Mexico & Nafta - 21 October 2003

The decision to kick the convention into next year is a blow to the government. It means that the current session of congress will not pass the crucial fiscal and energy sector reforms the government had been pushing for. What is likely to happen is that the current congress will just broaden the debate on what the fiscal options are and then pass a holding budget for 2004. The problem the government (and the economy) faces is that energy sector reform is inextricably bound up with fiscal reform because of the way successive governments have used the state oil company, Petróleos Mexicanos, as a cash cow. 

The convention will be only the fourth ever held in Mexico. The first was in 1925, the next in 1933 and the third in 1947. Previous fiscal conventions have settled on the way tax revenues are shared between the federal and state governments. Under the current arrangement, established in 1980 without a convention, the states dropped some of their constitutional rights to levy taxes in return for guaranteed payments from the federal government. Some constitutionalists argue that the government would have been better advised to have just used congress and treated the senate as the forum in which the 32 states could make their representations. These commentators argue that the government is setting up the Comisión Nacional de Gobernadores (Conago), which will form the heart of the convention, into a parallel senate.

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