While the world was glued to televisions waiting for the result of the U.S. elections last night, Mexico lost one of its most important leaders in its struggle against organized crime and drug trafficking. Juan Camilo Mouriño, Mexico’s Interior Minister, died along with seven others when a government plane that was carrying them to Mexico City crashed into the city’s busy Reforma Avenue in what appears to have been an accident. Among those killed was also José Luis Santiago Vasconcelos, an important presidential adviser on security and judicial reform matters, who had headed Mexico’s elite force to combat organized crime (SIEDO) and had been in charge of extraditing numerous narcotraffickers. The Interior Minister is the second most important position in Mexico’s government, comparable to the vicepresidential position in the United States, and is usually responsible for negotiating with the legislative branch. President Calderon had assigned Mouriño to spearhead the government’s efforts against organized crime and to reform Mexico’s security institutions. In an administration that has rested heavily on President Calderon’s closest confidants in its decision-making process Mouriño was probably the closest to Calderon. It is unclear who could fill Mouriño’s shoes. His death is indeed a blow to Calderon and to Mexico’s efforts against organized crime, drug trafficking, and corruption.

The Mexican Congress approved a long-overdue energy reform on Tuesday October 28 following 6 months of debates, referendums in 8 Mexican states and Mexico City, and numerous public demonstrations from both sides. While some newspapers tout the government got 80% of the reforms it asked for, Calderon started with an already limited proposal, rejecting any foreign investment in production, which would have required substantial changes to the 1938 constitutional amendment governing Mexican oil. The shared risk/shared reward bargain present around the world, and with other state-owned oil companies such as PETROBRAS in Brazil and PDVSA in Venezuela, was never on the table in Mexico. Even so, the “20 percent” that the President conceded to the PRI and PRD in Congress was an important part. The final bill , and soon law, prohibits private companies from operating refineries and transporting oil within Mexico. It allows Pemex, Mexico’s state-owned oil company, to contract with other companies for some (but not all) types of desperately needed investment in exploration and production, leaving out in particular difficult deep water explorations. The approved reform also sets up disincentives to contracting with Pemex at a time when capital and credit are limited. It mandates that contracted companies must be paid in cash and forbids paying them based on the amount of oil found, produced, or sold by Pemex, although it does offer bonuses for early completion of projects and transferring technology to the Mexican oil company. While the reform does give Pemex more financial autonomy and greater flexibility - allowing it to keep more of its profits so that it can use them for investment in technology and exploration - the company’s employees currently lack many of the necessary skills to realize these new opportunities. So, in the end, production will continue to decline.

Despite these limitations, the reform process was positive for Mexico’s solidifying democracy at work. Once a political third rail, politicians, interest groups, and society at large discussed and approved an oil reform, through successful negotiation and compromise between the Executive and Legislature, and within Congress. The PRI and the PRD played an important role in toning down the reform, which was then passed by an overwhelming majority in both the Senate and the Chamber of Representatives. The reforms exposed the deepening division within the PRD. While many of their colleagues voted for the reform, other PRD representatives attempted to block debate , forcing the Senate vote to take place at an alternate venue and the Chamber vote to take place at a makeshift podium, away from the flag-waving and horn-blowing occurring in the usual space. Yet these anti-democratic tactics were unable to sway the workings of Congress — a good sign. Democracy worked.

Given the importance of oil revenues for the government — it funds nearly 40% of all public spending — further debates and reforms will happen again — perhaps sooner than later. What this round of reform shows is The that the “sacred cow”? of oil is no longer that. This itself is good for Mexico.

Mexico’s attorney general said yesterday that employees of his elite force to combat organized crime, SIEDO, passed confidential information to the Beltran-Leyva cartel in what has been described as the “worst case of infiltration of law enforcement by drug cartels in 10 years.” This is what I had to say about this for PBS’s new show WorldFocus last night.

This opinion piece I wrote for the Washington Post lays out many of the findings and recommendations of the Council on Foreign Relations sponsored Independent Task Force on U.S.-Latin America Relations, for which I served as Director.

The report has gotten some great feedback so far, and I hope will help jumpstart a new conversation within the next Administration and Congress with regard to the region.

The Task Force report co-chairs, Charlene Barshefsky and General James T. Hill, published an editorial yesterday in the Miami Herald. It lays out the main themes of the report, in particular the call to recognize that U.S.-Latin American relations is increasingly about U.S. domestic policy.

After taking a 3 plus month maternity hiatus, I am back and will be posting regularly again.

To kick things off, here is a link to a new Independent Task Force report from the Council on Foreign Relations, titled U.S.-Latin America Relations: A New Direction for a New Reality. The Council brought together 19 individuals of various interest and expertise under the chairmanship of Charlene Barshefsky and General James T. Hill. As director of the project, I can attest to the long hours of intense and at times spirited discussion among its members.
The group decided that U.S. policy should focus on four critical areas: poverty and inequality, public security, migration, and energy integration. The main recommendations are the following:

Poverty and Inequality:

• U.S. should expand targeted assistance for poverty alleviation and institution building by fully funding the Millennium Challenge Account and developing new initiatives to reach the poor regions of the larger middle income countries. These programs should reflect the priorities of Latin American governments and also involve restructuring and integrating the programs of various U.S. government bureaucracies and multilateral institutions.
• Alongside aid, the United States should approve pending free trade agreements with Colombia and Panama and extend trade preferences to Bolivia and Ecuador to encourage productive relations with these complex countries.

Public Security:

• The United States should assist Latin American countries in strengthening their law enforcement and judicial systems. Only through strong institutions can criminal networks and drug traffickers be controlled in the long term. The United States should also focus more on the demand side of the drug equation, working closely with other large drug consuming nations, specifically those in the European Union.

Migration:

• Push through a comprehensive reform in 2009. This must deal with border security, employer responsibility, some sort of regularization of the 12 million unauthorized workers here today, and a flexible guest worker program to deal with future labor demands.

Energy Security:

• The United States should provide FDI incentives to help build energy infrastructure i the region. It should also sponsor regional and subregional working groups to forward best practices.

Finally, the task force touches briefly on 4 bilateral relations. It recommends deepening U.S. relations with Brazil to promote global trade negotiations and manage energy demands; strengthening cooperation with Mexico to stop narcotics trafficking, increase U.S. investment in energy production, and reform immigration policies; using multilateral institutions to address foreign and domestic policies of Venezuela; and opening informal and formal channels of communication with Cuba, with the eventual goal of lifting the embargo.

I’ve finally seen a full breakdown and explanation of the numbers behind the first year of the Merida Initiative, the Bush Administration’s proposal to cooperate with and aid Mexico in the fight against drugs and terrorism. It can be found here in the second Appendix. This ambitious plan aims to better arm Mexico’s front line civilian and military agencies, to create new roles and offices necessary to better monitor and fight crime, to transform the workings of police and judicial institutions, and to increase the role of civil society organizations in these processes.

Looking at the actual budget breakdown, the focus on long-term institutional changes and professionalization of law enforcement and judicial agencies – which are essential for the sustainability of any success in the war against drugs – is not particularly impressive. Direct training for police and judicial officials comprises only $35mn of the $500 mn. Adding in office equipment, computer systems, forensic labs, and support for civil society that is directly tied toward increasing transparency and accountability increases the amount for institutional improvements to nearly $100 mn. Yet this is still just 20% of the money designated for FY2008.

Instead, the Merida expenditure is front-loaded toward the gear. These include over $100 mn for 8 transport helicopters, $100 mn for 2 surveillance planes, and $140 mn for other equipment including satellite communication systems, ion scanners, x-ray technologies, and extensive database development.

The main reason given for this breakdown is that the Mexican military and civilian agencies need more sophisticated machinery right now to combat the drug trade. While this may be true, there are significant drawbacks to this approach. First, institutional changes and professionalization take a long time to take root and achieve real results ‑ so the sooner these changes begin the better for Mexico and the United States.

Second, policies to reduce corruption and strengthen the rule of law provide less quantifiable benefits. They are much more likely to get cut from future budgets, particularly if the Merida Initiative is not deemed an rapid success (which, without improvements in the performance of the police and judiciary, is likely).

Finally, given the real deficiencies in law enforcement and judicial institutions in Mexico, does the United States really want to equip them with sophisticated technologies before beginning expansive efforts at professionalization? Until these institutions are more transparent and accountable, improving surveillance and other capacities may be counterproductive.

These issues need to be debated when Congress takes up the Merida Initiative, most likely in February. While this agreement is an important step for U.S. security and for bilateral relations, its success will depend in large part on its structure. In order to make the most of this opportunity to work closely with Mexico and to improve the safety of citizens on both sides of the border, greater support for real changes to Mexico’s institutions - from the start - is vital.

Much is made in policy circles about the role remittances can play in boosting economic development in Latin America. Proponents point out that the over US$60 billion in remittances that return each year to the region is far higher than foreign aid and often higher than foreign direct investment in a country. Yet so far this money has not greatly affected economic growth or economic opportunities at home. Instead, the vast majority of remittance money goes to consumption. Some believe it actually fuels dependency, as more local community members are incentivized or even have to migrate in order to support their families.

While these monetary flows often do lift recipients out of poverty - providing adequate food, clothing, and shelter – they do little to stimulate local or national economic growth through productive investment. And as private money, unlike foreign aid or even FDI, it has been hard for governments to direct this capital into development-oriented projects. How can governments stimulate investment through public policies without hurting these flows?

So far, governments have focused on reducing the costs of transmitting remittances through formal channels such as banks with quite a lot of success. The costs of transferring money abroad have fallen precipitously, allowing migrants and their families to keep more of the funds earned. Also, migrants and their families are beginning to put funds in local and international banks, leading to more savings and investment capital. But these changes, while beneficial, do not in and of themselves increase investment in productive activities in their home communities. The amounts in individual accounts are small, and still used primarily for consumption by local families. In addition, banks often pool these savings from remittance receiving communities and invest them in larger amounts in more attractive loan markets, such as the capital cities in each country. This limits local economic development in the places most starved for investment capital.

Another set of public policies, prevalent in Mexico, involves matching funds for local community investment. Dubbed “3 for 1” programs, migrant groups pool together funds for infrastructure investments – for instance local roads or schools – and the federal, state, and local governments each match a peso. While helping local communities, the actual size of these programs is quite small, estimated at roughly US$70 million in investment last year. Many also question why migrants are funding 25% of public infrastructure for which the state should ultimately be responsible.

Mexico recently announced another pilot program aimed at directing remittances into rural economic development (Houston Chronicle 12/24/07). Unlike earlier policies, this program targets productive private investment. And, it focuses on agriculture, ensuring that these funds go back to the communities of origin of many migrants. While obviously in the initial phases, this incentive structure is promising. It may actually get at the elusive goal of economic development in the hardest hit areas of the national economy - the areas most likely to send large numbers of migrants abroad. If tied to capacity building and technical assistance programs – either provided by the Mexican government, non-profit organizations, or international aid such as USAID – this type of program could become and important step in promoting economic development, and ultimately providing citizens the choice of staying home.

What a difference a year makes. Just a year ago Mexican President Felipe Calderon’s mandate appeared uncertain following a contested election that gave him a razor-thin winning margin of 250,000 votes over PRD candidate Andres Manuel Lopez Obrador (AMLO). Last December 1st he was stoically watching Representatives come to blows on the Congressional floor as PRD representatives tried to prevent his formal inauguration. Now his approval ratings top 60%, and he has achieved important if incremental reforms to the public pension system, the fiscal system, and the electoral system.

This impressive turnaround highlights Calderon’s political astuteness. Unlike President Vicente Fox before him, Calderon has mastered the art of Congressional compromise, and his team has eagerly worked with opposition party leaders to hammer out viable legislative reforms. His foreign policy has also astutely asserted his independence from the United States, whether by speaking out against the treatment of Mexican migrants to reaching out to Leftist governments in the region, notably Presidents Ignacio Lula da Silva of Brazil, Fidel Castro of Cuba, and Hugo Chavez of Venezuela. Finally, Calderon has focused on an issue affecting voters’ daily lives – insecurity and violence. His tough “law and order” initiatives, including sending out nearly 30,000 military troops to combat drug trafficking, have gained him many fans in Mexico and abroad (including the United States).

Yet Calderon’s successes also result from the calculations and positioning of the other political parties. With AMLO’s continuing defiance of the sitting government, the PRD has divided. The recalcitrance of many factions of the PRD to work with the government leaves them without policy accomplishments, weakening their electoral appeal. Continuing demonstrations against a popular President – such as disrupting Mexico’s State of the Union address traditions – have instead burnished Calderon’s image and discredited the PRD in the eyes of many citizens. In a turnaround from the Fox years, the PRI has made strategic choices to work with the PAN under Calderon. Hoping to appear Presidential for 2012, several key PRI leaders have forged a good working relationship with the Calderon administration. Each of the major reforms through Congress – pensions, fiscal, and electoral – were supported by important segments of the PRI.

Despite these noteworthy successes, there are significant challenges that face the government, and which will determine the rest of Calderon’s tenure. These include:
The drug war. Calderon has made headway with record seizures and arrests of key cartel members, interrupting at least temporarily the steady flow of drugs north. He has also negotiated the Merida Initiative with the Bush administration, which would exponentially increase U.S. assistance for Mexico’s war against drugs to some US$500 million a year for roughly the next two years. If passed, this agreement would transform the relationship between Mexico and the United States, locking in cooperation on drug and other crime oriented issues. Yet to truly succeed in lessening the daily violence in Mexico, fundamental reforms to the judiciary and police systems are necessary. Without these underlying changes, more money and more guns will not improve security in the longer-term. In fact, despite Calderon’s initiatives, the numbers of deaths in the war on drugs, and the violence in Mexico’s towns and cities, has if anything increased. How long the public will support this status quo remains to be seen.
Migration. Calderon has also dropped any talk of pushing immigration reform in the US (a wise move given the domestic political currents in the US), and instead has focused on defending Mexican rights abroad (a popular move with domestic constituencies in Mexico). But unless Mexico can create hundreds of thousands of jobs each year for the next several years, migration to the United States will continue to be an unfortunate necessity. A U.S. crackdown – like that advocated by many of the current Presidential candidates - would strongly affect the Mexican economy and the basic income of millions of citizens that depend on remittances.
Economic Competitiveness. Mexico has made great strides in opening up its economy and strengthening its institutions in the last two decades, but much more needs to be done to compete effectively on a global level. The concrete steps the Calderon government is taking to build Mexico’s infrastructure – including roads, ports, and airports – are crucial. But these need to be done more extensively and quickly. And they cannot be the only changes to the economy. Greater regulatory strength and independence, lower underlying costs of electricity, telecommunications, and improving health and education services, are crucial for Mexico’s future. Unless changes occur in these other areas, these bottlenecks will hamper economic growth and job creation.

While more has been done in the first year than many expected, Calderon’s honeymoon is decidedly over, and the three main political parties are already starting to position themselves for the mid-term 2009 elections. This may mean that the window of cooperation is closing, limiting major reforms. This would be unfortunate for Mexico, and for its future.

Here is a recent interview I conducted with Bernard Gwertzman at the Council on Foreign Relations:

Interview November 6, 2007