The Time Is Now for Full Privatization of PEMEX (1997)

I. INTRODUCTION II. PRIVATIZATION HAS BEEN SUCCESSFUL ELSEWHERE IN LATIN AMERICA A. Overview of Other Latin American Privatizations B. Argentina' Successful Privatization Experience C. Why Privatization Is a Preferred Economic Policy III. THE CASE FOR FULL PRIVATIZATION OF PEMEX A. Historical Context B. Mexican Privatization Efforts in Non-Petroleum Sectors C. Why Pemex Should Be Privatized IV. CONCLUSION I. INTRODUCTION During administration of former President Carlos Salinas, a series of far-reaching free market reforms were implemented throughout Mexican economy.(1) However, Mexican oil industry has been largely excluded from privatization efforts.(2) Petroleos Mexicanos, or Pemex, was formed in 1938(3) when then President Lazaro Cardenas expropriated and nationalized foreign-dominated oil fields, consolidating all petroleum operations into one state-owned enterprise.(4) An oft-advanced explanation for failure to include Pemex in privatization efforts is Article 27 of Mexican Constitution which grants control over petroleum industry to state.(5) Some efforts have been made recently to achieve a measure of privatization of Pemex; for example, Mexican government has recently agreed to sell up to 49% ownership in Mexico's 61 petrochemical plants with state retaining 51% ownership.(6) But Mexican government has continued to resist completely relinquishing control over this politically profitable,(7) but economically volatile industry.(8) II. PRIVATIZATION HAs BEEN SUCCESSFuL ELSEWHERE IN LATIN AMERICA A. Overview of Other Latin American Privatizations Several definitions have been advanced for concept of privatization.(9) A good, general definition is the transfer of asset ownership from government to private in an attempt to remove from political considerations the commercial, financial, and strategic decisions of business.(10) The worldwide pace of privatization, especially in developing countries, is rapidly increasing.(11) In Latin America alone, 694 divestitures have resulted in over US$59 billion in revenue for these developing countries, a figure that represents more than half of total revenue from such transactions in all developing countries world-wide.(12) Privatization in developing world has been praised as a means of establishing a government's commitment to liberalization,(13) as well as promoting economic development and modernization.(14) The scope of privatization, however, has not always extended to state-owned petroleum enterprises.(15) While several countries have formulated pre-privatization policies for state-owned petroleum enterprises, this sector has remained largely immune from privatization trend.(16) However, benefits of privatization are themselves creating pressures to complete privatization movement by freeing state-owned petroleum enterprises.(17) For example, international investors demanding break-up of state monopolies before engaging in business have developed a major natural gas project in Brazil and Bolivia.(18) By selling off their often dilapidated oil refineries and gas plants, these governments hope to attract much needed private investment capital to improve quality of services.(19) Another example of Latin American success with privatization is found in policies of Chile.(20) In addition to privatizing many of its state-owned enterprises, Chilean government implemented free market economic principles through reduced import tariffs and elimination of both subsidies and price controls.(21) As a result, average rate of growth for national gross domestic product was 7.1% from 1975 to 1981,(22) and with a government committed to continuance of free market reforms, average has continued at over 5% from 1985-1996. …