Ildefonso Guajardo Villarreal: The TT Interview

The way Mexico does business is changing — and it needs to. That was the message delivered by Ildefonso Guajardo Villarreal, the country's secretary of the economy, during a recent tour of South and Central Texas.

After taking office nearly a year ago, President Enrique Peña Nieto's administration has attempted to usher in various reforms, notably changes in tax laws that include raising the tax rate in Mexico's border cities from 11 percent to 16 percent next year. There is also an ongoing debate about how to allow private investment in the country's long-cherished oil company, PEMEX. 

After meeting in San Antonio with the Asociación de Empresarios Mexicanos, Guajardo talked with the Tribune about Mexico's new tax model and its effects on border economies, proposed energy reforms and how those can help Texans, and the shift in strategies on security. 

The following is an edited and condensed transcript of the interview.

TT: Originally the tax rate on the border cities was lower because it was thought that would keep border cities competitive and prevent shoppers from going to border cities in Texas. What’s the response to the increase? Why now?

Guajardo: In a world like today’s, competitiveness is not dependent on the tax structure. There are very few countries — as a matter of fact I cannot think of one — that have a differentiated VAT (value added tax) system. And at some point, it has its rationale for existing, but I believe that today, if you live in Monterrey or if you live in Reynosa (which borders McAllen), facing a difference in five points in VAT cannot be justified. And rather than focusing on whether they maintain the privilege of a lower tax, you have to ask, “Do you notice a difference in prices?" Remember that process is inclusive with taxes. The research that we have been doing is that the price of an electrical appliance, for instance, is 1, 2 or 3 percent higher in border cities than the rest of the country. So the consumer is not being benefited at the end of the process. Secondly, I do believe it would be more important to concentrate on how to make sure that part of the new gains in taxes are given back to the border cities for improvement of technology and development to improve national trade.

TT: The wages in the maquiladoras (factories) range within a few dollars an hour. Is that enough?

Guajardo: What I can tell you is that salaries generally are market-determined and not highly related to productivity. So I do believe that as the country becomes more attractive in the manufacturing sector, salaries can improve and opportunities can expand. You cannot set salaries by decree. At the end of the day, it doesn’t work with the market. What you can make sure to do is to train workers in order to make them more efficient and demand higher salaries because of their qualifications. So I do believe that growth and investment is an issue today for better-paying jobs.

TT: A lot of these people are low-skilled workers. Is there any room for them to improve, or if they do and go somewhere else, won’t there just be another round of low-skilled workers?

Guajardo: There are different models. One of the good things that’s happening in manufacturing in Mexico is that the old maquiladora that was relegated to just assembling things has changed in different sectors. One of these sectors is the aerospace industry and in how we attract workers that have been in technical school. They work for these aerospace companies, and we give them the chance to attend the university at night. So the process builds up. Now, if you just leave the process by itself and not invest in people, then the consequence will be the permanence of this type of (low-wage) story.

TT: As far as the energy reform proposals, there seems to be a public relations campaign to convince people that PEMEX will still be Mexico’s. What exactly does private investment means for businesses in the U.S.?

Guajardo: It means a lot. One of the problems that PEMEX has is that it has no capacity to really invest in extracting, in this case, gas. Oil is so profitable that whatever money there is, it is invested in oil.

TT: What role would foreign investment play?

Guajardo: The point is that when you are doing constitutional change, you allow private investors to team up with government institutions for the production of energy. We are going to share the profits of the project. Now, as I say that, that project is in the process now of debate in the Mexican senate. And to build up a coalition to get the majority of votes, the initiative of the president will probably go through a transformation. You never know, it can make it more flexible.

TT: You mentioned (in San Antonio) that President Peña is shifting strategies to fight organized crime but that he is not making deals. One thing that stood out is you said he is “reconstructing intelligence.” What exactly does that mean for this administration?

Guajardo: Well, we started introducing a real intelligence system. CISEN (Centro de Investigación y Seguridad Nacional) was dismantled. So they are building back the capacity to create intelligence information with all the elements that intelligence allows you to do: track records, recordings, everything you can get your hands on.

TT: Is Los Pinos open to more U.S. cooperation? Some folks think the U.S. needs to take a larger role, outside of the Mérida Initiative.

Guajardo: There are always protocols to share information. And what has been established is who is the trusted (agency) on the U.S. side and Mexican side to be the points of contact.

TT: The military just took control of the city of Lázaro Cárdenas and the port of the same name. Is that bad, in the eyes of the world?

Guajardo: No, that shows the responsibility on behalf of the government. If a private investor is raising his hand and saying, “ I don’t have the conditions with which to work,” then the government has the responsibility to create those conditions.

TT: The ambassador to the United States, Eduardo Medina Mora, said recently in El Paso that immigration reform is an issue for the United States government. But whatever happens will affect Mexico. What is your opinion on what the U.S. should do?

Guajardo: President Peña has made it very clear that is a domestic issue for the U.S. Now, we do not interfere in the U.S. domestic decision-making process, It would be solely the decision of the U.S. So we are following with interest with what goes on, but we hope at the end of the day a solution can be reached to provide Mexicans that have no legal status in this country (some status).