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4 years ago
UPDATE 4-Mexico political dispute hits banking plan, raises doubt on reforms
April 24, 2013 / 1:26 AM / 4 years ago

UPDATE 4-Mexico political dispute hits banking plan, raises doubt on reforms

(Updates with political parties to meet on Wednesday)
    By David Alire Garcia and Dave Graham
    MEXICO CITY, April 23 (Reuters) - Mexican President Enrique
Pena Nieto has suspended plans to present a new banking sector
reform due to a dispute between Mexico's main political parties,
raising doubts about a wider reform agenda that investors are
watching closely.
    The dispute is one of the first major challenges to face
Pena Nieto, who had drawn up the overhaul which aims to boost
lending under a so-called Pact for Mexico he forged with leaders
of the opposition to work jointly on reforms.
    Cracks in the agreement have appeared due to a funding
dispute over July elections in the state of Veracruz, where the
opposition has accused Pena Nieto's government of abusing its
power to help his Institutional Revolutionary Party, or PRI.
    The setback over the banking reform, which was due to be
presented on Tuesday, comes as a sweeping telecoms sector bill
seeking to curb the power of Carlos Slim's phone giant America
Movil and broadcaster Televisa is very close to full approval.
    If fighting between the parties intensifies, it could not
only endanger the telecoms legislation but also interfere with
major fiscal and energy reforms that Pena Nieto aims to pass
later this year. They are central planks of the government's
plan to boost annual economic growth to 6 percent.
    "An instrument like this (pact) is not immune to eventual
tensions and political differences," Pena Nieto said in an
address on Tuesday. "The government will actively contribute to
ensuring conditions for dialogue and agreement that we have
managed to create together these past months."
    In a statement early on Tuesday, Pena Nieto's office said
public activities relating to the Pact for Mexico had been
suspended temporarily "to open a space for frank dialogue that
allows disagreements to be overcome and strengthen the pact."
    Soon afterward, senior officials in the main opposition
groups, the conservative National Action Party (PAN) and the
leftist Party of the Democratic Revolution (PRD), indicated the
impasse over the banking initiative could be resolved.
    On Tuesday evening, Interior Minister Miguel Angel Osorio
Chong said on Twitter the leaders of the three main political
parties had agreed to meet with the government on Wednesday.
    "What the PAN and the PRD are doing is using their power to
blackmail," said political analyst Fernando Dworak. "The
opposition is trying to limit the PRI's influence in local
elections in exchange for staying at the table on reforms."
    Dworak did not expect the pact to break and saw Tuesday's
move as an effort to safeguard the telecoms bill, which the PRI
says should be signed off by Congress by the end of the month.
    The PAN said its leader, Gustavo Madero, would not attend
the banking reform presentation after accusing the PRI of using
drives to enroll voters in social programs to try to buy votes
in Veracruz. The PRD has swung behind the PAN in the scandal.
    Veracruz is one of Mexico's most populous states and one of
14 that are to hold elections on July 7. The PAN also has warned
the PRI about intervening in a gubernatorial election due at the
same time in the PAN stronghold of Baja California.
    Social Development Minister Rosario Robles, a former member
of the PRD, has come under fire because of the dispute, which
arose after recordings came to light showing officials
suggesting welfare programs could be used to help the PRI in
    Robles subsequently dismissed seven officials. Opposition
lawmakers have called for her head and were angered when Pena
Nieto backed her publicly last week. 
    "The response of President Enrique Pena Nieto ...
constitutes carte blanche for election miscreants. These hurt
and contradict the contents and aim of the Pact for Mexico," PRD
Chairman Jesus Zambrano said in a statement late on Monday.
    Since Pena Nieto unveiled the Pact for Mexico days after
taking office in December, it has formed the foundation of his
government's main reform efforts, including a shake-up of the
education system and the telecommunications bill.
    Investor optimism about the prospects for reform in Mexico
have helped strengthen the peso currency to its highest level in
more than a 1-1/2 years in the last few weeks.
    "If (Pena Nieto) maneuvers out of this situation, the Pact
for Mexico would be strengthened. Under this scenario the
potential for a rally in rates and FX might actually
accelerate," Benito Berber, a fixed income strategist with New
York-based Nomura Securities, said in a research note.
    "For now we think only one thing is certain, some cracks in
the pact have appeared," Berber said.
    The Mexican peso brushed off the dispute on Tuesday, and
traders and analysts said many investors who piled into bets on
assets due to reform optimism were expecting bumps in the ride.
Still, further political complications could hurt the currency.
    "Much of the (peso's gains) have been due to favorable
expectations (on the reforms). If the expectations change, it
will change the market trend," said Alfredo Puig, a trader at
brokerage Vector in Monterrey.
    Still, Finance Minister Luis Videgaray said in a radio
interview on Tuesday that the financial reform bill should be
introduced "in the next few days."
    Jesus Ortega, former chairman of the PRD and a member of the
pact's presiding board, told Reuters the reform would proceed
once the inter-party disputes are settled.
    "It's not about the (new) law," he said.
    Marco Antonio Adame, a PAN member of the board called the
president's announcement "a positive signal."

 (Additional reporting by Miguel Gutierrez, Michael O'Boyle and
Ana Isabel Martinez; Editing by Simon Gardner, Andrew Hay and
Mohammad Zargham)

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