Mexican president confident of key reforms in 2013

MEXICO CITY Tue Dec 11, 2012 7:24am GMT

Mexico's President Enrique Pena Nieto smiles during a ceremony to present Catholic priest Alejandro Solalinde with the National Human Rights Award on International Human Rights Day in Mexico City December 10, 2012. REUTERS/Edgard Garrido

Mexico's President Enrique Pena Nieto smiles during a ceremony to present Catholic priest Alejandro Solalinde with the National Human Rights Award on International Human Rights Day in Mexico City December 10, 2012.

Credit: Reuters/Edgard Garrido

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MEXICO CITY (Reuters) - Mexican President Enrique Pena Nieto said on Monday he is confident that reforms to shake up state oil giant Pemex and the country's tax regime, key planks of his drive to accelerate economic growth, will be approved in 2013.

The youthful Pena Nieto took office on December 1 pledging to fire up the economy after years of underperformance, during which it fell behind its big Latin American peer Brazil.

In his election campaign he identified energy and tax reforms as central to raising growth to rates of around six percent per year, or about three times the average rate of the past decade.

Though his Institutional Revolutionary Party (PRI) fell short of a congressional majority in regaining the presidency after 12 years on the sidelines, Pena Nieto is adamant he can pass energy and tax reforms that have foundered in the past.

"I would give a horizon of one year for these reforms," the 46-year-old told Reuters in an interview in Mexico City.

"Next year will be the time for all of it to happen from scratch: presenting the initiative, the necessary consensus to back it up and make them happen, and get the required approval."

He did not provide details on what shape the reforms would take beyond saying that he looked forward to Mexico forging "strategic" tie-ups with the private sector in the oil industry.

Asked whether he could secure the support in Congress to approve his plans, Pena Nieto said he was "very upbeat," noting that he has already signed a pact with the leading political parties to work together on reforms.

He said he was also confident of reaching consensus next year on his aim to provide universal social security coverage in Mexico, and that he would press for constitutional change to spur more competition in the telecommunications sector.

He did not provide more details. Mexican television is dominated by broadcasters Televisa and TV Azteca while the world's richest man, Carlos Slim, has a tight grip on the fixed-line and mobile phone markets.

Pena Nieto's predecessor as president, Felipe Calderon of the conservative National Action Party, or PAN, failed to win Congress' support for a major reform of Pemex.

But Calderon took the first steps towards opening it up to outside investment, putting out incentive-based contracts to private firms to improve the efficiency of the oil industry.

Pemex has struggled to make the most of Mexico's crude oil reserves, and Pena Nieto has pledged to open up the company to more private investment. To make it worthwhile for investors, Pena Nieto believes a constitutional change is needed.

STRATEGIC ASSOCIATION

Mexico relies on oil revenues to fund nearly a third of the federal budget, which has not only concentrated much power in Pemex but also left it open to over-exploitation by the state.

The dependence on oil revenues is regularly cited as an obstacle to Mexico's efforts to improve its credit rating. The fact that no party has had a majority in Congress for 15 years has stood in the way of a far-reaching tax reform.

Pena Nieto's planned tax reform is tricky because it could involve applying value-added tax (VAT) to food and medicine for the first time. That could risk opposition inside the PRI since it would hit the poor, who make up roughly half of Mexico's population.

The president declined to say how his government would approach the subject of changes to VAT, though many experts see few ways of quickly raising more revenues without it.

Mexico has one of the smallest tax takes in Latin America, collecting revenues worth only about 11 percent of gross domestic product, excluding oil income.

Mexico's constitution stipulates that the right to exploit crude oil belongs to the state, and the new government must find a way of allowing private investors to help find the crude without surrendering control of its natural resources.

"I believe constitutional reform is what enables us to generate the legal certainty for the opportunities of getting Mexico more private investment to develop its energy infrastructure," Pena Nieto said.

Created when the PRI nationalized the oil industry in 1938, Pemex became a symbol of Mexican self-sufficiency, and many attempts to reform the lumbering monopoly have foundered.

Output at Mexico's largest oil fields fell sharply between 2004 and 2009, although it has since stabilized. However, the government has said output will stagnate without significant new investment, and the world's no. 7 oil producer risks becoming a net oil importer if it fails to improve production trends.

Pena Nieto has held up Brazil's state-owned oil firm Petrobras as a model for Mexico to follow. Petrobras trades shares on the stock exchange and Pena Nieto has said a partial listing of Pemex could be a possibility in the future.

For now, Mexico needed to create alliances with private capital to get the best out of Pemex, he said.

"Brazil has a legal framework which allowed it to create strategic associations, which is what I'm proposing, a strategic association with the private sector," he added.

(Reporting by Dave Graham, Ana Isabel Martinez; Editing by Kieran Murray and Eric Walsh and Catherine Evans)

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