Cablegate: Calderon's Reform Proposals: The Potential and The

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240062
2009-12-16 03:06:00
09MEXICO3557
Embassy Mexico
CONFIDENTIAL

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C O N F I D E N T I A L SECTION 01 OF 04 MEXICO 003557

SENSITIVE
SIPDIS

E.O. 12958: DECL: 11/14/2019
TAGS: PREL PGOV PINR MX
SUBJECT: CALDERON'S REFORM PROPOSALS: THE POTENTIAL AND THE
PIPEDREAMS

Classified By: Political Minister Counselor Gustavo Delgado.
Reason: 1.4 (b),(d).

1. (C) Summary. President Calderon has taken few concrete
steps over the last several months on the ambitious ten-point
reform agenda he laid down in September. He has walked back
on most of his proposals, except for a bold initiative on
political reform that would establish new rule for the
political game in a way that would open the way for
cross-cutting reforms in other sectors. It could be a good
political tactic to keep pressure on the opposition, but
Calderon's success will ultimately depend on his ability to
build popular support for real change and connect it to the
electorate's bigger worries about the economy and public
security. End summary.

2. (SBU) Since his state of the union address in September
(ref a), President Calderon has continued to talk up an
ambitious reform agenda he has pledged to pursue during the
last three years of his term. The reforms touch on virtually
every sector -- fiscal, energy, labor, education,
telecommunications, politics -- but, up to now, have been
largely a rhetorical device to urge the country to move
beyond "sterile debates" and focus instead on advancing the
structural changes necessary to modernize Mexico.

The Why
-------

3. (C) Calderon's ambitious proposals have left many
observers scratching their heads. Facing a more antagonistic
Congress following the July midterm elections and a
challenging economic environment driven in large part by the
U.S. financial crisis, the President hardly appears to have
the political backing necessary to shepherd through so many
controversial reforms, no matter how necessary they may be.
For example, Calderon was able to obtain only a much watered
down version of the comprehensive energy reform he wanted,
even with Congress weighted far more heavily in his favor.
Whether or not he genuinely thinks he can now secure
sufficient support to open Mexico's oil industry to private
investment is unclear. The Calderon government has had
difficulty implementing even the weak energy reform and the
opposition parties have challenged the constitutionality of
the regulations on performance based contracts in the oil
sector.

4. (C) Recent polling data indicating a drop in support for
the President may explain the return to the perennial PAN
focus on the need for change. Recently released polling from
respected Mexico City daily, "Reforma," and prominent
pollster Consulta Mitofsky have registered a drop in the
President's approval ratings. Reforma indicated a dramatic
16 percent decline over the past several months, with 52
percent of respondents saying they approve of the President's
performance as compared with 68 percent in September.
Consulta Mitofsky reported a smaller decrease in approval
ratings from 62.4 percent in August to 57.8 percent in
November. Mitofsky ranked its 40 percent disapproval rating
as Calderon's worst performance to date. Both surveys cite
the economic situation and tax increases resulting from the
2010 budget negotiations as primary drivers of the drop.
Approval ratings for Calderon's handling of security issues
have also fallen, with Consulta Mitofsky reporting an 8.5
percent decrease from 55.5 percent in August to 47 percent in
November. With a midterm election loss largely blamed on his
poor handling of economic concerns and declining poll numbers
suggesting that economic and related matters are forefront in
the public's collective psyche (Consulta Mitofsky says that
economic crisis and unemployment top the list of key
perceived problems), Calderon may be searching for a new
message that better resonates with voters who will be turning
out for local elections in 2010 and 2011, as well as
presidential elections in 2012.

5. (C) Calderon has other reasons for his reform proposals.
He may also be hoping that presenting reform proposals to
Congress will allow him to blame any failures to achieve
reform on an intractable Institutional Revolutionary Party
(PRI), take credit for any success, and potentially irritate
existing divides within his primary (PRI) opponent.

MEXICO 00003557 002 OF 004

Significant tax increases and labor reform, in particular,
stand to exacerbate internal PRI rivalries given the various
factions and interests that make up the far from homogenous
party. The markets also think the President's reform talk
and proposals were at least partly to satisfy credit ratings
agencies to minimize the risk of a downgrade for Mexico.
This is not to underplay, however, Calderon's recognition of
the real need for reforms in Mexico and his interest in
seeing progress on those fronts. As he has done in the past,
the President may be hoping to achieve more incremental
change -- despite his more expansive rhetoric -- that, while
slower, still can have an impact on the country's political,
social, and economic sectors.

Opposition Strategy
-------------------

6. (C) PRI insiders and opponents alike sum up the party's
strategy over the next three years as, "The PRI will work
with the GOM when possible to portray itself as the party
that gets things done. It will vote with the GOM/PAN on
popular congressional initiatives, and vote against unpopular
measures." The PRI's strategy of political pragmatism -- as
well as its deep aversion to approaching issues that could
exacerbate internal divisions -- will limit the degree to
which it will work with Calderon and his party on any sort of
significant reform projects.

7. (C) PRI insider and director of the Chamber of Deputies
Center for Social and Public Opinion Research (CESOP), Carlos
Casillas, told Poloffs on November 24 that, of the areas for
reform currently on the table, the PRI -- or at least parts
of the PRI -- is more likely to support some sort of fiscal
and political legislative package. Carlos Casillas, as well
as PAN Senator Luis Coppola in a meeting on December 2, told
Poloffs that at least some sectors of the PRI are already in
discussions with the PAN on a fiscal reform package the
parties will try to pass in the next congressional session
(opening on February 1). They both indicated that the
legislation would look to generalize the value added tax
(IVA) by applying it to all goods, including food and
medicine, and by slightly lowering the rate. The Finance
Ministry's chief economist, Miguel Messmacher, said that PRI
Senate leader Manlio Fabio Beltrones and PRI Chamber of
Deputies coordinator Francisco Rojas were sending the
Ministry the same message. Messmacher said the Ministry
would be willing to support such a reform as long as it
improves efficiency and increases revenue. The GOM, however,
will have to consider what the PRI is asking for in return.
Casillas noted that the PRI may try to use fiscal reform as a
temporary economic Band-Aid that will allow it to put aside
controversial energy reform until after the 2012 presidential
elections. Moreover, the PRI would probably try to spin the
increase as the fault of the Calderon government, rather than
taking the blame itself.

8. (C) That said, Mexican economist Rogelio Ramirez de la O
told Econoff that it is highly doubtful that the PRI will
enter into any kind of controversial economic reform debate
such as energy or taxes (i.e. extending the IVA to food and
medicine) before next year's state elections. He is also
skeptical that a telcom reform will go through, noting how
Telmex recently won an injunction allowing the company to
continue charging long distance to areas surrounding Mexico
City and the continuous accusations that the regulator
(COFETEL) has been captured by monopolies and duopolies. In
Ramirez de la O,s view, Calderon needs a new and different
economic agenda that would imply a new approach to the
business sector and the general public, given that a
consensus with a divided PRI and a weak PRD is unlikely.

9. (C) For now, Calderon seems to have focused on political
reform measures as the best way to retake the political
initiative, and provide some running room in other areas.
His bold December 15 proposal to allow reelection at all
levels of government, to provide for direct elections at the
local level, and to reduce proportionality and the size of
the Chamber of Deputies and the Senate, as well as other
measures, will likely garner support and dominate the
political agenda for the immediate future but it will be a
tough slog to get it approved through both houses and through

MEXICO 00003557 003 OF 004

17 of the 32 state legislatures (septel). PRD Senate
President Carlos Navarette said last week that the Senate had
agreed, in addition to fiscal and regulatory changes, to
discuss Calderon's proposals for political reform, including
reelection for federal and local deputies, as well as mayors.
Beltrones has also promoted a "state reform" package that
provides for reelection. Senator Coppola told Poloffs that
he was working on a reform proposal that would include
indefinite reelection for deputies and mayors, while
Beltrones had submitted a bill that would allow for
reelection but with term limits. Revolutionary Democratic
Party (PRD) Senator Tomas Torres told Poloffs he believes the
passage of at least some political reform measures is
probable. The Calderon government will have to raise its
game if it is to get through the minefield and build public
support with recent polling from "Reforma" suggesting that a
reelection proposal would be unpopular with the public.
Moreover, Luis Rubio, an analyst at CIDAC, told Econoff that
any meaningful re-election legislation would have to
significantly reduce the number of legislators elected by
proportional representation (Note: The Mexican electoral
system allows for a large minority of Senators and Federal
Deputies to be selected from candidate lists written by the
parties rather than by a popular vote.). Otherwise, the
purpose of re-election is defeated, and incentives will
remain those of the party rather than the Mexican public.

10. (C) In addition to energy reform, meaningful education or
labor modernization efforts are likely to be stymied by
political interests. Some alterations may be made around the
edges, but the profound changes really necessary for Mexico's
advancement are unlikely in the near term. Juan Pardinas, an
analyst at the Mexican Institute for Competitiveness, told
Poloff that poor public education will continue to damage the
country's competitiveness, but that making the needed changes
will be so disruptive to the educational system, that his
colleagues working on the topic have suggested establishing
parallel schools to the public institutions or pulling the
brightest students to study elsewhere, practically abandoning
the idea of a wholescale transformation. Moreover, Calderon
is hesitant to fully alienate the teacher's union, a key
voting bloc. Labor reform also faces challenges, primarily
from the PRI given the cross-cutting labor, agricultural, and
political interests in the party. While the Calderon
government handled the Luz y Fuerza takeover efficiently, it
soured the victory with rhetoric that blamed the problem on
lazy and overpaid workers. Another perceived attack on labor
could easily backfire against the PAN and build support for
the PRI and PRD.

Comment
-------

11. (C) It remains to be seen if Calderon can retake the
initiative with his ambitious political reform initiative.
Up to now his reform agenda has amounted to small changes
around the edges of the issues. Criticisms of Calderon, from
his detractors and supporter alike, often focus on an overly
acquiescent approach to negotiations with other parties which
result in watered-down reforms that do not go far enough in
addressing Mexico's problems. If the 2010 budget
negotiations are any indication, the PRI will continue to
carefully craft its actions and message to ride the coattails
of GOM success and avoid blame for any failures. PRI
governors wanted and received increased taxes, for example,
but Calderon seems to be primarily bearing the impact.

12. (C) In the months ahead all eyes will focus on how
Calderon's administration builds support for his political
initiative. Even partial success on his bold proposal would
help to break the parties' monopoly on political loyalty and
hold politicians more accountable to their constituents
rather than a party boss. But he will need to do better in
connecting that change to the lives of an electorate,
increasingly focused on and resentful of their economic
problems. While Calderon's message may seem focused less on
security and more on economic and other matters, his rhetoric
need not imply a distraction from or reduction of his focus
on security issues. The Calderon government continues to
press forward with key security programs, such as federal
police reform, and appears more committed to taking on

MEXICO 00003557 004 OF 004

deficiencies in its institutions and interagency coordination
system. At the end of the day, a more economically,
institutionally, and politically sound Mexico will be the
strongest weapon against the organized crime threat. End
comment.
Visit Mexico City's Classified Web Site at
http://www.state.sgov.gov/p/wha/mexicocity and the North American
Partnership Blog at http://www.intelink.gov/communities/state/nap /
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