NEW YORK (TheStreet) -- Mexico's economy is looking a lot like its football team -- down but not out.
El Tri take on the U.S. Tuesday and risk getting stuck in a play-off with New Zealand to make the World Cup field. Meanwhile, President Enrique Pena Nieto needs reform to get the Mexican economy back in the game; despite street protests, he is getting what he wants.
Mexico has three main parties, Nieto's PRI, the PAN it replaced and the leftist PRD. Between them, PRI and PAN have the votes to make these changes. The PAN by itself lacked this power. Its 12-year spell in power brought the PRI over toward its side of the debate. That's why things are moving now.
The reforms are a mixed bag for business. There are higher taxes on capital gains and dividends and higher income taxes on the middle class but a sales tax increase was cancelled. There is deregulation in the oil and telecom sectors. There is education reform aimed at breaking the hold of unions on that sector.The biggest drag on Mexico's economy is the lack of technology needed to boost oil production. Nieto's plan is to let outside firms partner with the state-owned oil company, Pemex, and share in the gains, while changing the tax laws to give Pemex itself incentives to co-operate. Bret Jensen at RealMoney calls all this enticing. The PAN wants to go further and the PRD is calling the plan de-nationalization but Nieto has the votes, at least on a national level. Since this is a constitutional change, 17 of the country's 32 state and district legislatures must also go along, so action won't come quickly. As I've written beforethe first beneficiaries are likely to be smaller U.S. firms, perhaps with Mexican-American management, taking advantage of the Eagle Ford shale oil play that extends deep into eastern Mexico. It will take years to negotiate the larger contracts needed for off-shore drilling. The Pemex moves are very sensitive. Nationalization was popular, and Pemex' control of Mexico's oil remains a point of national pride. Anything that smacks of Nieto giving the "patrimony" to "gringos" will draw heavy fire. U.S. analysts are best advised to hold their chortling over the "socialist" Pemex getting its comeuppance. Even if it's true, it's not helpful.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV