Fox's first big test is passing Mexico's 2001 budget

Secretary of Agriculture Reform Teresa Herrera, Fox and Agriculture Secretary Javier Usabiaga at a meeting of farm workers on Sunday

MEXICO CITY, Mexico (Reuters) -- Mexico's new President Vicente Fox is set to present his 2001 budget to the divided Congress this week, with analysts hoping he can avoid the political wrangles of past years which have nearly sparked Constitutional crises.

Businessman-turned-politician Fox, of the conservative National Action Party (PAN), was sworn in last Friday, ending the 71-year rule of the Institutional Revolutionary Party (PRI).

The first economic test for his government will be to secure a smooth passage of the budget in the two houses of Congress, in which no single party has a working majority.

Alfredo Thorne, chief economist at JP Morgan in Mexico, forecast "a period of 'love affair' with Congress and the population at large" for the new president, hailed by many Mexicans as a champion of democracy.

"Fox starts the 2001 budget process with strong political support," said Thorne in a recent research note.

But for the past two years, political infighting has prevented Congress from approving the budget on time, requiring nailbiting extra sessions. In 1998, the budget was only cleared hours before the New Year.

Mexico's Constitution has no provision for how government would proceed if a budget is not in place by January 1.

There is no guarantee that Fox will have it any easier.

During his swearing-in on Friday as president, he was heckled by PRI legislators who tried to make jokes about his trademark cowboy boots and man-of-the-people manner.

The PRI and some members of the left-of-center Party of the Democratic Revolution (PRD) were considering on Monday lodging a formal complaint to annul Fox's inauguration.

They complain he broke protocol by mentioning the poor in his swearing-in speech, and by saying hello to his children before addressing Congress.

According to his aides, Fox's budget plan envisages Mexico's economy growing at a rate of 4.5 percent next year, slackening from an expected 7.0 percent this year due to slower U.S. growth and anticipated lower oil-export prices.

The new government has previously said it would fix the 2001 budget deficit at 0.5 percent of gross domestic product, down from 1.0 percent of GDP targeted in 2000.

Fox's new Finance Minister Francisco Gil Diaz last week promised there would not be any radical spending cuts.

"People are expecting a tightening in spending of some 40 to 50 billion pesos ($4.3-5.3 billion). That would be a reasonable tightening," said Eduardo Avila, chief economist at Interacciones brokerage in Mexico.

"If they tighten more than that, then we could definitely see it take an extraordinary session to get it approved," he added.

The fiscal and income part of the budget are passed by the Senate, while spending -- traditionally the most delicate part of the budget -- goes through the Lower House.

Some 80 percent of the budget spending is allocated to fixed costs and debt, so Fox's new economic team has little room for maneuver.

Fox is holding off until April sending Congress a potentially controversial plan for a much-needed overhaul of the country's tax system.

Oscar Levin, head of the finance committee in the Chamber of Deputies, said Gil had indicated he would likely present the budget to Congress on Tuesday.

Some political commentators have speculated that the opposition PRI and PRD may try and give Fox an early jolt over the budget.

"It's quite possible there's a very strong divide (in Congress) and that voting is very close," Avila said. Fox's PAN party would need at least 54 percent of the vote, he added.

But Luis Pazos, head of the budget committee in the lower house and a member of Fox's PAN, said he was confident there would be reasoned debate this time round.

"The position of the opposition parties is that they don't want unnecessary arguments or to create nervousness in society," he said. "They will argue, they will dissent but we will look for consensus based on reason. Those with dogmatic, extremist or revanchist views are few."

Levin, of the PRI, said his party's position was clear.

"What interests the PRI is basically a clear increase in the budget share for the states ..., and that there should not be cuts in social programs, particularly in health, public education and poverty-fighting programs," he said.

Copyright 2000 Reuters. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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Presidency of the Republic of Mexico
Partido Accion Nacional
Partido Revolucionario Institucional (PRI)

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