The crisis of Foxism: the political economy of fiscal reform in Mexico.

Author:Charnock, Greig
Position:BEHIND THE NEWS - Vicente Fox

The election of Vicente Fox in 2000 represented an important moment for architects of global neoliberalism, in that it heralded new potentialities for advancing a 'second generation' reform agenda in Mexico. This report examines the first half of Fox's term, and his government's efforts to implement critical economic reforms within this agenda. It goes on to explain why the Fox government had failed, by mid-2004, to implement its priority fiscal reforms, in the context of social mobilisation against the state's neoliberal project and a stagnating economy.

Vicente Fox, a wealthy businessman, former executive at Coca-Cola and state governor of Guanajuato, was elected president of Mexico in July 2000. The election was greeted as a watershed almost universally, in that it heralded the end of more than seven decades of continuous rule by the Party of the Institutionalised Revolution (PRO. For neoliberal logicians, this break with the past was seen as an opportunity to advance the incomplete transformation of Mexico into a 'successful' neoliberal national state.

The World Bank, in particular, recognised the potential for building new political coalitions vital to realising and legitimating a 'second generation' reform agenda of the kind it has espoused since the mid-1990s. (1) This explains why the Fox government and the World Bank have sought to articulate and develop a single agenda for Mexico through an extensive collaboration which, by 2001, had already yielded a bulky World Bank-published compendium entitled Mexico: A Comprehensive Development Agenda for the New Era (Giugale, Lafourcade & Nguyen, 2001); a World Bank Country Assistance Strategy; and the government's own National Development Plan 2000-6 (Poder Ejecutivo Federal, 2001). This World Bank-Mexico nexus, as I call it, has formulated a comprehensive neoliberal state project in the form of a prioritised policy agenda (see Giugale, 2001). The top priority for this project--and for Foxism--is to engineer 'fiscal sustainability' through a restructuring of the tax system.

This report provides a cursory examination of the political economy of fiscal reform over the course of Fox's first three years in power. Although fiscal reform is only one component--albeit highly prioritised--of the second-generation neoliberal project of the Mexican state under Fox, the Value Added Tax (VAT) Law, in particular, has been a defining issue for the Fox government, and for those seeking to challenge its project.

From a critical perspective, it is indicative of the way in which the Fox government has failed to advance a key aspect of the second-generation reform agenda--namely, the further decomposition of Mexican labour and the disciplining of workers to the command of capital through the 'principle of scarcity' (Hampton, 2003), and the propagation of a socially-atomising ideology of the market. (2)

The politics of economic policy reform, 2001-4

Days after the inauguration of Fox as president, Mexico's Ministry of Finance (SHCP) published its Economic Policy Guidelines (EPGs) for 2001 (SHCP, 2000), in which 'a stronger fiscal stance' was made the 'corner-stone' of its agenda. A comprehensive proposal for a 'New Public Treasury' was put before Congress on 3 April 2001.

The various changes proposed to the tax structure included a proposal to remove VAT exemptions from foodstuffs and medicines, which would entail an increase from zero to fifteen per cent VAT. This was to prove highly controversial. From the outset, the Fox administration was aware of the potential for opposition to the reforms, and especially to this regressive tax on consumption.

The World Bank itself noted the regressive nature of the VAT Law the Fox government sought to impose: it would apply only to sales to households and not to sales to business, and would hit the poorest hardest (World Bank, 2002: 16, 26 box 1).

Accordingly, the government stressed the distributive character of the fiscal reform package through a media campaign, and tabled compensatory measures to soften the blow for the poorest families (Ramos de Villarreal, 2001: 61).

By the close of ordinary sessions on 30 April 2001, Congress had approved a majority of the proposed changes to the tax structure, but had not approved the new VAT Law. The fact that a vital element of the 'comprehensive fiscal reform' package had been effectively shelved represented a blow for the government--a blow made all the more devastating by the sheer furore provoked by the proposals.

Within the Senate, prominent members of Fox's own National Action Party denounced his claim that the reforms were pro-poor as a lie, and similar accusations echoed through the Chamber of Deputies (La Jornada, 6 April 2001). The leftist Party of the Democratic Revolution (PRD) added fuel to the tire by rejecting outright the comprehensive fiscal reform package, and by unveiling a progressive fiscal reform of their...

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