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|  | JUNE 30, 2006
By Geri Smith A Tight Race in MexicoThe electorate is split between the two presidential candidates. One vows to stay the course, the other promises radical change to help the poorMexicans vote on Sunday, July 2, for a new president. Depending on whom one talks to, the results will either mean disaster or good fortune for this country of 107 million people. Before campaigning officially ended on June 28, a half-dozen opinion polls showed the two front-running candidates in a virtual tie, with around 38% of the vote each. Never has Mexico been this divided over a presidential choice. Voters will either elect Andrés Manuel López Obrador, the 52-year-old former mayor of Mexico City, who promises to dramatically change Mexico's economic policies so that they favor the country's poor majority. Or they will opt for Felipe Calderón, 43, a Harvard-educated former congressman and ex-energy minister who pledges to follow the same economic course that has made Mexico a $700 billion economy with strong trade ties to the U.S. López Obrador, who is popularly known by his initials, AMLO, believes that for the past 25 years Mexico's policymakers implemented policies that damaged domestic industry by opening the economy too abruptly to international competition, and he proposes to renegotiate parts of the North American Free Trade Agreement (NAFTA) to protect Mexico's subsistence corn and bean farmers from elimination of import tariffs on those products in 2008. He also believes that Mexico's economy is dominated by a handful of businesspeople who evade taxes and use their influence to block economic competition, which means higher prices for consumers. He advocates a strong government role in the economy. He cares little about international relations, and has only traveled overseas—to the U.S. and Cuba—a couple of times in his life. But he's pragmatic, and realizes that the U.S. and Mexican economies are so closely wed that it's important to get along with Washington. SUBSIDIES FOR THE POOR. Calderón, who holds a masters degree in public administration from Harvard, is a firm believer in market economics and free trade. He believes the government should have a small role in the economy, apart from distributing cash subsidies to 5 million poor families that have helped lift millions out of extreme poverty in recent years. He has pledged to deepen economic reforms and make Mexico more competitive by pushing for changes in the country's tax laws and labor regulations as well as opening up the oil and electricity sectors to private investment. Calling himself the "jobs" president, Calderón also says that fellow NAFTA partners, the U.S. and Canada, should help Mexico by investing in local infrastructure projects that would help create work, reducing illegal immigration. Pedro Zuñiga, a 62-year-old farmer, rode a bus for two hours to attend a June 25 closing rally for Calderón at Mexico City's huge Azteca stadium, attended by around 120,000 people. His face bronzed by years of work on the family's 25-acre plot of corn and bean fields, Zuñiga said he came to the rally to show his support for Mexico's young democracy. "Economic stability is important to poor people like me," he says. He and his four sons clear just $3,800 a year after expenses, so they depend heavily on an annual $650 subsidy from the government that helps them buy fertilizer and seeds before the planting season begins each May. Under the long-ruling Institutional Revolutionary Party (PRI), the payments never arrived until October, when the crop was ready to be harvested. But since President Vicente Fox and his National Action Party (PAN) took office in 2000, the subsidy arrives punctually, in May. "The PAN is organized, they're not corrupt like the PRI was, and they have kept the economy steady,"says Zuñiga. "I'm afraid that López Obrador will spend like crazy and will take this country into an economic crisis." NEW JOBS. Three days later, another 100,000 people gathered under rainy skies in Mexico City's central plaza, the Zócalo, to show their support for López Obrador, of the leftist Party of the Democratic Revolution (PRD). Waving yellow PRD flags and posters bearing López Obrador's photo, they cheered enthusiastically as the former Mexico City mayor promised to dramatically change policies so that the country's economy will grow faster. "We must push aside the arrogant, mediocre, and thieving politicians who have done so much damage to this country!" he said, to cheers from the crowd. In the crowd, Gabriel Hernández, 41 and his wife Lourdes, 42, applauded enthusiastically. Hernández, a physical therapist, says that Mexicans voted for Fox in 2000 so that they could get rid of the entrenched, corrupt PRI. "Fox promised the moon, but he hasn't delivered," he says. Hern"ndez' 21 year-old handicapped daughter needed a wheelchair and a walker, but Fox's government never came through with those either. López Obrador, as mayor, delivered both, and also paid the family a $70 monthly stipend. As mayor, he introduced similar stipends to hundreds of thousands of senior citizens, disabled people, and unwed mothers, and has pledged to extend the program nationwide if elected president. He also has promised to create millions of jobs through public works projects, including a new railway network and a new international airport. Such promises please many Mexicans, but for others they raise the specter of rampant overspending that could destabilize the economy. Mexico used to have a financial crisis every six years, each time a new president took office, the result of lax fiscal and monetary discipline. The country has now enjoyed economic stability for the last 11 years, and that has pushed interest rates and inflation to the lowest they've been in three decades. That has helped fuel a mortgage boom, allowing many working class and middle-class Mexicans to become homeowners for the first time. For the past decade, wages have been rising faster than inflation, and the ranks of the middle class—those making between $7,200 and $50,000 a year—have increased to around 10 million families, or around 40% of all Mexican households. Many in the middle class are rooting for a Calderón victory. Luís Curiel, 31, who runs a family-owned business with around $100,000 in revenues that sells canned typical Mexican foods to supermarkets, attended Calderón's big rally in Azteca stadium along with his cousin, to show their support for the PAN's economic policies. López Obrador, he says, "would be a disaster—he would set Mexico's economy back 20 years." FISCAL DISCIPLINE. In the days leading up to the election, the Finance Ministry moved to reassure markets that the economy is solid: Thanks to record-high oil export revenues, the country has a balanced budget and has accumulated $77 billion in international reserves. Nearly a half-million new jobs were created through mid-June, nearly equal to the number of jobs created in all of 2005. Still, economic growth has averaged just under 2% annually since 2000. That falls far short of the 7% annual growth Fox pledged when he took office. Some critics believe that finance officials' determination to keep a tight lid on spending and inflation cramped growth and led to popular discontent that is now leading many voters to favor López Obrador. Yet even those who think that López Obrador would undo many of the economic reforms that have made Mexico advance in recent years believe he is right when he says that significant changes are needed to make the country a fairer place. "We have to get rid of some of these powerful economic structures and privileged sectors that hurt the country's competitiveness," says Luis Rubio, a prominent economist who heads the Center of Research for Development in Mexico City. While many are afraid López Obrador would be a budget-busting big spender, his record as mayor of Mexico City indicates that he can stay within budget. While mayor, he reduced salaries and eliminated excess spending, and with the savings paid for social programs. And others note that López Obrador, if elected, may turn out to be more fiscally prudent than expected. Before Brazilian President Luiz Inácio Lula da Silva was elected in 2002, markets wobbled over concerns that the left-leaning former labor unionist would abandon fiscal discipline. Da Silva turned out to be one of the most disciplined presidents in recent history. AMLO may show the same restraint. But first he has to triumph in Mexico's tightest election ever.  Smith is BusinessWeek's Latin America correspondent
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