today than ever before.  Without reforms to strengthen rule of law, the Mexican economy will never achieve the levels of efficiency seen in more developed countries.

In addition to these barriers it is also important to highlight the fact that there are two different economic realities in Mexico.  In the north the private sector has been able to increase competitiveness and has learned to navigate [indiscernible] labor markets and high energy prices and still compete in the world markets.  The economies of these regions increasingly resemble the economy of neighboring states in the southwestern United States.  On the other hand, in the south region of Mexico, economic development is more similar to those seen in Central America.  Therefore the challenges and the needs are greater.

Besides the obstacles mentioned above, private monopolies and oligopolies from the banking to telecommunications, television, cement, transportation, food, and other industries also hinder the country’s growth potential.  Such limitations to competitiveness have allowed Asian nations to grow at our own expense.

These challenges are more important today than when Fox was elected president six years ago.  Mexico has fallen from being one of the top recipients of foreign direct investment.  We have also descended seven places on last year’s competitiveness ranks.  Our economy went from the 9th to the 14th of the world.

Previous administrations left us with the experience that the president by himself is not able to carry out all the basic reforms that need the approval and/or consensus of the different participants and political forces.  The more transcendent and difficult the reforms, the more necessary it is to include all political parties. 

At this time, it is not easy to assess the implications of the presidential elections in July.  Even if we knew who will win, there is no way to predict the actions that a leader is likely to take to address the country’s challenges.  We simply don’t know yet if there will be structural reforms affecting the Mexican economy in order to achieve a sustainable development in our economy in the coming decades.  Therefore, I would like to make some comments on the perspectives and the possibilities Mexico will face regardless who is elected president.

In order to achieve structural changes, the next Mexican needs to call for a great national pact to include and allow all political forces in the country to express their opinions and ideas.  The president by himself, along with his cabinet and his followers, will not be able to secure the fundamental changes needed because there will be a stronger position in the Mexican Congress, local governments and local congresses.  An all-inclusive political pact has been needed for a long time.  Most of the country’s economic deficiencies are due to the lack of a national pact where all political views and participants are encompassed and compromise.  Unfortunately, our political culture does not include the formation of pacts with our opponents, even when important issues are in play. 

During major crisis, Mexico has managed to carry out some changes, as seen in the reform in the 19th century or in the revolution in the early 20th century.  However, in both cases structural changes took place without the involvement of the main political opposition.  It seems that it’s not our strength to pact with our adversaries once elections are over.  Nevertheless, in this political period we have to overcome our inertia, because our country’s medium and long-term future is at stake.

Now more than ever, Mexico needs all-embracing leadership to include political forces from all over the country and encourage them to work together in seeking solutions for our common problems.  In order to accomplish these goals, the next president has to be a skillful communicator, to develop and move forward projects domestically and internationally.  Thus, it is crucial the time between the election and the inauguration, because all political forces will need to exercise political sensitivity, sensibility and tolerance to achieve the agreement.

Furthermore, regardless who wins the presidential election, the future president will have to deal with two decentralized entities that stress their autonomy constantly.  Each of them is headed by a governor that has all the incentives to attract investments, create jobs and be more politically active. 

The real triumph of this election for Mexico will depend on our ability to resolve the current political gridlock that prevents the country from moving ahead.  Therefore, our future lies not on who wins the presidency but rather on the bridges that he or she will need to build, and therefore whether or not a broad political consensus is achieved.

Finally and most importantly, Mexico has a powerful incentive to make this pact happen because a majority of Mexico’s population is under 30 years old.  Therefore, Mexico must boost the skills of its workforce, develop globally competitive industries and raise productivity and living standards while it is still a young nation.  How we navigate today this demographic transformation will go a long way toward determining whether Mexico achieves its aspiration of becoming a prosperous developed country.  The deadline is now and this is why the election matters.  Thank you.

Roger Noriega:  Great, appreciate that presentation.  Dr. Arturo Valenzuela is a professor of government and director of the Center for Latin American Studies in the Edmund A. Walsh School of Foreign Service at Georgetown University.  During President Clinton’s second term in office, Dr. Valenzuela served as special assistant to the president and senior director for Inter-American Affairs at the National Security Council.  A specialist of the origins and consolidation of democracy, Latin American politics, electoral systems, civil-military relations – it’s a lot of specialties, by the way, Arturo – it’s like the fifty agenda items that the PRD has. 

But let me go on nevertheless.  Where did I leave off?  Civil-military relations – I’m joking – political parties, regime transitions, and U.S.-Latin American relations.  Dr. Valenzuela is an expert on the politics of the Southern Cone and of Mexico.  Arturo will share his views on the implications of these elections for Mexico’s profile in the world and particularly its relations with the United States.

Arturo Valenzuela:  Thanks, Roger.  I appreciate very much your invitation to participate in this very important discussion.

What I’d like to do is focus my remarks on two aspects.  One is what would be U.S.-Mexican relations, and particularly U.S. foreign policy toward Mexico, and then raise some issues about what Mexico’s foreign policies will be maybe in the next government.  But in order to do that, I need to provide with something of a framework.

The framework I would start with is a very obvious one, I think, but maybe not so obvious, as you’ll see.  The obvious framework is that the United States has vital interests in Mexico.  Absolutely vital interests with Mexico.  If you go to the Chicago Council on Foreign Affairs’ periodic surveys, you will see that over the last two decades really Mexico has gone up from a country that didn’t even appear on these surveys to a position where it is viewed not only by mass publics, by a sample of the population as a whole, but also by elite publics as one of the most important, vital relationships of the United States in the world.

This perception – sometimes, by the way, in these surveys perceptions don’t necessarily coincide with reality – the perceptions in this particular case, I think you can make a whole host of arguments, is really backed up by very significant objective criteria.  On trade, one of the largest trading partners the United States has in the world.  Migration is an issue that we’re talking a lot about this week.  It certainly is a significant impact, particularly now with a Hispanic population close to 40 million in the United States, first minority in the United States.  Then the whole issue we’ve been discussing about 8 or 9 or 10 million illegal immigrants, of which maybe 60 percent or 70 percent are Mexicans.

Then if you get to the seamy side of things – drug trafficking, crime and so on – wow, that’s a huge story as well.  We’re talking also about a 2000-mile border with 300 million legal border crossings a year, with the consequent, of course, creation in many ways on this border of a separate identity.  The border is a different world.  I handled, in the first Clinton Administration, the relationship with Mexico as a deputy assistant secretary of state.  I found most of the time I was actually going down to the border, both sides of the border, to help manage the complexity of that relationship.

Have I said enough about vital interests?  Let me say one other thing.  This is not that apparent in this town, but both my colleagues alluded to it.  That is, Mexico is going through, as we speak, one of the great transitions in the world.  We don’t think about that much.  But it’s a fundamental, extraordinary, complex, difficult, challenging transition.  Fraught with opportunity and fraught with dangers.  Dangers that could, if you spin out negative scenarios, present us with a situation where in fact the stability of Mexico could be a problem for the United States.  Mind you, I don’t necessarily buy into the more negative scenarios, but as thoughtful thinkers on foreign policy issues and as thoughtful analysts trying to look at where we are and whether we’re concerned about warnings or whatever, we need to be concerned about these sorts of things.

When I say this is one of the great transitions, I say this is a transition in a country that has very, very, very thin history of democratic politics.  A country that has only recently moved from – as you know and you’ve discussed this probably this morning – the 70 years of one-party rule, where the previous history was not one also of significant competitive democratic politics. 

Very different from the situation of a Chile or a Uruguay or a Costa Rica and other countries in the hemisphere.  In fact, it also is a country that did not have the punctuated alternation that was very characteristic of Latin American politics throughout the region, and that is a situation of sort of failed democratic regimes and governments that came and went with a significant presence of military coups.  Remember that from 1930 until 1980s, 40 percent of all changes of government in Latin America were through military coups.  But it was a different dynamic than that what we find in Mexico.  Mexico in fact is much more comparable to the great transformations taking place in Eastern Europe and in the former Soviet Union, where you have a shift away from a one-party state.  I wouldn’t want to push that totally, because of course the private sector in Mexico is different from the private sector in the former Soviet Union, but nevertheless it still is a huge challenge.

So where are we then in this transition?  So far, and I agree with Armand on this – Armand sort of said, he gave a somewhat optimistic flavor to his comments.  I think I would agree with that.  But I’m also concerned about my colleague’s suggestion as to why it is that this is not gelling very well.  I’ll give you some criteria for thinking about that.

The fact of the matter is that if you compare it with Eastern Europe, it’s not doing so badly.  The Soviet Union, it’s not doing so badly.  You don’t have the fragmentation and the polarization of the party system, for example, that you find in Poland.  Nor do you see this tendency towards personalized authoritarianism reappearing, as you’re finding in Russia.  But there are some problems.  If I had instead of 15 minutes maybe 20, I think we could go through systematically and talk about a crisis of capacity, state capacity. 

We could talk about a crisis of the systems of representation, which is where you get into the issues of parties and their strengths.  You would talk about crisis of accountability, which has to do with issues of rule of law.  You would talk about a crisis of governance, which has to do with a way in which the policy-making process is generated in Mexico.  Of course I don’t have time to flesh out every one of those points, but I’d like to maybe give you a hint at what each one of these means.  Each one of these means strengthening a reform process that’s still very much ongoing in Mexico.

So for example, on issues like state capacity, you would have to look at the petty reforms in higher civil service.  If you’re looking at the question of the crisis of accountability, you have to look at the petty reforms in the judiciary and the fact that there still is a huge gap in terms of the ultimate reign of the rule of law in many places of Mexico.  If you’re going to look at the crisis of representation, you’re going to look at problems that we have with the electoral system, although IFE, the structure, I would agree with Armand on this, that the structure of Mexico’s elections is now one of the best in the world, although the leadership of the IFE right now raises some significant questions.

But beyond the crisis, elections, you’re talking about the strength of the party system, the fragmentation of the party system.  A certain logic of lack of cooperation that my colleague here suggested.

Finally, governance.  This is where the rubber hits the road, in my view.  What you have in Mexico, despite significant progress on a whole series of indicators and on a comparative basis, we’re very well off.  You’ve also seen it in the first government in the post-one-party-state era.  You find that the best way to characterize and describe Mexican politics is the politics of deadlock, an inability to effectively get things done.  Which in turn means that beyond the political reforms that are still out there, there are key reforms, which are what? 

Energy, pension reform, labor reform, and fiscal reform.  Those are the key reforms which we’ve seen struggling, have not come through, have not come out.  Without them Mexico is not going to be moving to 8th or 9th or 12th again.  It’s going to be moving to 16th, to 17th, and down.  Because the fundamental competitiveness of the country is at stake.

My own sense, frankly, is that I would not argue, as my colleague has, that this has to do with Mexican culture.  It really has to do much more with the institutional basis of politics in Mexico.  Such elementary things as the fact that in Mexico there is no re-election of congressmen.  That was one of the key reforms to make.  If you have congressmen who are not reelected and who are appointed by party leaders, why should they cooperate with the president even if they’re in the opposition, if there’s no incentive to do it?  So the incentive structures for the fundamental operation of stable democratic politics in Mexico are still something that need to be achieved.  They’re not on the table quite as yet.

I think there is a conscience on the part of everybody that a pact of some kind needs to be put together.  But folks, pacts don’t get made just because people sort of sit down and think we need to agree on all this because it’s in the good of the country.  We know that politics is much more complex than that and it involves creating a series of institutional incentives in order to make that possible.  Because the fundamental reality of the deadlock in Mexico is that you have three parties, each of which in the congressional elections are going to get about the same amount of votes no matter who wins the presidential election, and then you have the politics of deadlock.  Unless the Mexicans can do what the Chileans did – and this is not because Chileans have a different culture – the Chileans put together a coalition government, in this case a center-left coalition government that was successful in bridging the divide of the past and moving the country forward and bringing poverty rates down from 40 percent to 18 percent.

Let me conclude, because I want to get back to – but still, what about U.S.-Mexican relations?  Vital interests.  Significant stake for the United States.  But a country that’s going through a significant and important transition.  And guess what, folks?  In this town, we don’t even think about that.  The reason why we don’t think about that is because despite the vital interests that we have with Mexico, we don’t think about Mexico strategically.  Because we don’t think about Mexico strategically, our policies toward Mexico often are extremely short-sighted. 

Think about it.  Has anybody in the raging immigration debate over the last few weeks thought, could it be good for the fundamental interests of the United States strategically over the long haul that the United States serves as something of a safety valve for those that can’t be employed in Mexico?  Hot dog, maybe we also have some things that we gain on our side, particularly with our aging population and the fact that maybe Social Security is going to go bankrupt because we don’t have people paying into it.  These are folks that want to come and work.  A strategic thinker would think, hmm, maybe that’s not such a bad idea.  Or a strategic thinker or somebody who’s really concerned about the fundamental interest of the United States over the long haul might think, the Mexicans sent $20 billion – these workers, the moms and pops, the people who scrub our floors sent $20 billion back to Mexico every year in remittances. 

Twenty billion dollars in remittances is equivalent to the entire assistance of the United States for the world in all categories – bilateral, multilateral, debt forgiveness, aid to Israel, aid to Egypt.  Where are we going to come up with $20 billion?  Is it in the interest of the United States?  I just throw this one reflection out.  Or when we tell the Sheraton Hotel in Mexico City that they’re going to be put on some watch list or something like that because there was a conference that had some Cubans there.  We react to that because the Sheraton Hotel has violated the law.  The law is your law.  The law is you don’t trade with those who have dealt with Cuban nationals. 

What kind of a reaction are we generating in Mexico and what do we think in terms of whether that in fact plays in?  Maybe the reason why we did that was because we weren’t thinking strategically, we were just thinking in terms of U.S. domestic politics.  We think about U.S. domestic politics and that is the Achilles heel of our problems with Mexico.  If we think not strategically and we just think in terms of domestic politics, what’s driving elections in Arizona, and we forget about this, we run the risk of not being able to think properly about Mexico.

Finally, let me conclude.  Actually I’ve taken too much time.  I’ll conclude there and I’ll be happy to leave it open for questions.

Roger Noriega:  Go ahead and take a couple minutes.

Arturo Valenzuela:  Okay.  The question is, what’s going to happen in Mexico if in fact various different options appear for the presidency?  I don’t think much will happen.  There’s a lot of buzz around town that López Obrador will come in and we could have another Chávez type and so on.  Things could go in a very negative direction for the United States if in fact the scenario of stability in Mexico and governability in Mexico is an issue. That should worry us more than who occupies a specific space. 

We tend to be too much worried about individuals in foreign policy and leaders in foreign policy than we are concerned about structures, processes, institutions.  It’s not an issue of leaders, it’s an issue of whether or not in fact Mexico can become governable.  Frankly, the relationship with the United States is going to be affected by whether or not Mexico is being viable.  No matter who is elected, that’s going to be the case.

There will be differences in style, but if there’s one thing that’s clear it’s Mexico cannot get itself under from the relationship with the United States.  That is a given.  That is understood by everybody.  López Obrador knows that he has to have a good relationship with the United States.  The intensity of the relationship is just so great. 

The question is whether or not we are going to be able to also respond in such a way that that kind of relationship would be a good one, because none of these things are immutable.  You can’t make predictions on the basis of somebody’s biography.  Everything is a work in progress and it’s a dialectic, in a sense.  However we respond is going to be affected in terms of the way they respond.  I, for example, think that under the leadership of Roger and others, the relationship with Brazil was handled superbly well at a time when many people in this town thought oh no, here we go, another Chávez – Lula coming in, axis of evil.  Congressman Hyde’s letter to the president.  Castro, Chávez, Lula, Gutierrez in Ecuador – it’s going down the tubes. 

Today we see Uribe Vásquez in town this week, trying very specifically, despite the fact that he has very strong leftist credentials, extremely strong leftist credentials, probably as strong of leftist credentials as the leftist credentials of the leaders who are governing Chile today, far stronger leftist credentials than those that are governing Venezuela or Bolivia today.  In this town, looking to have a good relationship with the United States.  Thanks.

Roger Noriega:  Great point, I’m glad I let you take a couple minutes there at the end.  I think you all made some very compelling points but I don’t want to let any of you off the hook.  Francisco alluded to the agenda – fiscal reform, education reform, labor code reform, energy reform.  Then Arturo rattled off a list of elements of a crisis – rule of law, accountability, governance.  I’m going to ask you to tell me, each of you, which of the three candidates in your personal view could put together the pacto and could handle these crises the best.  I’m not asking you to tell us who you would vote for, but your analysis. 

Armand Peschard-Sverdrup:  Thanks, I really appreciate this.

Roger Noriega:  Tell me if you think it’s a rotten question.

Armand Peschard-Sverdrup:  No, I’ll tell you what.  I think the scenario’s complicated regardless of who wins.  I think in my presentation I touched on them, Luis I think touched on some, Arturo did as well.  I think one important variable which we’re accustomed here in Washington is political goodwill.  I think we underestimate the value of political goodwill.  We know in this town that usually after an election, especially after a bitter election, there isn’t a lot of political goodwill to go around on the Hill.  So I think we can add that to the list.

In terms of candidates and which candidate I think has the best – it’s a very tricky question, Roger, and the way I’m going to address it without using the reference ‘hot dog’ in my answer, which Arturo mentioned – I tell you, I think each candidate has his strengths and weaknesses.  Roberto Madrazo is a shrewd political operator and I think that in itself is a strength and it’s a strength that is respected in Mexico and I think outside of Mexico.  However, I think he could also represent perhaps a setback to the political evolution that you alluded to in the question you wanted me to address.  So let’s say if we look at Roberto Madrazo, you would give him a higher score on governability and perhaps a lower score on political evolution.

If you go with Felipe Calderón, again, strengths and weaknesses, you would probably give him a good score on political evolution and I think a fairly – he could probably have a balanced score on governability, in terms of his personality.

López Obrador I think is – it’s an interesting phenomena, because López Obrador represents – not only is he an unconventional candidate with an unconventional strategy, but if you look at it from the standpoint of the political party system, he actually represents the emergence of a predominant three-party system, even though his party is not really a party.  So it’s difficult to know how that would play out in governance. 

At the end of the day, you are going to have a divided government and very complex intra-party dynamics.  The idea of building a pact or having a national pact is – I just don’t see it, in part because – Arturo referred to it – we still haven’t seen state reform, which are the political reforms that would be needed in order to facilitate consensus-building. 

Is that a vague – if you’re looking for a silver bullet, Roger, there is no silver bullet.

Roger Noriega:  No, I’m not looking for one, I’m just asking for the best.  Is there any one of the three that could do it?

Armand Peschard-Sverdrup:  Build a consensus?  Because it’s not driven on personalities.  The obstacles are not personality.  This is what people thought with Fox.  Fox promised all these things, he had great popularity.  To this day he has great popularity.  But at the end of the day, it’s not about personality.  A lot of the – Arturo referred to it as the politics of deadlock.  A lot of the problems, they’re structural in nature.  They have nothing to do with personalities or even the capacity of the personality that occupies the presidency.

Roger Noriega:  All right, I’m not going to let you guys off the hook.  One factual thing we can say is that someone’s going to have to be running Mexico after this.  Someone is going to be president of Mexico after these elections.  Who would be the best at handling the pact?  Francisco.

Francisco Acuna:  I think, coming again with the presentation, I think there is more a sense of crisis right now than six years ago.  I believe the three candidates out there, they feel that.  I don’t know if the sense of crisis in them is as real as it should be.  I don’t know that.  However, I do feel that no matter who wins, if there is not a consensus with the governors, with the political class, it’s going to be very difficult to go with the reforms that we explained.

I do believe there has to be created institutional reforms, to create incentives for such a pact, like reelection.  However, the problem is that if you somehow can put reelection right now in the political reforms, it would still take some time to kick in as an incentive.  We have only six months.  The opportunity for a pact is real for me because we have an election day and then inauguration is five months. 

So we have time to really sit down, talk to the governors, the governors who are progressive, with the moderates of each party.  You have moderate people in each party who understand the sense of crisis, sitting and negotiating this.  It’s not only a coalition.  Zedillo, Fox, they brought people from other parties.  That doesn’t necessarily translate into political support.  It has to be a deeper agreement and it has to be with the adversary.  It has to be with – if PAN wins, has to negotiate with PRD.  Negotiating only with PRI will get it so far.  He has to go besides the ideologies, that’s what I believe.  I think there’s an opportunity because of the timeframe of five months to negotiate it.

Arturo Valenzuela:  I agree that there may be some conditions – I would hope – in some ways this is more wishful thinking at this particular point, because the campaign is getting more negative and more contestatory.  I wish frankly that the three candidates had listened to many voices in Mexico before and actually signed a pact before things got – when everybody thought they had a good chance of winning – and come up with a strategy of what do we do with 100 days.  Pick two or three easy things to do.  Not easy but things that could have been done before, like the fiscal reform issue and like energy reform.

 Mexico is in a giant pickle, as we all know, because they need $19 billion a year to invest in order to get the oil industry going.  They’re investing half that right now.  Contarel[?] is really coming off-line.  There’s a real crisis.  If the state is getting 40 percent of its resources from oil exports and the oil exports are going south, this is a really serious issue.  Of course it’s fundamental to the interest of the United States too.

By the way, I didn’t mention that when I had my list of vital interests with Mexico.  Energy has to be right at the top, folks.  What are we thinking?  We’re not thinking.

But to get to your question, I would also look at this not so much in terms of individuals or people.  In fact, I worry about foreign policies generally that tend to look at the world in terms of individuals, whether they be good or bad.  There’s kind of a simple-minded Manicheanism that views the world as good guys and bad guys.  We’re not in an OK Corral in the world.  It has to do far more with institutions, structures, processes, forces.

So my answer very simply would be I think that the three of these candidates stands a good chance of doing a better job than Fox, because if there’s one thing that Fox did not understand, despite the fact that by the way he’s leaving office with 65 percent approval ratings – people like him.  The average Mexican likes him.  He’s tall, he’s got his boots, he’s presidential.  He wears a big buckle on his belt and when he speaks, he speaks with a big baritone and he’s authoritative.  Most of the people like him.  The chattering classes don’t like him at all.  But that doesn’t mean, of course, that Mexico still doesn’t face the big challenges.

Where did he fail?  He failed, and it was a transition government.  It was an absolutely critical failure.  He thought that by just putting together a cabinet of personalities that represented different sectors that somehow he would have the [