When Enrique Peña Nieto became president of Mexico in 2012, there was a lot to cheer about. His Partido Revolucionario Institucional (PRI) won only 39% of the vote but by signing a pact with two opposition parties to overcome gridlock, Mr. Peña Nieto showed how to reform. First, he seized control of the school system from the corrupt teachers’ union, a long-time ally of his party, the PRI, to improve quality. Then, he opened up competition in the monopolistic telecoms and media sectors that made Carlos Slim the richest man on earth. Not stopping there, Enrique introduced new tax rules that, although watered-down, aim to increase the tax base and make the country’s finances less dependent on oil revenues. And, finally, he slaughtered the biggest sacred cow of all, allowing foreign investment in the oil sector for the first time in 75 years (breaking Pemex’ monopoly) to address falling production levels and shortage of know-how. Indeed, we nominated Enrique as our “Man of the Year” for 2013.

But then, unfortunately, Mr. Peña Nieto lost momentum. He stumbled to formulate a proper response after 43 students disappeared in the state of Guerrero following their abduction by local police. The findings of an official investigation into the tragedy (that the bodies were burned in a rubbish dump) were subsequently disputed by foreign experts. Then, in 2014, his wife, Angelica Rivera, a former model and telenovela star, owned up to a shady property deal with Grupo Higa, a company chaired by a friend of the president which had obtained lucrative construction contracts. The company had built a small palace (a kind of Casa Blanca) for the presidential family but forgot to send an invoice. The fight against crime also stumbled after Joaquín “El Chapo” Guzmán escaped through a 1.6km tunnel from his maximum-security prison cell (most likely helped by his guards), although he was recaptured 6 months later. Finally, the Pemex privatization process (specifically, auctions of oil fields to other companies) was delayed after the oil price tumbled whilst teachers put up a fight to defend their right to provide dismal education to Mexico’s youth (9 demonstrators were killed in violent protests in Oaxaca over the summer). Meanwhile, Mr. Peña Nieto’s popularity dropped as a stone and is now below 25%.

In order to reverse the dreadful approval ratings, the president decided to invite Donald Trump for lunch. The thinking, apparently, was to show Mexicans and investors alike that Mr. Trump would not abandon NAFTA or block remittances from Mexican workers north of the Rio Grande. But the visit backfired as Enrique looked like a little school boy next to The Donald and forgot to mention that Mexico will not pay for the wall. Mexicans felt humiliated (especially when Mr. Trump called Enrique “a friend” and emphasized bilateral cooperation against illegal immigration whilst later that day, in Phoenix, Arizona, chanted in unison with his supporters “Build that Wall”).

Another brick in the wall…

Luis Videgaray, chief of the Hacienda, took the blame and resigned. He is replaced by José Antonio Meade, a competent technocrat. Meade has his work cut out for him. Under Videgaray, public debt rose by 10% to 47% in 2016 (mostly due to lower income from Pemex). Public-sector spending cuts must be enacted to prevent a further deterioration of Mexico’s credit profile. The structural reforms that Mr. Peña Nieto formulated must be implemented in full and at faster speed than currently is the case. Today, both Pemex and CFE, the country’s electricity grid, are a long way off from operating as efficient and profitable private companies. However, it certainly is not all doom & gloom in Mexico. Most analysts expect Mexico’s economy to grow by 3% to 3.5% next year. Depreciation of the peso has made manufacturing even more competitive (gaining market share in the U.S.) although productivity growth has been weak (due to poor education). Hopefully, export growth will not be dented in case Donald Trump is elected as the next president of the U.S. (although this might be good news for Cemex, a producer of cement).

Although a lot of water has to flow through the Rio Grande until the next elections in 2018, Mr. Peña Nieto does not have much time left anymore to see the reforms through before he becomes a lame duck. We understand that many Mexicans are fed up with the gaffes of their president (the latest one is that Enrique plagiarized part of his university thesis) but he does have the right plans to set his country on track for growth which ultimately will lift many Mexicans out of poverty. Don’t lose sight of the whole enchilada…