As one of the hottest emerging market economies of the past few years, Mexico has been doing well—but the second largest economy in Latin America could be in for some hard times in months to come, thanks to its neighbor to the north. Fears over that possibility have sent foreign investors scurrying for the exits, despite the fact that Mexico has a number of initiatives under way that promise good potential in a number of sectors.
Ben Bernanke’s announcement that the Fed could cut back on bond buying this year, and possibly end the policy altogether in 2014 if the U.S. economy stays on track to recovery, not only caused a global selloff but also did particular damage to Mexico, where the peso plunged on the news and foreign investors began dumping Mexican bonds. But the Mexican government has been working on economic and other reforms that offer a number of opportunities to investors, even if those investors need to exercise caution as changes play out.
One major action already in train is legislation to break up monopolies in Mexico’s telecommunications sector. The return of the Institutional Revolutionary Party (PRI) to power in the last election cycle came after the party promised not to resume the authoritarian hold it formerly held over the Mexican government. PRI had ruled for 70 years, uncontested and under an aura of corruption, until ousted in 2000. But in 2012 it returned, and set to work to prove that it had changed. One way it intended to do that was to tackle the problem of Carlos Slim and his telephone monopoly.
Slim had taken control of the former state phone entity Telmex in the early 1990s—ironically, under the regime of former PRI president Carlos Salina, which privatized it. Slim built the telephone sector into a booming business, and built an empire along the way; his company America Movil now runs 80% of the fixed-line phone market in Mexico and about 70% of its mobile phone business.
For some time the Mexican government has wanted to break up America Movil while still keeping the telecom sector healthy; the country’s current president, Enrique Pena Nieto, has made it his mission to do so. In March his government announced an antitrust bill that would target Mexico’s dominant telecom and television empires, forcing them to sell off segments of their holdings.