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.

Perhaps the true reasons behind Fox's co-optation will not be known until he leaves office. But it seems that Fox has stopped governing the country, or even trying. Lately, a string of reports and books have appeared about the corruption of, and wealth allegedly amassed by, the first lady's children, further isolating and weakening the president.

Moreover, Fox cannot point to any great strides in producing a more prosperous Mexico. Though feeble economic growth over the last several years--resulting in large part from America's recession--is not his fault, the worsening quality of government largely is. According to several leading surveys (among them Transparency International, the World Bank and the World Economic Forum), corruption has increased, while government and business efficiency have declined. It is true that under the Fox Administration some small progress has been made in foreign investment and education. But these were trends inherited from Zedillo. Fox trumpeted a government study claiming that poverty had decreased 2.1 percent in his first three years. As it turned out, this was mostly due to migrants' increased money transfers to their relatives--which, as the IMF reminds us, is not a substitute for sound economic policy.

As in all botched transitions, the revival of the old regime was almost inevitable. The PRI has blocked Fox's most important proposals in Congress, including labor, energy and tax reform, and has used its networks inside the federal government to continue funneling resources to its campaigns. The main theme of the PRI's successful campaign for the 2003 midterm elections was "The government of change changed nothing."

So, although many believed the PRI would be finished after its 2000 defeat, it has bounced back with vigor as the Fox Administration and the PAN have faltered. It has won virtually all the gubernatorial races since 2000, and it regained its congressional plurality after the 2003 elections. The disenchanted Green Party left Fox and allied itself with the PRI. Suffering from "learned helplessness" as the perpetual loser since its founding in 1939, the PAN did not react to these outrages until recently. Today, however, some of the liveliest criticism of Fox can actually be found in the PAN's official magazines, such as La Nación and Kratos.

The most ominous question is whether Mexico at the national level is following the trajectory we saw in the northern state of Chihuahua during the 1990s. There the PAN won a historic victory in 1992, taking over the governorship--but six years later the PRI returned to power and imposed once again its managed pluralism and electoral fraud. One chief reason for the loss seems to be that the PAN governor had used a personnel strategy similar to Fox's, thereby dooming his party to a pyrrhic victory.

The Post-2006 Outlook

THE LEAST pessimistic scenario for the 2006 presidential elections contemplates a less ambivalent reformer winning. The perceived frontrunner has been Mexico City's mayor, Andrés Manuel López Obrador, or "El Peje" as he is popularly known, of the Party of the Democratic Revolution (PRD), the renamed Communist Party that merged with a disenchanted branch of the PRI in 1988. Beloved of his poor constituents for his irreverent style, populist message and positioning as a victim of the system, Peje was made into a hero recently because of a clumsy attempt by Fox and the PRI to legally prevent him from running for president. But a string of corruption scandals by his close associates helped weaken Peje and put him on the defensive, and his rhetoric is becoming increasingly menacing. His and his party's closeness to Castro, their anti-Americanism and their financing by some of the oligarchs they criticize are bound to add even more strain to the divisive PRD in the run-up to the elections in July. In addition, Peje's popularity in Mexico City may not translate into the rest of the country, where the PRD barely has a presence. This was most evident in the recent elections in the Estado de MŽxico, the country's most populous state, where the PRD faced a crushing defeat despite Peje's direct involvement.

Another scenario is Fox's party winning again. Though some pundits rule this out, the PAN still has a good chance. Unlike most liberal parties that overthrow a dictatorship, the PAN remains surprisingly united. Though it has lost most elections since 2000, the PAN may yet see what party insider René Bolio calls the "tsunami panista." Bolio points out that although the PAN has indeed lost most gubernatorial elections since 2000, it has actually obtained a record share of the vote within many of those states, even making inroads into traditionally hostile territory. Whereas the Fox-friendly interior minister, Santiago Creel, had been widely seen as the likely presidential candidate, the frustrated party faithful instead chose Felipe Calderón, a former party chairman at odds with Fox. One dark horse had been the former governor of Jalisco state, Alberto Cárdenas, who is well respected in PAN circles for his radical reforms that essentially crushed the PRI machine and prevented its return.

Regardless, the PAN may not be the hope it was in 2000. While it failed to change the cozy PRI system, the reverse may not be so. Reports of previously unheard-of corruption among PAN officials, closeness to the PRI oligarchs, the television duopoly, and opportunities for profit and power may have corroded the once pristine PAN into another cog in the system. Since the PAN is Mexico's largest liberal party, its perceived lassitude could further discredit the idea of economic liberalism and democracy.

Of course, a possible scenario is a victory for the PRI. The likely candidate is former Governor and party Chairman Roberto Madrazo. A victorious PRI might then reabsorb the PRD and thereby unify the main leftist and populist forces in one tent, although the PRI has both the will and many of the tools to reconstitute its system of managed pluralism by itself.

No matter the outcome of the elections next year, Mexico will not collapse for failing to reform, and some growth will return in tandem with growth in the United States. But this does not mean that all will be well south of the border.

Surveys reveal that the citizens' faith in political institutions, including parties, has decreased during Fox's presidency--witness the record absenteeism in the 2003 midterm elections. If this trend continues, the party system itself could be discredited, opening the door to a Hugo Chávez-like figure. Colombia-style terrorism and guerrilla activity may also increase. According to Pax Christi, a Catholic human rights group, Mexico is just behind Colombia in kidnappings in Latin America. A leaked federal report also detailed how the Zapatista camps and guerrillas in Chiapas (which captured the world's imagination in 1994 but are suspected of receiving support from narcotics trafficking and former insurgents in Central America) had essentially trebled since Fox unilaterally evacuated the army in 2001. In addition, Cuba has sent upwards of 500 "educators" and "sports instructors" to various parts of Mexico on the invitation of PRD governors. Such figures were crucial in Chávez's consolidation of power in Venezuela.

On top of the prospect of renewed social and political unrest is the reality that the reform movement in Mexico has stalled. Unlike central and east European countries--which, in addition to a desire to "return to Europe", also had to meet assorted political and economic criteria in their bid to join NATO and the European Union--there are no equivalent pressures on the Mexican authorities to continue with the reform process. Besides lack of will by most of the elites, there is no national consensus as to where the country--with half its population living below the poverty line--should go. The civic-minded but small middle class cannot stop a form of perverse symbiosis between the other two classes. The cynicism of the elites is compounded by the unfortunate Mexican (and Latin American in general) proclivity for tolerating--even admiring--corruption and the corrupt. This all but ensures that developmentally, if not politically, Mexico will remain in the Third World for decades to come.

What about the Special Relationship?

BECAUSE MANY in the U.S. foreign policy establishment--including, at the time, candidate George W. Bush's foreign policy advisors Robert Zoellick and Condoleezza Rice--did not expect the then-pro-American Vicente Fox to win (Zoellick had even gone so far as to tell Fox campaign representatives, "Sorry, but we only play with the big boys"), both the outgoing Clinton Administration and then-Governor Bush believed the next president of Mexico would be the PRI's candidate, Francisco Labastida. Bush even tacitly endorsed him three months before the July 2000 elections.

To his credit, Bush attempted to make up for his initial mistake, and after his own victory, he seemed to confer on Mexico the same "special relationship" status usually reserved for the United Kingdom (jilting Tony Blair in the process). Fox was Bush's amigo, and there was hope that both gentlemen ranchers and conservative former governors would forge a new businesslike partnership based on equality and trust. There was also much goodwill in the U.S. Congress. A majority of congressmen and senators interviewed by the Fox-PAN delegations before and after the victory seemed inclined to work on the illegal-immigration issue to Mexico's advantage. Alas, as mentioned earlier, this opportunity also went untapped. A discreet and businesslike relationship with Washington could have probably cemented a comprehensive amnesty deal for the illegal immigrants and other policies to Mexico's benefit. But instead, Fox's and Castaâ€"eda's regrettable (and seemingly pointless) geopolitical theatrics returned Mexico to its traditional role of indignant supplicant.

This is not the first time hopes have been dashed. The "reforms" imposed by Salinas that culminated with the signing of NAFTA seemed to herald a coming of age for Mexico. Even the PAN was divided as to how to respond to these "neoliberal" reforms--before it became evident what they were mostly about--but most people remember instead the closeness of the American and Mexican political classes during that process and even before, making democracy activists suspicious of Washington's intentions.

As the Fox Administration winds down, how should Washington conduct itself toward Mexico now and in the future? Former U.S. Ambassador to Mexico Jeffrey Davidow argues that there is a genuine desire in the United States to see Mexico develop, but those overtures are received with suspicion and self-defeating behavior south of the border. Most other pundits, however, tend to say the reverse: that the United States ignores and mistreats Mexico. In reality, Mexico receives disproportionate attention when considering other U.S. commitments worldwide. One could even make the case that Mexico receives too much positive attention. Ironically, most of the greatest breakthroughs in the country's economic reform and democratization in recent history occurred after the government leadership felt ignored or even insulted.

For example, hearings in the U.S. Senate in 1986 by Jesse Helms on the PRI's abuses provoked a predictable outcry in Mexico. But over time, those hearings caused an underground debate that in the end probably contributed more to Mexico's democratization than all the chummy speeches by hundreds of U.S. politicians flying down over the decades. President Miguel de la Madrid (1982-88) began to expel the drug barons that had infiltrated his government only after the Reagan Administration temporarily but visibly closed the border. De la Madrid in his autobiography pussyfoots around the thorny bilateral relationship, in contrast to his attitude as president, when he was more confrontational (once accusing Reagan of having "permitted" the Washington Post to criticize him). President Salinas proposed NAFTA only after attempting to form an alliance with the Europeans but finding they were distracted with the newly opened east.

Fortunately, there is a growing rapprochement that transcends governments and blunts the politicians' missteps--such as booming bilateral trade and increasing social integration. But the old structural irritants remain, and some may worsen. For example, Mexican illegal immigration to the United States under Fox has actually increased and is likely to continue at the present levels for at least twenty years more. There is also a growing sense that Mexico should play an assertive (read, whiny and anti-American) role in the world, which led to frictions with the United States during the Iraq conflict. One thing is certain: U.S. politicians should think twice before embracing an authoritarian figure again in Mexico.

Fox will be remembered as yet another liberator who missed a golden opportunity to reinvent a long-suffering country, guarantee its future democracy, and improve the lives of its average people. Sadly, it was probably the last chance in a while to reform Mexico. An unexpected force may yet appear to give the country a push, as sometimes they do. But if not from outside, the elites or the population, where will this impetus come from?

Fredo Arias-King is founding editor of Demokratizatsiya: The Journal of Post-Soviet Democratization. In 1999 and 2000 he handled international relations and worked as speechwriter for Vicente Fox's presidential campaign.