Mexico's new president will need outgoing party for reforms

MEXICO CITY Tue Jul 3, 2012 5:03pm EDT

Enrique Pena Nieto (L), presidential candidate of the Institutional Revolutionary Party (PRI), celebrates next to his wife Angelica Rivera after exit polls showed him in first place, in Mexico City July 1, 2012. REUTERS/Tomas Bravo

Enrique Pena Nieto (L), presidential candidate of the Institutional Revolutionary Party (PRI), celebrates next to his wife Angelica Rivera after exit polls showed him in first place, in Mexico City July 1, 2012.

Credit: Reuters/Tomas Bravo

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MEXICO CITY (Reuters) - Mexico's opposition Institutional Revolutionary Party, or PRI, won a return to power at the weekend but will have to make deals with its defeated adversaries to push major economic reforms through Congress.

President-elect Enrique Pena Nieto plans to fire up Mexico's lumbering economy by loosening labor laws, overhauling the weak tax system and opening up state oil monopoly Pemex to more private investment.

But the latest projections show the PRI will fall short of an absolute majority, or 50 percent plus one vote, in the 500-member lower house Chamber of Deputies and the 128-seat Senate.

That means Pena Nieto will need support from the conservative National Action Party (PAN) of outgoing President Felipe Calderon, to whom the PRI leader has paid generous tribute several times since his narrower-than-expected victory on Sunday.

The PAN prides itself on its principles and has said it will back measures it believes in. But having proposed similar economic reforms under Calderon, only to have them obstructed by the PRI, the PAN is not going to give its support for free.

"We are not going to be as selfish and shortsighted as the PRI was when it blocked all the reforms presented by Calderon," said PAN senator Ruben Camarillo, a key party negotiator who will be moving to the lower house of Congress.

"But that does not mean giving the PRI a blank check."

Jose Gonzalez Morfin, head of the PAN in the outgoing Senate and the possible leader of the party in the next lower house, said the PAN would demand the PRI include measures in their proposals to make unions more democratic and transparent.

"The (reform) has to come from the PRI so that things get back on track and unions end up really defending worker's rights and not just their own power and impunity and shadiness that does not benefit the country at all," Gonzalez Morfin said.

Fostering competition may also feature among demands from the PAN. Such deals might be tricky for the PRI, which has to protect its strong party base of public-sector employees and has connections to some of Mexico's most powerful business groups.

Polling firm Consulta Mitofsky sees the PRI and its allies, the Greens, winning at most 249 seats in the lower house and 61 seats in the Senate. It forecasts that the PAN would win as many as 135 lower house seats and 38 Senate posts.

The PAN's presidential candidate Josefina Vazquez Mota finished third after voters lost patience with the government's management of the economy and failure to contain rampant drug-related violence. Calderon was barred by law from running again.

The PAN is not the only potential support for the PRI.

The small New Alliance Party (PANAL), a group linked to the teachers' union, could win between four and 12 seats in the lower house and one in the Senate, Mitofsky said.

The union has traditionally been allied to the PRI and the PANAL could offer help to Pena Nieto.

The results suggest that in the best case scenario, the PRI will need support from the PANAL to assemble a majority in the lower house, but even with them, will fall short in the Senate.

And Pena Nieto will certainly need the PAN for the two-thirds majority required for constitutional changes, like the one needed to allow foreign companies to exploit Mexico's oil resources with state firm Pemex.

"We know they are going to need the PAN to get the super majority to pass (reforms)," said Edwin Gutierrez, a portfolio manager at Aberdeen Asset Management in London. "The big question is: what's the PAN's price for cooperation?"

Opposing more private involvement in the oil industry is the leftist Party of the Democratic Revolution (PRD), which will have the second largest bloc in the lower house after an unexpectedly strong showing on Sunday by its presidential candidate Andres Manuel Lopez Obrador.

Lopez Obrador has yet to concede defeat and said he will ask election authorities to recount the votes. He said it had been rigged by the PRI, which ruled Mexico for seven decades, at times ruthlessly, before being ousted by the PAN in a 2000 vote.

NO BLANK CHECK

Pena Nieto could also face resistance inside his own party to an overhaul of Pemex, which has been an icon of Mexican self-sufficiency since a PRI government created it in 1938.

So he will need strong PAN support and discipline within his own ranks to secure a two-thirds majority -- 334 votes are needed in the lower house and 86 in the senate.

Due to the complex mix of direct election and proportional representation used to award seats, final results for the make-up of Congress are still coming in.

Under Calderon, the PAN put forward many reform proposals similar to Pena Nieto's plans, but was continually stymied by the PRD working together with factions of the PRI.

Part of the frustration with Calderon's government was his inability to move forward with reforms in Congress.

Pena Nieto knows well the high cost of political failure, and there are signs that other groups potentially affected by the congressional negotiations are showing flexibility.

The long-running head of Mexico's powerful oil workers' union Carlos Romero Deschamps, who has been embroiled in corruption scandals in the past but is tapped for PRI senator, told Reuters the union was open to discussing reforms.

"Of course we will talk to construct a proposal that benefits the development of the oil industry," he said.

PRI leaders are adamant that Pena Nieto will be able to strike deals with the opposition, often noting he had no majority for four of the six years he spent as governor of the populous State of Mexico between 2005 and 2011.

"Under Pena Nieto's leadership, pulling together to pass reforms will be much easier," said Manlio Fabio Beltrones, one of the PRI's most important congressional power brokers.

"Now that we know he has won, we are going to quickly make decisions to end the discussion and start agreeing on things."

Both Beltrones and Morfin said there was a window of opportunity to make headway between Congress reconvening in September and Pena Nieto taking office in December.

Pena Nieto is confident the varying factions of the PRI - a wide tent of interests cobbled together over the years to help the party hold power - will fall into line behind him.

Others say Pena Nieto might also be able to work with the PRD - but the party has struck a combative tone since Lopez Obrador came within 6.5 percentage points of Pena Nieto in the election.

Manuel Camacho Solis, an advisor to Lopez Obrador, is entering the Senate and says the left will stand up to Pena Nieto.

"The priority will be to go after political reforms that end the corruption that has invaded Mexico's electoral system as a condition for everything else," Camacho Solis said.

(Additional reporting by Michael O'Boyle. Editing by Dave Graham, Kieran Murray and Christopher Wilson)