INFLUENCE OF STATES AND GOVERNORS OVER FEDERAL

UNCLAS SECTION 01 OF 02 MEXICO 004019 SIPDIS SENSITIVE SIPDIS STATE FOR WHA/MEX, WHA/EPSC, AND EB/IFD STATE PASS USAID FOR LAC:MARK CARRATO USTR FOR JOHN MELLE TREASURY FOR IA MEXICO DESK:JASPER HOEK COMMERCE FOR ITA/MAC/NAFTA:ANDREW RUDMAN E.O. 12958: N/A TAGS: ECON EFIN ELAB ENRG PGOV MX SUBJECT: INFLUENCE OF STATES AND GOVERNORS OVER FEDERAL INITIATIVES (SECOND OF THREE-PART SERIES ON MEXICAN FEDERAL-STATE RELATIONS) REF: MEXICO 3961 ¶1. (SBU) Summary: State governments have limited ability to influence national policies. The local legislature of each state enacts legislation that applies only within its territorial boundaries. However, state legislatures do have a constitutional right to introduce legislation in the national congress. For macroeconomic reforms requiring constitutional change, as energy reform would, the proposed amendment must be approved by a majority of the state legislatures following a two-thirds vote of approval of those present in each house of the Mexican congress. Governors can and often do influence proposed legislation. End summary. -------------- Power of the Governors -------------- ¶2. (SBU) Many state governors wield considerable power and in some cases influence the voting behavior of state representatives in the national Senate and Chamber of Deputies. Governors influence national legislation through the political party system and through CONAGO, the National Governors Conference, which is a national force for states rights. Mexican analysts agree that the relative influence of state governors depends on their political party and standing within that party. In general, PRI governors concentrated in the north have greater influence than other governors, especially those from the PRD. The influence of PAN governors lies somewhere in between that of the other two parties. Our interlocutors said it is the governors, not the political parties, who shape public perceptions through state spending. ¶3. (SBU) We were told that governors typically weigh in on the selection of their state candidates for the national legislature, although the political party ultimately decides who runs. Party discipline is expected and imposed on legislative representatives. However, there is some tension between the governors and party leadership in the cases of the PRI and PRD. Within the PRI, for example, a conflict has emerged between the majority of governors (primarily in the north) who are more likely to be reformists and support building a coalition with the PAN, and a minority of governors (mostly in the south) who supported Madrazo's party leadership and calls to ensure PRI independence, and identify more with the "dinosaur" wing of the party. In the PRI, the state governors had a great deal of influence over the selection of Senate and Chamber of Deputy candidates. PRI senators are more likely than deputies to support structural reforms and have good working relationships with the PRI governors. Private sector analysts believe that although some of the recently-elected PRI deputies held allegiances to Roberto Madrazo, their loyalties may now begin to shift. -------------- A New Day for the PRI? -------------- ¶4. (SBU) Some observers believe that Madrazo's spectacular defeat will embolden the PRI's progressive faction and make it easier for the technocrat-minded governors to assert themselves. 15 PRI governors have signed a document acknowledging the Federal Electoral Institute's (IFE's) results declaring Felipe Calderon the presidential winner; the only PRI governors who did not were Jesus Silverio Cavazos from Colima and Humberto Moreira from Coahuila. It is likely that the PRI governors will be entering into a prolonged battle of wills with the national party hierarchy to see which has more influence over the party's future direction. PAN governors and legislatures are relatively unified, by comparison. However, the consequence of internal party divisions within the PRI and PRD is that governors have not quite become Mexico's new power-brokers, as some have claimed. ¶5. (SBU) Economic and other analysts said that governors have other means to facilitate or frustrate federal reform initiatives. In those states where the governor comes from the majority party in the state legislature, he may influence those representatives to introduce or lobby in favor of initiatives in the national congress. Governors can also MEXICO 00004019 002 OF 002 impact national policies through their work with the relevant ministries. For example, they interact regularly with Hacienda, Mexico's finance ministry, through the Permanent Commission of Fiscal Officials. A senior official at Hacienda told Econoff that during the November 2005 negotiations for Pemex fiscal reform, the governors maneuvered within CONAGO and behind the scenes with Hacienda to prevent the Senate's attempts to reduce Pemex's tax rates, pressuring President Fox to veto the senate's bill and instead pass a lighter reform. -------------- Who Supports What? -------------- ¶6. (SBU) It is a common view that the governors do not share a consensus for structural reforms. With regard to fiscal reform, most governors have been spoiled in the face of high oil prices, unwilling to make the hard choices needed to improve their tax regimes. This is a priority concern for the Bank of Mexico, among others. However, the governors' perspective is that they do collect taxes on behalf of the federal government and the transfers they receive represent their just due. None wants to be the first to raise taxes. The general view is that they would prefer an executive order compelling them to do so, leaving the president to face the political fallout. One private sector analyst told us that it is possible that President Fox will propose extending the VAT to food and medicine, taking the political heat before the next president is sworn in. Most governors would apparently support fiscal reform that replaces petroleum revenues with a sufficient increase in tax revenues. ¶7. (SBU) The northern governors support labor reform, but few expect they will be prepared to push for a comprehensive agreement that involves taking on the unions. Mexican political observers believe it should be possible to gain the support of southern governors for a reform of the labor law that makes hiring and firing of workers more flexible. Energy reform will be the big problem because it requires constitutional change. As several analysts pointed out, the PRD will only need to secure a handful of additional votes in congress to block the reform. Visit Mexico City's Classified Web Site at http://www.state.sgov.gov/p/wha/mexicocity BASSETT