Explainer: Mexico's 2013 Reforms

By Andres Sada

During President Enrique Peña Nieto’s first year in office, Mexican legislators passed landmark political, energy, fiscal, and telecommunications laws.

Over the past year, Mexico witnessed a variety of reforms passed after the signing of the Pacto por Mexico, a December 2012 agreement struck by the country’s three main political parties. The ruling Institutional Revolutionary Party (PRI), the National Action Party (PAN), and the Party of the Democratic Revolution (PRD) approved education, energy, political, fiscal, and telecommunications legislation, making sweeping changes to everything from taxes on soda to the country’s oil industry. President Enrique Peña Nieto made the reforms the centerpiece of his administration, brokering the pact as a means to push through legislation. Though the PRD announced it would leave the Pacto in late November, party heads agreed that the accord wasn’t intended to last forever, but rather to push through reforms more quickly than in previous administrations. While reforms made it through Congress this year, some await implementation legislation to pass before they can go into effect.

With the education reform already implemented, AS/COA looks at four other major reforms, what they entail, and where they stand.  

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Political Reform: Reelections for Congress and Mayors

Passed by Congress on December 13, Mexico’s political reform will instate reelection for federal and local congressmen, senators, and mayors. (Legislative reelection was previously legal until 1933.) Now, senators will be eligible for one reelection, while federal deputies can be reelected up to three times. Officials currently in office will not be eligible for reelection. In addition, at least 50 percent of congressional candidacies must be reserved for women.

Local and federal elections will now be overseen by a new body, called the National Electoral Institute, replacing the Federal Electoral Institute. Previously, local officials oversaw local elections, whereas the new institute will ensure that federal best practices are used in all elections. Local and federal elections can now be nullified in cases where campaign spending limits are not respected and the margin of difference between first and second place is less than 5 percent.

In addition, the Chamber of Deputies will be charged with approving the country’s finance secretary, and the Senate must ratify the pick for foreign affairs secretary. Presidential transitions will also be shortened; the president, elected in July, will now take office on October 1, rather than December 1.

The next elections take place in 2015, when Mexicans will elect representatives to the Chamber of Deputies, governors in five states, and mayors and local congressmen in 10 states. Changes to the presidential elections will take place beginning in 2018. Observers say the reform could potentially shift power away from the executive branch and add more power to the legislature.

Energy Reform: Opening to Private Investment

On December 12, Mexico’s Congress passed landmark energy reform, bringing an end to a 75-year state monopoly on petroleum by opening the oil and gas industries to private investment. The legislation allows for profit-sharing agreements, production-sharing agreements, and licenses, and creates a sovereign oil fund operated by the Central Bank. The law also opens the door for private companies to generate and distribute electricity. Finally, state-run oil company Pemex will no longer include representatives from its workers union on its board—for the first time in 75 years. The energy secretary will become the Pemex board president.

The reform was also approved by a majority of Mexico’s state legislatures by December 16; at least 17 states must approve all constitutional reforms. (Mexico has 31 states plus the Federal District). Now, Congress will have four months to write and pass secondary legislation.

By attracting private investment and reducing energy costs through competition, the reform could generate at least a 1 percent boost in GDP during Peña Nieto’s administration, according to the secretariat of energy. The legislation also aims to stem Pemex’s declining production.

Backed by the PRI, PAN, and Green Party, the reform is opposed by the PRD, which left the Pacto por México as a result. The PRD has pushed for a referendum on the law in 2015, collecting over a million signatures in support. In the short term, further legislative changes by the PRD are unlikely, given that the PRI and its allies control 77 percent of the Senate and 71 percent of the lower house.

Fiscal Reform: Boosting Tax Revenues

At around 10 percent of GDP, Mexico has one of the lowest tax revenue levels in Latin America, and the government depends on Pemex for a third of its revenue. Although the president’s original fiscal proposal sought to increase tax revenue by 1.4 percent of GDP in 2014, the final reform will increase revenue by no more than 1 percent. This increase will be destined toward investment, rather than current expenditures.

Passed by Congress on October 31, the country’s fiscal reform will tax junk food and sugary drinks, and increase taxes on upper income brackets. It will also unify the value-added tax throughout the country, ending lower tax rates in border regions. Mining profits will experience tax increases, and 50 percent of those revenues will benefit the municipality where the mining project is located. There will be a 10 percent tax on stock market profits and dividends. The fiscal reform also aims to formalize 5.2 million small businesses through an electronic tax system.

The reform was met with resistance by the country’s leading private-sector advocacy group, border states, and soft-drink companies. The International Monetary Fund noted that the reform represented progress, but said more could be done to reduce the country’s reliance on oil revenues.

The tax increases are expected to go into effect as of January 1, 2014.

Telecommunications Reform: Increasing Competition

Approved on June 11, Mexico’s telecommunications reform will create a new autonomous telecommunications regulator, the Federal Institute of Telecommunications (Ifetel), which will have triple the budget of the old regulator—the Federal Commission of Telecommunications. This new regulator can revoke operating licenses for companies employing monopolistic practices. A second new regulator, the Federal Commission of Economic Competition, will promote competition and seek to prevent companies from controlling more than 50 percent of market share.

The legislation creates two open television channels, and makes access to information and communication technologies a constitutional right. It also allows foreign investment in telecoms to grow from 49 percent to 100 percent, though it limits foreign investment in radio to 49 percent. The reform defines rules around “must carry, must offer,” requiring paid TV operators to offer free channels, and for open TV operators to provide free transmissions to paid operators. Finally, the reform aims to improve access to broadband and other telecom services.

Mexico’s telecommunication reform awaits secondary legislation before implementation. However, the 180-day deadline to pass these laws ended on December 9. The Secretariat of Communications and Transportation says the president finished drafting secondary legislation, but it must be sent to the Pacto and Congress. These laws are expected to be passed by early 2014; Ifetel will have the bidding process ready for the two new TV channels by March 9.

While the economic impact of the telecommunications reform may not be seen for another two to three years, Carlos Slim’s Telmex put a roughly billion dollar investment on hold due to uncertainty surrounding the secondary legislation.