Mexican president heads to New York riding energy overhaul momentum

Eric Martin (c) 2014, Bloomberg News. MEXICO CITY — Mexican President Enrique Pena Nieto heads to New York next week to sell investors on an oil- industry opening that his government says will help double economic growth within three years.

The 48-year-old leader will use his visit for the United Nations General Assembly to promote measures designed to draw investment and create jobs, according to a person familiar with his plans, who asked not to be named before the public events. Pena Nieto also plans to speak alongside the presidents of Chile, Colombia and Peru at an event at Bloomberg world headquarters on Monday and Tuesday at the Council on Foreign Relations, whose corporate members include Bloomberg, Citigroup and Goldman Sachs.

The trip, Pena Nieto’s first to New York or Washington since taking office, comes as his government works to accelerate the timeline for the first private oil drilling contracts, breaking state-owned Petroleos Mexicanos’ monopoly. The administration estimates legal changes approved in the past two years will lift economic growth to 5.2 percent annually by 2017, twice the average of the past two decades.

“This is a great opportunity for the government to build on the momentum already achieved and ignite more optimism and enthusiasm for the reforms,” Duncan Wood, director of the Mexico Institute at the Woodrow Wilson International Center for Scholars in Washington, said in a telephone interview. “We should also expect meetings with people from the financial community.”

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Since taking office in December 2012, returning the Institutional Revolutionary Party to power, Pena Nieto won approval for changes to boost bank lending, spur competition in a telecommunications industry dominated by billionaire Carlos Slim and make teachers more accountable for performance. Lawmakers last month also gave final approval to guidelines for private energy investment that Bank of America estimates may attract $20 billion in annual foreign-direct investment, doubling the amount of some recent years.

The moves are winning investors’ endorsement. Mexico’s benchmark IPC stock index climbed to a record last week and has advanced 15 percent since Pena Nieto’s election in July 2012. The peso has strengthened 0.9 percent against the U.S. dollar, the only gain among Latin America’s most-traded currencies tracked by Bloomberg. The cost to insure Mexican debt against default using swaps fell to a six-year low in June, dropping below Chile, the region’s highest-rated sovereign, for the first time ever.

Moody’s Investors Service raised Mexico’s credit rating in February to A3, Mexico’s highest-ever investment grade and one level above rankings from Standard & Poor’s and Fitch Ratings. S&P boosted Mexico’s rating in December, and Fitch lifted it in May 2013.

Pena Nieto has repeatedly said the legislative changes were needed in order to improve productivity and lift Mexico’s potential growth rate. While exports have soared sevenfold since the North American Free Trade Agreement took effect in 1994, the nation’s economy overall has grown just 2.6 percent on average annually, trailing the 3.1 percent average for Latin America.

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The government says that legal changes approved in the past two years will help Latin America’s largest economy after Brazil grow 3.7 percent next year and 4.9 percent in 2016. The economy will expand 2.5 percent this year, according to the median forecast of economists surveyed by Bloomberg, after growing 1.4 percent in 2013.

Pena Nieto will address the UN General Assembly on Wednesday. He’ll also speak to the Economic Club of New York on Monday and at a dinner on Tuesday where he, Walt Disney Chief Executive Officer Bob Iger and General Motors Chief Executive Officer Mary Barra will be honored by the Appeal of Conscience Foundation, a human rights organization.

Pena Nieto pushed through his energy changes, succeeding where previous presidents had failed, by rallying legislators for the two-thirds vote in each house of Congress and majorities in more than half of state legislatures required to change the constitution. The move allows private companies such as Exxon Mobil and Chevron to explore for oil for the first time since the nation seized assets from U.S. and British and companies in 1938.

While Pena Nieto will probably be received positively for pushing through the changes, investors will be curious about his plans for his four remaining years in office and how his government will ensure the rule of law in the oil opening, said Eric Farnsworth, head of the Washington office of the Council of the Americas, a group representing U.S. businesses. That includes plans for quelling violence spurred by drug cartels in gas-rich northern states like Tamaulipas, he said.

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“They’re going to want to hear from him about the next steps in the reform program,” Farnsworth said in a telephone interview from Washington. “Reform is a little bit like riding a bicycle — if you stop pedaling, you fall off.”

Preliminary terms for the first private oil drilling will be released between November and January, with the first contracts awarded in the first half of 2015, according to the National Hydrocarbons Commission. Pemex last month was granted rights to all the proved and probable oil reserves it sought for development.

Pena Nieto’s economic agenda hasn’t boosted his standing at home. His approval rating fell to 51 percent in May from 57 percent a year earlier, according to a Pew Research Center poll released in August that had a margin of error of plus or minus four percentage points. Sixty percent of those surveyed were dissatisfied with his economic management.

Mexico’s economy last year grew the least since the end of the 2009 recession due to a drop in public spending and debt defaults by the nation’s biggest homebuilders. Consumer confidence has suffered this year, and growth in the first quarter missed economists’ estimates after the government increased taxes in January as part of a plan to wean the nation’s federal budget off dependence on oil revenue.

The government has lifted public spending this year by 12 percent through July, and the central bank has cut interest rates four times in the past 18 months to a record-low 3 percent. The economy rebounded in the second quarter, growing 1 percent from the previous three months, or a 4.2 percent annualized rate.

International investors have a positive view of the opportunities in Mexico in the longer term because of the changes Pena Nieto has brought about, Rafael de la Fuente, an economist at UBS, said in a telephone interview from Stamford, Conn.

“Mexico is in a very good position going forward in coming years,” he said. “Most people would feel that the reforms are the right reforms and if properly implemented and properly shepherded they will deliver stronger growth.”

With assistance from Carlos Manuel Rodriguez in Mexico City