Factbox: Lack of progress on reforms holds Mexico back

MEXICO CITY (BestGrowthStock) – Mexico’s political deadlock will likely sink President Felipe Calderon’s bid for big economic reforms before 2012 polls, hobbling the country as it tries to renew a calcified economy and catch up with rivals in Latin America.

The following are some of the country’s key pending reforms:

* TAX SYSTEM

Mexico’s measly tax collection rate as a proportion of gross domestic product. is on par with countries such as Haiti and Sierra Leone. Oil exports prop up public coffers. But with the crude oil industry in decline, Mexico’s debt was downgraded in 2009 on concerns about its long-term outlook.

Many economists favor broadening the country’s 16 percent value-added tax to include food and medicine. Taxes on consumption are considered easier to collect since about a fifth of the work force is paid under the table, but the country’s biggest opposition party says taxing food and medicine would disproportionally hurt the poor.

Calderon’s party considers tax reform a lost cause for the rest of the administration which ends in 2012.

* ENERGY SECTOR

Mexico, which nationalized its oil industry in 1938 and created state oil monopoly Pemex, is a top supplier of crude to the United States. But years of underinvestment have left it unable to counter the fall in crude output since 2004.

Pemex thinks there are massive oilfields in the deep waters of the Gulf of Mexico, but it lacks the technology to quickly produce there. Mexico’s Constitution bans foreign direct investment in the energy sector, which keeps major oil companies out of crude production in Mexico.

Calderon’s party wants more private investment in energy, but its lawmakers say there is little hope of reforming the sector before 2012.

* LABOR LAWS

Mexico does not have national unemployment insurance, but companies must provide at least three months severance when firing workers. Companies consider this onerous and say it hurts job creation.

Calderon has proposed allowing workers to be hired for trial periods as well as creating more job training programs. Several powerful unions closely controlled by the leading opposition party opposed Calderon’s plan, which is given little chance of winning approval.

* COMPETITION RULES

Many sectors of the Mexican economy are dominated by a few companies and the lack of competition holds back consumers and businesses alike. For example, Carlos Slim, the world’s richest man, controls the vast majority of telephone, cellular telephone and Internet access in Mexico.

The lower house of Congress approved a bill in April that would give more power to the country’s anti-monopoly watchdog. It awaits approval in the Senate.

Factbox: Lack of progress on reforms holds Mexico back