Mexico Is Achieving Its Goals

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.

Some important pieces of the plan, including education reform and telecom reform, have already been approved but Carlos' Slim's America Movil ( AMX), which dominates the telecom market through Telmex, hasn't reacted negatively, so that seems to be all over but the shouting.

What's most important is all this is working through a democratic process. Keeping the debate as civil as possible in the face of opposition that's willing to take it to the streets is the key to success.

Since Nieto's term began the iShares MSCI Mexico ETF ( EWW), the largest and most broadly-held exchange-traded fund covering Mexican stocks, is down about 10%. But over the last week it's up 3%, while other developing world markets are under pressure.

Mexico is one of our largest trading partners. Its economic recovery could boost our own recovery and reduce pressure on issues like immigration.

So I hope to be forgiven with one last football-related analogy on this story.

Beat New Zealand.

At the time of publication, the author held no shares in Mexico's stocks or ETFs.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Dana Blankenhorn has been a business journalist since 1978, and a tech reporter since 1982. His specialty has been getting to the future ahead of the crowd, then leaving before success arrived. That meant covering the Internet in 1985, e-commerce in 1994, the Internet of Things in 2005, open source in 2005 and, since 2010, renewable energy. He has written for every medium from newspapers and magazines to Web sites, from books to blogs. He still seeks tomorrow from his Craftsman home in Atlanta.

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