Shannon K. O'Neil

Latin America's Moment

O'Neil analyzes developments in Latin America and U.S. relations in the region.

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2011: The Year that Mexico Opens its Economy?

by Shannon K. O'Neil
August 16, 2011

Mexico's stock exchange employees work at their desks in Mexico City (Henry Romero/Courtesy Reuters).

Mexico's stock exchange employees work at their desks in Mexico City (Henry Romero/Courtesy Reuters).

It is becoming increasingly possible that 2011 will be the year that Mexico truly began opening its closed economy. Though political reform seems to have failed and efforts to centralize Mexico’s many police forces stalled, the political system has taken important steps in the last several months that could establish a more open and level economic playing field. What is most interesting, and perhaps hopeful, about these developments is that all three branches of government are throwing their weight behind freer markets.

First, in mid-April, the executive branch through the regulatory Federal Competition Commission, or CFC issued the largest fine for monopolistic behavior in Mexico’s history. As I discussed in an earlier post, Telcel was slapped with a $1 billion penalty for inordinately high interconnection fees. What’s more, the fine marked the second sanction against the telecommunication giant – one more strike, and the government is legally allowed to break up Telcel for good.

The legislature was the next to flex its muscles against domestic conglomerates. Following on the heels of the Telcel ruling, both houses of the senate unanimously approved a number of changes to anti-trust laws designed to foster competition. The reform put in place harsher punishments for those found guilty of monopolistic practices, who can now be fined up to 10 percent of their profits and in the most serious cases (price fixing falls under this umbrella) face 10 years in jail. They also awarded more power to the CFC, including the right to conduct unannounced raids of companies under investigation.

Now the judiciary is jumping into the fray. Pushed by business groups, the public prosecutor’s office launched last month a criminal investigation into Héctor Osuna, former vice-president of the telecom regulator COFETEL, and his colleagues. Investigators suspect that COFETEL executives engaged in back door legal maneuvering to grant Telmex (owned by Carlos Slim) access to the television market on unfair grounds. Specifically, they believe that Osuna intentionally delayed  ruling on Telmex’s request for a television concession past the specified deadline – despite his own admission that “for us there was never evidence that [Telmex] had complied with its requirements” — which technically counted as a tacit approval of the request. The result of the investigation is not just vital for Telmex, which would gain substantially by entering the television market, but also for the judicial branch, whose scorecard against national giants hangs in the balance (though the courts have defended more open markets before, notably in 2007 when the Supreme Court struck down a media law that stifled competition).

To be sure, these recent actions are mostly directed at the business interests of just one individual — Carlos Slim. On the other hand, if used more broadly, the new legislation and legal precedents could be real game changers for the Mexican economy. Either way, this is the first time we have seen such a serious full court press for more open markets and sectors in Mexico — and all three branches of government deserve credit for that.

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