World Markets

Want growth? Learn to compete: Mexico's Carstens

Mexico's economy could grow as much as 5 percent a year, but for that to happen, government monopolies—and magnates like Carlos Slim—will have to get used to more competition, the country's top central banker told CNBC.

Major proposed reforms to the country's energy, telecom, and financial sectors are "unprecedented," said Governor Agustin Carstens, who added that the changes "have a high potential to make Mexico more productive, more competitive."

Why Mexican economic reform matters

Carstens said that analysis done by the central bank shows "that the structural reforms in the next five to seven years will have an impact of 2 percentage points," leading to growth of as much as 5 percent per year, a rate not seen on a sustainable basis since the 1970s. Growth currently stands at about 3 percent.

Of all the proposed changes, he said he believes the greatest contributors to Mexico's growth will come from energy sector reforms, both in the oil sector and electricity generation, which are currently dominated by state-owned monopolies. Under the changes, those sectors will be opened to private participation, and the state monopolies will be forced to compete.

America Movil pushes back

While the goals of each of the major reforms were embedded by changes in Mexico's constitution, they also require secondary legislation which actually implement the changes. The oil sector laws have yet to be unveiled, but the communications laws affecting telephone and TV service were presented to the Mexican congress last week and are already sparking controversy.

America Movil, the Mexican telecom giant founded by world's richest man Carlos Slim, sent a letter to the congress late last week that was critical of a number of the regulations including one that may force the company to give competitors access to its infrastructure for free. Under the proposed legislation, as long as Slim's company has more than 50 percent market share, it will not be allowed to charge fixed or mobile competitors for the termination of calls.

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"It is surprising to force a company by law to invest, and later force it to sell to its competitors those services for zero. Additionally, this proposal rewards the chronic lack of investment by our competitors, to the detriment of consumers," said the letter to Congress, which is available in Spanihs on the America Movil investor site.

If approved, the penalties for failure to follow the new laws would be severe—up to 5 percent of America Movil's Mexican revenue. An analyst at Scotiabank said the new set of rules are so "abundant and convoluted" and the penalties so "brutal," that they "may drive (America Movil) to break itself up in order to avoid regulations."

'It's not about Carlos Slim'

But Carstens told CNBC that those types of rulings are "not unprecedented."

"When you have networks and you are a dominant player, that type of measure has been done in other countries and other sectors," he said. "It's just to share essential resources."

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When asked specifically about Carlos Slim and whether the laws would reduce his effect on the Mexican economy, Carstens said, "It's not about Carlos Slim. I think he has his place. He has done things for Mexico that have been good, no? But I think Mexico needs to move forward. And it's important, it's very important, to open those sectors for more competition. And I think he has the capacity to compete, no? The Mexican government is not banning him from the market, they're just forcing him to compete and I think he has the capacity to do so."

Agustin Carstens
Susana Gonzalez | Bloomberg | Getty Images

When it comes to the U.S. Federal Reserve's tapering of its bond-buying program, Carstens said, "We are well prepared for it."

"As unconventional monetary policy starts to normalize, I think markets will start to discriminate more among asset classes like emerging markets," he said. "They will make more differentiation. So what you want is to be able to stand out and be considered a good risk."

Carstens added that the reforms taking place in Mexico will be seen as a key risk reducer and will offset concerns about tapering.

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Compared with his Indian counterpart Raghuram Rajan, who recently criticized a lack of coordination by the U.S. Federal Reserve on the taper, Carstens was less critical.

"Given that countries are on different business and financial cycles, it might just be the case where it's very difficult to make compatible the objectives of an important country like the U.S. with the (objectives) of the others," he said. "At the end of the day, we all in the central banking community would like to cooperate and coordinate, but there are limits to that."

He pointed to a quote from well-known American economist Anna Schwartz, who said that "policy coordination is a fair weather phenomenon."