Lawmakers in Mexico Strike Deal on Budget

Bitterly divided Mexican legislators struck an eleventh-hour deal Wednesday to approve the 1999 federal budget, averting a potential constitutional crisis and teaching the ruling party a lesson in political compromise.

The ruling Institutional Revolutionary Party, known as the PRI, caved in to a demand from the right-of-center National Action Party, or PAN, to ditch a controversial 15% surcharge on all phone bills in return for the PAN’s support on the budget vote.

The deal, which won approval Wednesday in the Finance Committee, must be rushed through the full Chamber of Deputies by the end of today, although that step is expected to be a formality. Lawmakers met through the night.

It was the second time in recent weeks that the two parties joined hands to approve major legislation, suggesting an emerging center-right alliance between the broad-based PRI and the conservative PAN. The two also voted together this month to end a deadlock over paying for Mexico’s banking system bailout.

The left-of-center Democratic Revolution Party, or PRD, voted against the budget deal and accused the PAN of selling out to the ruling party once again.

The constitution requires the budget to be approved before year’s end, and it was unclear if the government could have continued writing checks and collecting taxes after today without an approved spending and revenue program.

For nearly seven decades, the PRI was able to dictate legislation, and congressional approval was never in question. That luxury ended in July 1997, when opposition parties achieved a combined majority in the Chamber of Deputies and forced the PRI to negotiate on legislative issues.

This year’s budget debate was often fractious as legislators wrangled over the nation’s most austere budget in modern times--driven by a yearlong plunge in oil prices, which has severely reduced government revenues.

The executive branch, still controlled by the PRI under President Ernesto Zedillo, argued that Mexico needed to cut spending and find new revenue sources to keep the budget deficit at a tight 1.25% of gross domestic product.

The budget dispute underscored Mexico’s continued heavy reliance on its oil exports and fees on domestic fuel consumption--now more than one-third of government revenues. When oil prices went into free fall last year, the government had to cut spending repeatedly and hurriedly seek other revenue sources.

But both the PAN and the PRD rejected the phone surcharge, saying it would hurt consumers and crimp economic growth.

As recently as Tuesday, ruling party legislative leaders were heeding Zedillo’s appeal not to back down on the main tenets of the budget plan. But Wednesday’s deal excluded the phone bill tax, instead opting for further spending cuts as well as higher business taxes, higher tariffs and a 5% diesel fuel surcharge. The PAN also compromised, agreeing to the higher taxes.

The agreement reduces spending by a further $1.4 billion, leaving an overall spending plan of $103 billion. Legislators also agreed to begin talks in February on tax reforms to reduce the nation’s dependence on oil revenues.

Angel Aceves Saucedo, a PRI legislator and head of the Finance Committee, had acknowledged before the deal that his party can no longer issue “the king’s word” to resolve any problem. He said the PRI was willing to compromise.

Yet left-wing PRD legislators have begun grumbling about the emerging alliance of their opponents. During balloting Tuesday on a separate issue that also produced a joint vote, PRD legislator Pablo Gomez said the PRI-PAN alliance “is worse than the one-party majority that we had before.” He contended that the two parties now reach deals behind closed doors and exclude the PRD from the negotiations.

Still, the ruling party has had to make major concessions on its policy initiatives, giving the PAN a significant voice in shaping Mexico’s future that would have been unthinkable in the past.