Mexico's mid-term election

The perils down south

Mexico is in trouble; one way out would be for Felipe Calderón and the PRI to join forces

OVER the past decade Mexico may not have enjoyed explosive economic growth, but it has achieved something equally valuable. As it has transited rather painlessly from seven decades of rule by the Institutional Revolutionary Party (PRI) to a competitive democracy, the country has discovered a new stability. Problems and poverty remain, but thanks partly to the much-maligned North American Free-Trade Agreement (NAFTA) linking Mexico’s economy to those of the United States and Canada, there was quiet progress. Most Mexicans can now claim to be middle-class.

This stability looks in jeopardy. A crackdown on drug-trafficking, launched by Felipe Calderón after he narrowly won the presidency in 2006, has provoked a wave of violence. Albeit fairly localised, this shows no sign of subsiding. Efforts to create a new, uncorrupt police force are moving very slowly. Worse, Mexico has been deeply hurt by recession, mainly because much of its industry is tied to the sickest segments of the American economy—cars and construction—while its migrant workers north of the border are sending less money home. And now swine flu has knocked out the tourist industry. The economy is set to shrink by around 6% this year. Unemployment is soaring. Migration to the United States no longer offers a safety valve: crossing the border has become riskier, and those who make it have little prospect of a job.

Unlike the last deep recession in 1994-95, this one was not caused by Mexico’s own mistakes. But that is little comfort. Last time the economy bounced back quickly. That may be harder now. Border security checks are slowing trade flows; violence may discourage foreign investors. At home, public and private monopolies dominate activities from energy to telecommunications and education, caging animal spirits. Mexico has slipped down the world rankings of competitiveness.

None of this means that Mexico is about to become a failed state, as some analysts in Washington have suggested. But the country does risk losing its hard-won stability. The recession has blown a hole in the public finances. Because of the gross inefficiency of Pemex, the state oil monopoly, oil output is plunging. Mexico may soon lose its cherished investment-grade credit rating. If the recession drags on, the risk of social turmoil will rise. The worry is that economic and sociopolitical instability may start to feed on each other.

Despite all this Mr Calderón remains popular. He is a decent man doing a difficult job. (His weakness has been to fill too many senior posts with lacklustre people.) He has pushed through modest reforms of energy and education. But that was not enough for his party to avoid defeat in last Sunday’s mid-term election (see article). The PRI and its allies now have a majority in the lower house of Congress—which writes the budget—whereas the president’s party will lack the numbers to veto legislation. This hardens political deadlock.

America should help too

Mexico cannot afford three more years of political drift. Mr Calderón should invite the PRI to join a government of national unity to force through some long-overdue measures, including tax reform, a further energy reform to bring in private investment, a more powerful competition authority and the adaptation of the constitution to democracy. The PRI has a powerful incentive to collaborate. In 2003 it won a mid-term election by a similar margin. Confident of a return to the presidency, it played a spoiling role in the following legislature only to come third in the 2006 election. A display of statesmanship could persuade Mexicans that the PRI deserves to be granted executive power again.

In all this the United States is more than a bystander. What happens in its populous southern neighbour is of vital interest. Barack Obama has said that America should do more to halt the southward flow of guns and laundered money to the traffickers. Indeed it should. It also needs to spend more on infrastructure to speed legal trade across the border. Economic integration may seem like a disadvantage now. But it can speed recovery and help Mexico hang on to its imperilled stability.