World Views: Mexico’s corruption eruption

With a doctorate from the Massachusetts Institute of Technology and a spot on one of those ubiquitous lists of “leading global thinkers,” Mexican Finance Minister Luis Videgaray is just the kind of technocrat to bring the country the radical economic reform it needs. He’s also financially entangled with a businessman who does hundreds of millions of dollars in business with the government.
Sadly, he isn’t an anomaly. Mexico’s ruling caste is seriously and systematically compromised by shady dealings. It’s part of a wider failure of governance – exemplifying the kind of corruption that’s inciting more and more Mexicans to protest indifferent public institutions, police who kill rather than protect, and clubby technocrats who pursue economic reforms but put themselves above the rules.
Proposals to address the problem have stalled. They need to be revived. Otherwise, Mexico’s political stability and efforts to modernize its economy are at risk.
Videgaray bought a luxury home from Juan Armando Hinojosa, a builder with close ties to the minister and to President Enrique Pena Nieto. Hinojosa, whose companies rely on government contracts, helped finance the purchase as well. News of the arrangement followed revelations that Pena Nieto’s wife had also bought a USD7 million mansion on credit from Hinojosa. In the ensuing uproar, the government canceled a $3.7 billion high-speed-train contract awarded to a consortium that included the builder.
Even as Mexico’s economy has opened up, its score on Transparency International’s Corruption Perceptions Index has barely changed, and its ranking lags that of many other Latin American nations. In 2013, more than 90 percent of Mexicans said that corruption either grew or stayed the same over the last two years.
No major Mexican politician has ever been convicted of corruption. Charges against “Mr. 10 Percent” – the nickname given to Raul Salinas, brother of ex-president Carlos Salinas – have just been dropped, after the case had dragged on for two decades. Mexico’s legislators have recessed for Christmas without passing anti-corruption legislation that, in various forms, has been sitting with them for more than a year.
The anti-corruption provisions of the Pact for Mexico, the agreement that Mexico’s biggest political parties signed two years ago, may ultimately be more important to Mexico’s future than its ballyhooed economic reforms. Foreign companies worried about losing out to sweetheart deals or becoming ensnared in stiff U.S. anti-corruption laws may shy away from Mexico’s newly opened energy and telecommunication markets. More broadly, without strong anti-corruption laws and the political will to enforce them, public confidence in government will continue to suffer.
This year, Mexico strengthened its transparency laws and created a special prosecutor for corruption. Disputes over who should be appointed to that role, what powers the office should have and how independent a new auditing body should be have blocked the initiative – a stalemate fed by the fears of all Mexico’s political parties that their past misdeeds might be exposed. Legislators have undermined the new transparency provisions by proposing sanctions for public servants and agencies whose disclosures “affect the performance of functions or could harm” public bodies.
Pena Nieto and the leaders of Mexico’s opposition parties have to resolve their differences over the anti-corruption bill. They also have to build and strengthen new anti-corruption institutions. If they don’t, Mexicans will pay a heavy price. Already, the country’s economic opening has been slow to yield measurable returns. There may be worse to come. Massacres and scandals have stoked public anger over deep-seated dirty-dealing. Citizens fed up with crime are taking the law into their own hands. At this rate, the question isn’t so much what happens at next year’s midterm elections. It’s whether reform is overtaken by revolt. Bloomberg Editors