Enrique Peña Nieto's 'economy first' strategy for Mexico would also help US

Mexico confounds. If one watches the news, either here or in the United States, most of what comes out about this country is violence among the drug cartels. But if one looks at its economy, Mexico has become the largest trading partner of almost 30 US states.

President Enrique Peña Nieto, who took office on Saturday, wants to change that mismatch by putting the economy first, which will require addressing the onslaught of the narco mafia in a very different way from his predecessor. This new approach has great potential, including improved public safety, and is one that Mexico’s northern neighbor should also embrace.

Mexico’s economy grew more than 4 percent each of the past two years and is on course to do the same in this one. More jobs were created in 2011 than ever before. Twenty years of hard work and reforming Mexico’s politics and economy are beginning to pay off.

Over the past two decades, Mexicans have seen their economy stabilize, new homes being built, new roads everywhere, exports growing rapidly, consumption increasing, and a strong middle class emerging. The government’s accounts show a very small debt and a tiny deficit. Elections are organized by an independent body, and the Supreme Court is widely respected. When one looks back, it is astounding how much the country has advanced.

As Mr. Peña Nieto, of the Institutional Revolutionary Party, or PRI, takes up his new mandate, people are a bit on edge. The party that ran the country for 70 years is back in power and Mexicans are not certain what that means. Will the old PRI and its corrupt practices return? Will it be a different kind of government?

The one thing Mexicans know is that Peña Nieto, who ran a formidable campaign, will be a very different kind of president compared to his predecessor, Felipe Calderón, who focused on confronting the narco mafias, not realizing that security cannot be an end in itself. Mr. Calderon focused on confronting the mafias and attempted to eradicate drug flows. Peña Nieto aims to protect the population under the assumption that demand for drugs from the US is so strong that any attempt to eradicate will prove fruitless.

The new president’s message has been consistent: Mexicans want an effective government, one that can address and resolve pending issues (mainly economic reforms) and deliver a more robust economy. He does not dismiss the issue of violence – in fact, his proposal is to adopt a policing and judicial strategy rather than a military one. But his focus is on steep economic growth, a strategy that necessarily must include peace for Mexico’s citizens.

Both issues are closely related to the United States.

On the economic front, the connection is through trade. For Americans, the North American Free Trade Agreement is one more trade pact, even if a highly politicized one. For Mexicans, NAFTA is the foremost source of legal certainty for investors and companies in general. Mexico sought a trade agreement with the US essentially because it was a way to “borrow” American institutions and legal certainties.

Since the agreement came into effect in 1994, exports to the US have become the main engine of growth for Mexico’s economy, inextricably linking both economies.

Peña Nieto wants to go further: He wants to combine the strengths of the American economy with those of Mexico and Canada so as to make the regional economy much more competitive vis-à-vis the rest of the world.

The Trans-Pacific Partnership – a free trade zone still being negotiated between the US, Mexico, Canada, Chile, Peru, Australia, New Zealand, and several Asian countries – could be the perfect vehicle to advance along these lines, especially since President Obama, too, wants to boost exports.

Drug-related violence is also closely tied to the US. Most drugs that transit from or through Mexico are destined for the American market. The violence is concentrated in two regions: the US-Mexico border and along major routes from South America to the US, essentially the two coasts. Fixing this requires a radical build-up of state capacity (police enforcement and the judiciary) on the Mexican side and deeper coordination with the US.

As Peña Nieto tackles the economy, he must first eliminate the endless obstacles and red tape that make it difficult for investors and consumers to do business. He must follow through on his intentions to reform the energy sector, strengthen the government’s finances, and advance rapidly on infrastructure.

If he can integrate the domestic economy with the export-bound industrial plant, he can create more and better paying jobs. If successful, Mexicans will further import goods from the US and there will be much fewer Mexicans willing to move north.

Building a modern government must be part of the economic focus. Mexicans need a government that can guarantee its citizens security and safety, thus strengthening the foundation for the country’s development. The states’ responsibilities have to be defined, the federal government’s powers need to be clarified, and citizens’ rights protected and enforced. The country cannot prosper in the 21st century with a system of government of the 19th.

Peña Nieto understands that he needs to improve reality in order to improve expectations of Mexicans as well as of Americans. In stark contrast with his predecessors, he knows his party was given the exceptional opportunity of a comeback and that his party’s chances may be thwarted forever if he fails. That is an extraordinary incentive for any politician to get things done.

Luis Rubio is chairman of CIDAC, Center of Research for Development, a think tank in Mexico City and a writer of more than 40 books on Mexican politics and economics. He writes a weekly column for Mexico’s Reforma newspaper.