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South of the Border
A Mixed Bag for Mexico

Mexican president Enrique Peña Nieto has enacted a raft of key reforms in his first two years in office, none more important than the liberalization of the country’s stagnant and wholly underperforming state-owned oil sector. Now, just months after that reform was enacted into law, there are already signs that state-owned oil firm Pemex is starting to turn things around. The FT reports:

Pemex is off to a good start. It has a slimmed-down portfolio, a new board and an ambitious mandate to be run, by the end of 2015 as much like a private enterprise as it is possible for a huge state oil company to be.

That means adopting industry best practice to achieve efficiencies and maximise revenues for the state, while being relieved of having to hand over quite as much of its earnings to the government as it has until now…Revenue from Pemex provides a third of the national budget, but the government expects the company’s tax burden to shrink from 79 per cent to below 65 per cent within a decade, freeing cash for it to invest in what will yield results.

Competition inducing efficiency gains? Imagine that. Energy security is a critical priority for any country, but especially so for Mexico, which has plenty of potential to tap as-yet undeveloped reserves both offshore and in shale formations.

Would that the story could end there, on a positive note for both Mexico and for North America, but things are rarely that simple. The FT reports on trouble brewing in our southern neighbor:

The apparent murder of 43 students in Iguala in the western state of Guerrero on September 26 – in which corrupt police under the command of a mayor with links to organised crime are accused of handing the victims to drug lords to be slaughtered – has turned Mexico into a tinderbox of volatile and increasingly violent protests.

No longer are there just peaceful candlelit vigils. In recent days, a teachers’ union has blocked roads and the airport in the western resort of Acapulco, and protesters have torched Guerrero state government and Congress buildings, as well as setting alight the door of the National Palace in Mexico City, the seat of the federal government.

Taken together, these two very different stories effectively show two very different sides of Mexico. Endemic cartel violence continues to pose a real threat to the country’s security and its image as a country poised on the edge of something special. That said, there still exists plenty to be optimistic about, and while there’s still plenty of work to be done combatting drug cartels and enforcing the rule of law, Mexico’s future looks bright.

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  • Jacksonian_Libertarian

    Pemex is still a state owned monopoly, so where’s the competition that will make things better? All I can see at the moment at Pemex is a rearranging of the deck chairs on the titanic.

  • Corlyss

    Mexico is turning into a Spanish-speaking Nigeria. It is a failed state, but policy makers can’t bring themselves to admit it.

  • FriendlyGoat

    We have some mini-versions of “petro states” that are actually USA states. They are going to be affected too.

    • Josephbleau

      What is this? Are Alaska and North Dakota going to start beheading people?

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