Just before taking office in December 2000, Mexico’s president, Vicente Fox, pledged that his cabinet appointees -- the first opposition government in 70 years -- would stay at their posts throughout his six-year term.
By Lucy Conger
February 2003
Institutional Investor Magazine
The promise was broken last month when Fox’s flamboyant and controversial foreign minister, Jorge Castañeda, resigned, frustrated over his stalled agenda -- in particular, an immigration agreement with the U.S. that disappeared from the radar after the September 11 attacks shifted U.S. priorities to the war on terrorism.
Castañeda’s resignation prompted a reshuffling that puts Fernando Canales, a former executive of industrial conglomerate Grupo IMSA and governor of the state of Nuevo León, on the hot seat as Mexico’s new economy minister. Succeeding Luis Ernesto Derbez, who took Castañeda’s place at the Foreign Ministry, the 56-year-old Canales will be under intense pressure to deliver on Fox’s campaign promise of 7 percent economic growth starting in 2004. With Mexico’s economy expanding just 1 percent last year after shrinking 0.1 percent in 2001, the prospects don’t look good.
Mexico has lost jobs in its export-driven assembly plants as demand from the U.S. has slipped and some companies have relocated to lower-wage venues further south in Central America and in China and Indonesia. Farmers are expected to protest the lifting of tariff protections this year, in keeping with Nafta agreements. Divisions in Congress have stalled the legislative agenda of Fox and his Partido Acción Nacional, which would, among other things, open parts of the state-owned electricity sector to private investment.
With midterm elections looming in July, Fox and the PAN have a make-or-break opportunity to secure the majority that has eluded them so far. Victory could give Canales much-needed latitude in promoting economic growth and attracting foreign investment; defeat could further hamstring the Fox administration.
“Canales’ objective is fundamentally to stimulate the domestic market and pursue a more activist policy than that of Derbez,” says Alfredo Thorne, head of Latin American economic and policy research with J.P. Morgan Chase & Co. in Mexico City. Derbez was criticized for his inattention to small- and medium-size enterprises; Canales has promised to improve the sector, which has languished despite Fox’s pledges to channel more credit and boost overall demand.
Fox pulled Canales away from a touchy political situation in Nuevo León. Home to Mexico’s industrial capital of Monterrey, the state is preparing for a gubernatorial election in July. Although Canales could not legally run for reelection, his poor relations with the local PAN organization could have proved a liability as the party tries to retain the seat.
As a former deputy manager of Grupo IMSA and still a major shareholder, Canales is well connected in corporate circles and familiar with issues he will confront in trade tariffs, deregulation and the government’s pricing of the gas used in industry. But as governor he failed to deliver on a pledge to reduce businesses’ paperwork burdens, and he is described by some observers as a weak executive.
In his first days in office, Canales firmly rejected the farmers’ call for continued tariff protections, stating unequivocally that there would be no renegotiation of Nafta. He said that Mexico would defend its interests through other mechanisms permitted by the trade accord.
Canales’s appointment and Castañeda’s departure narrows the diversity of views in the Fox cabinet and should strengthen the hand of the inner circle of aides who worked with Fox when he was governor of Guanajuato. Technically, Canales reports to longtime Fox associate Eduardo Sojo, who also oversees Finance Minister Francisco Gil Díaz from his perch in the Mexican White House. However, neither Sojo nor Canales is as experienced internationally as Gil Díaz and central bank governor Guillermo Ortíz, who remain critical to Mexico’s credibility with foreign investors.
Meanwhile, Economy Minister Derbez is bringing with him to the Foreign Ministry a portfolio of international trade negotiations that includes free-trade agreements with the U.S., Canada, the European Union and Central America, as well as oversight of ongoing talks with Brazil and Japan. In this, his predecessor -- an ideological rival -- wishes him well. “I hope he succeeds where I failed in taking international negotiations to the Foreign Ministry,” says Castañeda. “It would be enormously important and good for the country.”
