DID PRESIDENT Vicente Fox, who ended a 71-year one-party regime with his victory in July 2000, waste his chance to reform Mexico? If so, what are the consequences--both for Mexico and the United States?

Mexico is certainly a bit freer today than before 2000. But Fox is already considered a dead force in politics. The old regime's party (the Institutional Revolutionary Party, or PRI) is regrouping and aiming for a return in 2006, corruption has actually increased, and the quality of government has deteriorated. Few significant reforms have been implemented. Some have attributed this to Mexico's presidential system, which pitted a hostile Congress against a weak president. But the reality may be less complex.

In 2000 Mexico was ready for change. Despite their much-hyped macroeconomic reforms (as well as the passing of NAFTA), the last two PRI presidents, Carlos Salinas (1988-94) and Ernesto Zedillo (1994-2000), essentially only replaced the existing crony socialism with crony capitalism. The daily life of the average Mexican had not improved since the 1960s.

Fox was well positioned to introduce "second-generation" reforms, since his predecessors had implemented economic stabilization, foreign-trade liberalization and (albeit imperfect) privatization. Indeed, transitions of this sort provide what Leszek Balcerowicz calls the "window of opportunity", which can reinvent a country dramatically. The PRI system existed essentially to make a few people fantastically wealthy at the expense of the rest through elaborate restrictions. Second-generation reforms would have cut this Gordian knot: bureaucratic red tape, monopolies, obstacles to foreign investment (which is low per capita relative to similar countries), the byzantine tax code, criminal networks in government, a bloated public sector, the lack of property rights (which hampers credit) and so on.

Fox enjoyed a ready pool of talent to carry most of this out. His party (the liberal-right National Action Party, or PAN) had over 300,000 members and had formed countless municipal and seven state governments. After the 2000 elections, its congressional coalition (with the Green Party) held a plurality of seats in the lower house and also ruled a plurality of Mexicans at the municipal level--40 percent compared to 35 percent for the PRI. To top it off, Fox was handed a golden nugget when a group of about fifty newly elected PRI congressmen, with their illiberal party demoralized and flirting with collapse, approached the president-elect with a proposal. In exchange for minor concessions (such as petty jobs for their clients), they would break away from the PRI and vote with the PAN and the Greens to provide Fox the legislative majority that had barely eluded him.

Most other reformers would have envied these conditions. Unlike most of them, Fox also had a guaranteed six-year term (with no re-election to worry about) and post-electoral popularity hovering around 90 percent. How he used this opportunity, however, is another matter.

Building a House on Mud

VçCLAV HAVEL once said, "I prefer temporary inexperience to permanent sabotage." Estonia's Mart Laar, while in Mexico, quipped, "You cannot build your house on mud." The average age of his cabinet members was 33, with scant experience in the previous regime. Felipe Gonz‡lez, upon his 1982 victory in Spain, replaced 40,000 holdovers of the Franco nomenklatura with members of his party at all levels of government.

Machiavelli famously recommended a break with the old elites during a transition of power, an insight corroborated by recent studies that show that new regimes that followed this advice did the best economically, socially and politically--witness the three examples above. Instead, Fox emulated what Alberto Fujimori did in Peru with Cambio 90 and Boris Yeltsin with the Democratic Russia Movement, essentially bypassing the democrats who put him in power and opting to rule through elements derived mostly from the old regime. In all, Fox appointed 78 PAN members to the entire federal government his first year, mostly to inconsequential positions. Even more crudely, Fox humiliated the Green Party--which added a crucial six percentage points to his victory--by refusing to appoint them to any offices whatsoever, even though they had only requested the Environment Secretariat. While Fox's closest allies received offices such as "social programs" and "migrant affairs", Fox appointed longtime PRI operatives and several members of the failed PRI candidate's campaign to run the Finance Secretariat and his presidential office, and to control access to him and the presidential agenda. Fox also discarded the offer by the fifty disenchanted PRI congressmen that could have provided him a majority. Fox ordered they be told "to stay in the PRI, since we need a strong and united PRI to negotiate better with it."

In the area of personnel, Fox in some ways represents a regression when compared to his immediate predecessor. Yale-trained Zedillo, though only a reluctant reformer, nonetheless mostly surrounded himself with relatively innocuous and foreign-educated technocrats. Ironically, it was Fox--the supposed reformer--who resurrected some of the most notorious figures of the pre-Zedillo PRI. To the prosecutor's office and the Public Security Secretariat (SSP), the two main agencies with police and investigative functions, Fox appointed two figures from the secret police of one of the more nefarious PRI presidents, Luis Echeverría (1970-76), architect of Mexico's so-called "dirty war", which eliminated several agitators and dissidents extra-judicially, and whose brother-in-law was convicted in the United States for a drug-trafficking-related murder. It later emerged that the new prosecutor had worked alongside the dirty-war figures he was supposedly now investigating--but he was still not removed. There was also evidence that the head of the SSP had been involved in a deadly extortion attempt against a museum owner in 1972. When Fox announced the appointment in 2000, I had several of his closest aides and my former campaign colleagues show him the newspaper clippings from the incident. Fox ignored them and went ahead with the appointment anyway. Two additional officials associated with Echeverría received the posts of national security advisor and of ambassador to Washington. Needless to say, the PRI's notorious secret- and political-police networks, which had spied on the Fox campaign--and are suspected of numerous kidnappings and collusion with drug barons and organized crime--were allowed to remain largely intact.

Fox also chose a controversial relic of the old regime as foreign minister, which did not help matters with the new U.S. administration. While quite popular with Democrats, the Republican Latin-America specialists returning to office resented Jorge Castañeda for his 1980s assistance to Fidel Castro and Nicaraguan dictator Daniel Ortega, and for his calls to destabilize the U.S. economy through a debt moratorium and to retaliate against the American community in Mexico (which is rare for a Mexican pundit to advocate). Though Castañeda proposed to let bygones be bygones, he seemed to continue these unnecessary provocations, as when he noisily pulled Mexico out of the hemispheric mutual-defense pact (just days before 9/11) and flew with Fox to Nicaragua to publicly embrace Ortega, who was attempting a return to power. Later, Fox and his foreign minister seemed to relish the victim role when this approach was not well received in Washington.

Moreover, Fox embraced the PRI oligarchs whose state-sheltered "businesses" have strangled Mexico's economy for years. The most notorious case is that of Carlos Slim, controlling shareholder of Telmex, the state monopoly that underwent a botched privatization under Salinas. The richest man in Latin America, with a net worth of almost $14 billion, Slim is apparently a product not of industriousness but of crony complicity with the previous regime and of the "license to print money" at the expense of the Mexican consumer. Even though Slim himself publicly supported the PRI presidential candidate, Fox later invited him to help run the oil monopoly PEMEX, as well as to many official functions as if he were another cabinet member. At the same time, Fox appointed former employees of these monopolists to the regulatory agencies supposedly supervising them.

Perhaps more ominously, the electoral commission was allowed to return to the old regime as well. One of the key elements that permitted the breakthrough in 2000 was the hard-won reform to take election monitoring away from the Interior Ministry and place it under a neutral electoral institute called the IFE. However, after a PAN-PRI agreement, the IFE governing body drifted to a de facto PRI majority, apparently in exchange for a promise to pass some reforms in Congress that never materialized. The IFE will set the rules for and supervise the next presidential election.

Explaining the Failures

NO ONE expected that Fox would be "co-opted" this way, to use writer Lorenzo Meyer's term. There is a lively debate as to its reasons, but there is little evidence for a definite conclusion. A sympathetic explanation is that Fox believed the PRI would reciprocate his unilateral concessions with a favorable attitude in Congress. However, even when it became evident that the PRI would not oblige, Fox still did not back away from his generosity. What is obvious is that this penchant has caused some awkward moments, as when Fox's chief of presidential logistics (a former PRI official) was arrested for ties with drug traffickers and for peddling influence and access to the president.