Vicente Fox promised to appoint a cabinet as diverse as his country in becoming the first Mexican president elected in 71 years who did not belong to the Partido Revolucionario Institucional.
By Lucy Conger
December 2000
Institutional Investor Magazine
Vicente Fox promised to appoint a cabinet as diverse as his country in becoming the first Mexican president elected in 71 years who did not belong to the Partido Revolucionario Institucional. Late last month he kept his word, announcing a raft of appointments that included left-leaning professor Jorge Castañeda as foreign minister and several market-friendly businessmen to his economic team, which will be led by newly named Finance Minister Francisco (Paco) Gil Díaz.
The new group inherits a country on a roll. Buoyed by high oil prices and the powerful U.S. economy, Mexico, which just five years ago was in a depression, rebounded to grow by 7 percent this year. Careful budget and debt management by Fox predecessor Ernesto Zedillo appears certain to make Fox the first incoming president in 24 years to inherit a strong currency and no prospect of a collapse in the domestic economy.
But Fox and his team will soon be tested. The U.S. economy is slowing - a potentially huge problem, since 90 percent of Mexican exports are to its northern neighbor - and Fox’s economic agenda is an ambitious one. He proposes to slash the federal deficit by half in 2001, to 0.5 percent of GDP; lower inflation by 2 percentage points to 6.5 percent; increase tax collection from 11 percent to 17 percent of GDP; and set the economy on a path toward sustainable growth of 7 percent while expanding health, education and subsidy programs for Mexico’s 40 million poor.
A reminder of how tough his task will be came the same week Fox made his appointments. Standard & Poor’s declined to raise Mexico’s debt rating to investment grade - a move that Moody’s had made in March. First, S&P says, Fox must secure approval for his 2001 budget and sweeping tax reform from a divided congress in which his Partido de Acción Nacional lacks a majority.
Finance Minister Gil Díaz is expected to be an unrelenting advocate of the ever-tighter budget, as well as a skilled designer and fierce defender of the tax reform initiatives slated for next year. “He is someone who will be very aggressive in trying to follow the austere fiscal policy the markets and central bank want to see,” says Felix Boni, director of research for ABN Amro in Mexico City.
A U.S.-trained economist who holds a doctorate in economics from the University of Chicago, Gil Díaz has most recently run Avantel, a spunky long-distance competitor to phone giant Telmex. Before that, he served more than 20 years at the Mexican central bank and the Finance Ministry. An expert in tax reform, he earned the epithet “the fiscal terrorist” for his crackdown on tax evaders when he served as undersecretary of revenues a decade ago.
Building a consensus in the split congress - where the long-ruling but now defeated PRI is the second-strongest force - will be the most immediate challenge. But Gil Díaz told Institutional Investor in an interview late last month that he expects approval for next year’s budget to come easily, in part because most of the proposed spending sustains existing programs, and because much of it is earmarked for states controlled by the PRI, which thus has an incentive for cooperating.
But the taxation and spending reform package slated to go to Congress next year has already stirred hostility among legislators in the PRI and the leftist Partido de la Revolución Democrática. Though still in the formative stage, reform measures are likely to include additional social spending, greater tax collection efforts and the opening of the country’s electricity sector to private investment. Gil Díaz insists that securing these reforms will be “arduous but obtainable.” As part of the effort to boost tax receipts, Gil Díaz has struck a publicly conciliatory note: People who pay their full freight from now on will be forgiven their past indiscretions. “This will motivate people to get their house in order, and relieve my reputation as Dracula,” quips Gil Díaz.
In addition to Gil Díaz, Fox’s administration will have two other key point men to shepherd the economic agenda through Congress: a newly created economic development commissioner reporting directly to Fox, and a government minister “whose job will be economic governability,” Fox told foreign reporters.
Fox will weigh in with his own powerful communications skills and horse-trading ability. “I will dedicate one full day a week to working with Congress,” he pledges.
