Foreign oil investment becomes source of political heat in Mexico

Dec 04, 2003 01:00 AM

by Susana Hayward

Mexico's Institutional Revolutionary Party, the country's oldest and largest political party, is split by a bitter battle over whether Mexico should open its oil industry to foreign investment and whether international trading blocks devastate and weaken developing countries.
A majority of lawmakers voted to oust Elba Esther Gordillo as their congressional leader because she was perceived as supporting economic reforms proposed by President Vicente Fox. She was replaced with party stalwart Emilio Chuayfett, a former governor of the state of Mexico who also served as the country's interior minister.

The key to understanding the fight is in the reforms proposed by Fox, a former Coca-Cola executive whose National Action Party (PAN) defeated the PRI in the 2000 presidential election, becoming the first non-PRI president in more than 70 years. Not only has Fox proposed expanding the national sales tax to include items that have long been exempt, such as food, medicine and books, he's also proposed changing Mexico's constitution to allow foreigners to invest in the oil and electricity sectors.
The proposals have challenged beliefs that are as much ingrained in Mexico's political tradition as private enterprise is in the US tradition. The PRI was formed in 1929 amid a wave of nationalism that eventually led to the nationalization of Mexico's oil industry.

For most of the seven decades keeping foreigners out of the country's key industries was the nation's rallying cry. PRI national President Roberto Madrazo, the former governor of the oil-rich state of Tabasco who led the revolt against Gordillo, defended his actions as a matter of national unity.
"Our party is the majority in the Chamber of Deputies, and we will not allow foreign interests that are contrary to our ideology to damage our party union, which is indivisible," said Madrazo, 51, a presidential hopeful. On the other side are people who say Mexico must change its economic structure if it hopes to prosper in a global economy.
"We have to implement reforms and we're all conscious the country needs that to keep developing," said PRI congresswoman Marcela Guerra.

But the push for change comes up against a tradition that goes back to 1938, 18 years after the Mexican Revolution ended, when President Lazaro Cardenas of the PRI nationalized the nation's vast oil resources.
"The only thing we own is the oil company Pemex and the National Commission of Electricity," said PRI congressman Hector Ramirez Puga. "And we can't sell that. It's prohibited by the constitution and by our party platform." A perception that economic policies under previous administrations haven't paid off for the average Mexican has increased the bitterness over the proposed reforms.

President Carlos Salinas de Gortari, who propelled one of Mexico's biggest economic openings by signing the North American Free Trade Agreement among Mexico, the United States and Canada, privatised a number of state-owned companies, including banks, the phone company and airlines. Many such as Ramirez say the policies led to massive unemployment and devaluations of the national currency, the peso, from which Mexico is still recovering.
"Everything was privatised, everything became more expensive and Mexicans haven't seen any gains," Ramirez said. "Really, you can say there are two PRIs," Ramirez added, "one that is nationalistic and one that has followed the neo-liberal economic models that created and opened trade markets and privatised national institutions. "This model has failed in all the countries where it was imposed."

Fox has said that neither Pemex nor the electric company is up for sale, but changing the constitution to allow foreign involvement is still viewed as selling the house.
"It sounds like we're giving our petroleum to the United States, our resources to other countries," said one government official. "Fox says if there isn't constitutional change, investors won't have confidence in Mexico. Both sides are right. That's the problem."

How the fight will turn out is unclear. The 500-member Chamber of Deputies is debating a variety of budget reforms it must pass before the legislative session ends. If the PRI remains split, Fox's PAN could align itself with dissident PRI Congress members and have a majority. The PRI holds 222 seats and the PAN 151, but at least 104 PRI delegates opposed Gordillo's ouster.
Many observers say the expanded sales tax is likely to fail.
"No political party can win an election by proposing new taxes," said political scientist Antonio Ocaranza, who was the presidential spokesman during the 1994-2000 administration of Ernesto Zedillo.

But how Congress might vote on changing the constitution on energy and oil is still to be seen. Gordillo, who retains her post as the PRI's No. 2 party official, insisted that she is unbowed.
"Wherever I am and however I am, I will push through a new generation of reforms that Mexico requires," she said. Those on the other side remain just as determined. "Wewant foreign investment, but not in Mexico's energy resources," said Ramirez. "They are the protection for our future."

Source: Knight Ridder Newspapers
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