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InterviewsNovember 2 2002

President Fox: a man who means business

Vicente Fox, Mexico's president, has been determined to combat corruption in government so he can move ahead with economic improvements. Karina Robinson meets him.
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As the presidential jet landed in the upmarket coastal resort of Cabo San Lucas, President Vicente Fox told me there were no discoteques. "The resort is too expensive for the young. It is for the wealthy and executives." It was also for the delegates to the Asia-Pacific Economic Co-operation (APEC) summit, taking place at the end of October, and the reason for the Mexican president to pay a visit.

"There are discoteques," the man in charge of organising APEC's first meeting in Latin America protested later. "They just don't let him out at night." Whether or not Mr Fox is allowed to go dancing at night, he is fresh from the success of his handling of the Pemex affair, which saw his approval ratings shoot up to more than 60% from less than 50%. He managed to ensure workers at the state-owned Pemex oil monopoly called off their threat to strike, which would have paralysed the country, and settled for a 7.3% wage and benefit increase rather than their earlier 15% demand.

This was part of the attempt to tackle decades of corruption - which he sees as his biggest challenge in office - as union leaders affiliated with the former governing party may now have to face justice for decades of selling Pemex jobs to the highest bidder, extracting funds from worker burial programmes and other such practices.

Mr Fox managed to get the Pemex workers on his side, isolate the old-guard union bosses, some of whom are Congressmen, and even sit down with the new Institutional Revolutionary Party (PRI) leaders to ensure they came out against the strike after initially supporting it. Those sort of tactics - compromise and politicking - are exactly what has been lacking so far in his almost two years in power. As a result, an opposition-dominated Congress has stalled most of his reform initiatives.

He is careful to point out that studies by economists show the Mexican economy can grow at 3% next year even without those reforms, although they would be welcome and would allow it to grow at 4% or higher.

In any case, he is willing to apply the Pemex-gate lesson and to get his hands dirty. "You had my direct participation in Pemex. But the effect of the direct intervention of the president can wear off if it is used too much. For the forthcoming budget and electrical reform Bill, though, it is worthwhile investing presidential time," he says.

Budget battles

The budget battles are already in full swing. Last year, Congress only approved a very changed budget at the last possible moment on December 31. The fate of the 2003 budget may not be much better. At a recent presidential meeting with state governors, only eight from the governing National Action Party (PAN) showed up. Twenty-four governors from the opposition PRI and Party of the Democratic Revolution (PRD) boycotted the meeting over budget disputes. They allege there have been unjust cutbacks to state funding; the government says lower tax collection means there is less money in the kitty for both the states and the central administration.

Mr Fox says if the worst comes to the worst and Congress does not approve the budget, then the 2002 budget will be used again. This would mean a budget deficit of 0.65% of GDP, rather than the 0.5% envisaged in the proposed 2003 budget, still conservative enough to please the markets. (Nonetheless, the real deficit is closer to 4% when costs related to the clean-up of the banking system and other programmes are included).

However, 60-year-old Mr Fox hopes this situation will not arise and his three-pronged budget goes through.

"Our strategy is, firstly, an austere budget to cement the stability of the economy. When there is uncertainty, one has to be conservative to ensure low inflation and low interest rates, which help everyone," he says. "The second aim is a strong local component so the [local governments] build infrastructure for basic services like schools, water and so forth." The third aim is a new mechanism made up of mixed private sector and public sector funds to invest in energy, housing, roads, water, hospitals and other projects. The goal is to raise a hefty $45bn in 2003.

"The result of this: while in the last 10 years the driving force was external markets, now that those markets are slowing or in recession, the internal market will be the driving force," he says.

However worthwhile the aim, it will be a long time coming due to Mexico's dependence on the US. More than 85% of trade is with its northern neighbour. The US slowdown has resulted in reduced growth, with estimates of only a 1.7% rise in GDP this year.

What will also make it more difficult for domestic circumstances to drive growth is bank behaviour. Although well-capitalised and healthy now - owned mostly by foreign groups, such as Spanish banks BBVA and SCH as well as Citigroup and HSBC - they are not lending. Bank credit to the private sector accounts for less than 20% of GDP, compared with a world average of 136%, according to the World Bank. The banks say all the laws for recovery of assets and the like are not yet in place.

Mr Fox disputes this allegation. "All their business is in treasury bonds and they almost do not give credit to people. We have put through 16 measures to do with the financial system to give them security, so the conditions are there. That is why I am pushing them to lend," he says. In addition, the administration is using the state-owned development bank to guarantee some loans to give private banks added confidence.

Still, Mr Fox, formerly head of Latin America for beverages giant Coca-Cola, is more than aware of the importance of foreign direct investment. That is part of the reason for his trip to Europe this month, where he will be telling his hosts about his country´s advantages. These include 32 free trade agreements - the North American Free Trade Agreement being the most important - which result in lower tariffs for goods produced in Mexico. Talks with the Mercosur trade bloc, however, have stalled following the crisis in Argentina.

Asian competition

Mr Fox denies that low-cost Asian countries have an advantage over Mexico, despite some plants relocating there.

"We have three salary levels: the maquiladora (assembly plants) in the north at $4 an hour, the centre of the country where wages are $2 an hour, and the south where they are $1 an hour. So the south still has an advantage," he says. "But we don't aspire to sell low-cost labour. We want to go to another level based on talent and productivity. And we are getting there already."

Although Mexico cannot hope to match last year's record foreign investment inflow of $25bn (half of that accounted for by Citigroup's acquisition of Banamex, the largest bank), it is very aware of where incentives are needed for foreigners. In October, it announced a series of measures to aid the maquiladora industry - which has seen a 17% drop in employment on the back of slow global growth - including concessions on tax exemptions and US border export simplification procedures.

As well as the world economy, Mr Fox is worried about the Brazilian presidential elections which, at the time of the interview, were going into their second round with Luis Inacio Lula da Silva looking like a clear winner. Tremors about Brazil can affect Mexico's market and currency, despite the rating agencies having assigned its bonds investment grade.

"I know Lula and I hope he is going to be sensible. I respect his views on the distribution of income but the only way to achieve success is generating wealth by making the economy grow, and this must be done with free markets. If Brazil is destabilised, it can affect us all," Mr Fox says.

US relations

Relations with the US have been the biggest let down of Mr Fox's presidency. Expectations were high on his state visit to Washington in September 2001. A standing ovation in Congress and excellent relations with President George W Bush, a former Texas governor who understood the need to regularise the situation on Mexican immigrant labour, led to hopes of an agreement on this crucial issue before year end. Then came the attack on the World Trade Center and Mexico fell off the screen for the US administration.

"That is the reality. Before 9/11, we had advanced quickly on immigration. 9/11 changed the situation totally. The US government became 100% dedicated to terrorism and left us and Latin America a bit abandoned," he says.

Mr Fox hoped to raise the issue with Mr Bush at the APEC meeting, as well as telling him that Latin America needs more attention, what with the Argentine bankruptcy, Brazilian political upheaval and Colombia's drug war.

At least he did not face any problems in getting on the plane this time. The opposition, at one point, prohibited him from going abroad, accusing him of not spending enough time dealing with Mexico's home-grown problems. Mr Fox acknowledges domestic issues such as poverty are important. But he says that on the back of the 2000 elections, which brought an end to 71 years of PRI hegemony, Mexico acquired a much higher foreign profile, which it needs to leverage for foreign investment and to participate actively in international politics.

"We are the ninth-largest economy in the world and the biggest in Latin America. We want to be part of the nucleus of select economies that deal with the destiny of the world, not just observers or part of the crowd," he says, using his hands like a sculptor to illustrate each point.

The end of the PRI's monopoly on power was due to a combination of circumstances. But the deciding factor was, undoubtedly, Mr Fox's low-key charisma and popular appeal. He takes pride in being a ranchero (rancher) and was wearing his trademark look of grey flannels, checked shirt and Texan boots aboard the Boeing 757, while he ate a delicious breakfast of chilaquiles verdes con pollo. His staff say they cannot schedule too many long meetings for him; instead, he likes constant movement, meeting people from all walks of life and seeing things.

He is a family man with four adopted children, one of whom recently got married. He himself married for the second time one year after winning the elections, to his spokesperson Marta Sahagún. Controversy over her outspokenness on political matters appears to have died down, partly because she has toned down her incursions into the political domain and is now concentrating on philanthropy.

Corruption battle

As for Mr Fox's battle with corruption, in mid-October, a federal investigation uncovered an extensive network of corrupt government employees who, for six years, sold classified information to drug traffickers and organised crime groups. That is only the latest in an ongoing series of revelations of corruption.

"We inherited a pot of muck at the highest level, a total mess, and had to put things in order first - a process that was repeated in each [government] institution. So for the citizens, our time in power so far has not been highly productive, but important results can now be achieved," he says in his standard measured tones, even when talking about such an emotive theme.

The very public nature of the battle with corruption may also help Mr Fox's party to win mid-term 2003 Congressional elections that would allow the government to push through its reforms.

Mr Fox believes his experience in the private sector has helped him to administer the government. However, one big difference in being president is that the buck stops with him. "There is no-one else above me who can solve things. Decisions are ultimately mine," he says. "We all have hidden capacities and I have been able to act with serenity and, through dialogue, arrive at solutions to difficult questions."

Having shown an admirable command of his brief - if not of the nightlife of Cabo San Lucas - Mr Fox sauntered off to deal with corruption and help Mexico assume its rightful place in the world.

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Read more about:  Analysis & opinion , Interviews , Americas , Mexico