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.

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Power of the Governors
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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.

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A New Day for the PRI?
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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

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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.

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Who Supports What?
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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.


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