Mexican President's Big Ambitions May All Come Down To Oil

Pena Nieto in August
Pena Nieto in August


Ten months after taking over the presidency of Mexico, Enrique Peña Nieto has found himself at a critical moment. His ambitious project to reform practically all Mexican institutions is meeting opposition from the right and the left, at a time when his popularity is beginning to wane.

The right opposes his proposal to increase taxes on businesses and individuals with high incomes, while the left disagrees with his education reforms, which call for reorganizing the National Union of Education (SNTE, the biggest trade union in all of Latin America, with 1.5 million members).

Peña Nieto is preparing to remove cushy jobs and other privileges from teachers. During September, the teachers orchestrated huge protests in Mexico City, taking over a main avenue in the capital twice, creating long traffic jams that paralyzed a large area of the city for hours.

The left also opposes his proposition to open the state’s monopoly on Petróleos Mexicanos, the petroleum company better known as Pemex, to the private sector — a move that will require a constitutional amendment.

And still the Mexican president needs to get other promised reforms underway, like breaking the monopolies of the telephone and TV companies — both have already passed — and modernizing the judicial administration and the electoral systems.

Peña Nieto’s problems are not just from the left and the right. His popularity is also decreasing, with 55% approval from Mexican voters, according to the most recent opinion polls. This figure is lower than the 58% he enjoyed three months ago and lower still than it was during the first years in office for his three predecessors — Felipe Calderon, Vicente Fox and Ernesto Zedillo.

Peña Nieto has shown himself to have a steady hand throughout his exhaustive reform efforts, for which he has formed a fragile and surprising agreement between the two major Mexican political parties — PAN and PRD — as well as his own party, the Institutional Revolutionary Party (PRI).

This agreement, known as the Pact for Mexico, is what makes Peña Nieto’s reforms legislatively possible. And, in theory, it's what will give him the two-thirds majority that he needs in the Senate to pass the constitutional reform allowing him to open Pemex to public investment.

Reform of the energy sector isn’t just good news for Mexico. It’s also urgent. With it, companies such as Exxon and Chevron could pay for the right to exploit deposits in the deep waters — something Pemex can’t, because it doesn’t have the technology, or the funding, to do so.

But the Mexican oil giant will be given first right of refusal for all exploitation of gas and oil deposits in the country, and the private companies will only be able to sink their teeth in once Pemex has decided not to do it itself.

The reform also will include a substantial reduction in Pemex’s taxes. The market, luckily, seems to believe that the Mexican Congress will pass the Pemex reform. Pemex bonds maturing in 2035 rose in value by 9.9% in September. It is by far the highest performance from all 120 Mexican companies that issue bonds, and it increased four times on the Bloomberg Emerging Market index.

It is hoped that Congress will see the Pemex reform through by mid-October, together with the constitutional reform it requires. The voting comes at a crucial moment for the Mexican president. The economy, which has had good momentum during the last few years, slowed just as Peña Nieto moved into the presidential palace. This reform of the energy sector would certainly help him fulfill his promise of giving Mexico a sustained growth rate of 5% per year.

América Economía hopes that this reform passes and, once again, we applaud the ambition, strength and audacity of the Mexican president. In less than a year, Peña Nieto has proved himself to be a revolutionary institution. If he gets what he has proposed, this man could become the first Mexican president who honors the name of his party.

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Debt Trap: Why South Korean Economics Explains Squid Game

Crunching the numbers of South Korea's personal and household debt offers a glimpse into what drives the win-or-die plot of the Netflix hit produced in the Asian country.

In the Netflix series, losers of the game face death

Yip Wing Sum


SEOUL — The South Korean series Squid Game has become the most viewed series on Netflix, watched by over 111 million viewers and counting. It has also generated a wave of debate online and off about its provocative message about contemporary life.

The plot follows the story of a desperate man in debt, who receives a mysterious invitation to play a game in which the contestants gamble their lives on six childhood games, with the winner awarded a prize of 45.6 billion won ($38 million)... while the losers face death.

It's a plot that many have noted is not quite as surreal as it sounds, a reflection of the reality of Korean society today mired in personal debt.

Seoul housing prices top London and New York

In the polished streets of downtown Seoul, one sees endless cards and coupons advertising loans scattered on the ground. Since the outbreak of the pandemic, as the demand for loans in South Korea has exploded, lax lending policies have led to a rapid increase in personal debt.

According to the South Korean Central Bank's "Monetary Credit Policy Report," household debt reached 105% of GDP in the first quarter of this year, equivalent to approximately $1.5 trillion at the end of March, with a major share tied up in home mortgages.

Average home loans are equivalent to 270% of annual income.

One reason behind the debts is the soaring housing prices. In Seoul, home to nearly half of the country's population, housing prices are now among the highest in the world. The price to income ratio (PIR), which weighs the average price of a home to the average annual household income, is 12.04 in Seoul, compared to 8.4 in San Francisco, 8.2 in London and 5.4 in New York.

According to the Korea Real Estate Commission, 42.1% of all home purchases in January 2021 were by young Koreans in their 20s and 30s. For those in their 30s, the average amount borrowed is equivalent to 270% of their annual income.

Playing the stock market

At the same time, the South Korean stock market is booming. The increased demand to buy stocks has led to an increase in other loans such as credit. The ratio for Korean shareholders conducting credit financing, i.e. borrowing from securities companies to secure stock holdings, had reached 21.4 trillion won ($17.7 billion), further increasing the indebtedness of households.

A 30-year-old Seoul office worker who bought stocks through various forms of borrowing was interviewed by Reuters this year, and said he was "very foolish not to take advantage of the rebound."

In addition to his 100 million won ($84,000) overdraft account, he also took out a 100 million won loan against his house in Seoul, and a 50 million won stock pledge. All of these demands on the stock market have further exacerbated the problem of household debt.

42.1% of all home purchases in January 2021 were by young Koreans in their 20s and 30s

Simon Shin/SOPA Images/ZUMA

Game of survival

In response to the accumulating financial risks, the Bank of Korea has restricted the release of loans and has announced its first interest rate hike in three years at the end of August.

But experts believe that even if banks cut loans or raise interest rates, those who need money will look for other ways to borrow, often turning to more costly institutions and mechanisms.

This all risks leading to what one can call a "debt trap," one loan piling on top of another. That brings us back to the plot of Squid Game, "Either you live or I do." South Korean society has turned into a game of survival.

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