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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 / 
PASCUAL