Privatize Mexico's Oil

The government of Mexico receives more than a third of its funding from its state-run oil monopoly, Petróleos Mexicanos (Pemex), which also happens to be the No. 2 supplier of crude oil to the US.

While many countries live directly from their oil revenues, this set-up is not conducive to ending corruption and reinforcing democracy, as Mexico has slowly been trying to do.

By relying on Pemex instead of a fair income-tax system, the government makes a business - instead of its citizens - stakeholders in the state. And by placing heavy financial demands on Pemex, it siphons off money that could be reinvested to make Pemex far more productive.

Interestingly, the party that ruled Mexico with an iron fist for decades has signaled that it understands this, at least in part.

The Mexican Congress - still controlled by the Institutional Revolutionary Party, or PRI - recently opened the way for possible private investment in Pemex, allowing it to form alliances with foreign oil firms. And last October, the lower house passed a bill that would return more revenue to Pemex.

Pemex itself badly needs reform to expand exploration and production. Its pipelines suffer from lack of maintenance, and this takes a toll on the environment. In the past four years, some 44 oil spills have occurred, two-thirds of them due to pipeline failures. Meanwhile, Pemex's debt has grown to about $85 billion. Last week, Pemex was fined and forced to close three of its plants for malfeasance.

The steps taken so far by the Congress are in the right direction. What's really needed, however, is a giant leap forward - to Pemex's full privatization.

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