Two early September events in Mexico – a PRD leadership election and the President’s State of the Union Address – suggest the persistence of productive executive-legislative relations through the end of 2014 and the revival of economic growth in 2015. The durability of this political-economic context, however, will pivot on at least two other upcoming events – a potential referendum on energy reform and the July 2015 midterm elections.

PRD Moderates Convincingly Win Election to Determine New PRD Leadership

On September 7, for the first time in recent memory, the coalition of moderate forces that have led the leftist Democratic Revolutionary Party (PRD) throughout the Pena Nieto administration received a decisive mandate from PRD voters. The coalition, led by the so-called “Chuchos” (Nueva Izquierda), the moderate wing of the party that brought the PRD into the Pacto, won 65% of the vote, which will almost certainly guarantee the internal party support needed for their candidate, Carlos Navarrete, to be named party president on October 5.

This outcome is extremely important since past PRD elections resulted in razor-thin margins of victory for the Chuchos, which were dismissed as fraudulent by Lopez Obrador and his allies. This claim carried legitimacy for the losers because the narrow victory was marred by fraud on all sides, and by the fact that the victors had organized the election. As a result, elections deepened divisions within the party and undermined rather than enhanced the power and autonomy of party leaders.

This began to change with Lopez Obrador’s September 2012 decision to leave the PRD and form a new party, Morena, taking with him some of the PRD’s electoral base. This shifted the balance among PRD supporters toward the moderates. Equally important, the National Electoral Institute organized and oversaw this election, thereby eliminating any political motive for manipulating the results.

Now with a clear mandate, the PRD moderates will have a freer hand to ensure that the party continues to operate as a loyal opposition that opposes or collaborates with the government within the structure of democratic institutions, rather than reviving the party’s old strategy of “governing from the streets.” This should ease the government’s task of implementing economic reform and managing the fall legislative session.

(As a reminder, under the leadership of Lopez Obrador, the PRD never recognized the legitimacy of Felipe Calderon’s election to the presidency, it blocked Reforma – one of Mexico City’s main thoroughfares – for months to pressure the government/courts to reverse the election outcome, and it refused to interact with Calderon for months after he took office.)

It remains unclear whether the candidate of the losing party faction, the PRD’s historic leader, Cuauhtemoc Cardenas, will remain in the leadership race since his candidacy received the backing of just a third of the party faithful. His demonstrated penchant for avoiding actions that might feed internal party division weighs against a run. But even if his deeply felt opposition to energy reform motivates him to remain in the race, the boost the popular election gives Navarrete will be extremely difficult to overcome.

Navarrete is a career politician with pragmatic political sensibilities who has collaborated closely with the Chuchos (Jesus Ortega and Jesus Zambrano) since the 1980s. He is a leftist who mistrusts the free market (and thus favors regulating it). He believes the state has an essential role to play in managing the economy and protecting the poor, and he retains a subtle but real mistrust of the motives of foreign investors and the U.S. government. But he is neither strident nor inflexible. He sees himself as a democrat and sees Mexico’s future as an institutional democracy – he is not a charismatic leader prone to bend the rules to expand his personal authority.

Looking forward, this election does not ensure moderate control of the broader Mexican left. In the July 2015 midterm elections the PRD will face a strong electoral challenge from Morena, the party led by Andres Manuel Lopez Obrador. The outcome will be critical.

In anticipation of this next phase in their battle for control of the political left, both sides have adopted opposition to energy reform, an extremely popular position among left-leaning voters, as a core party plank, and each organized a petition drive to collect the signatures needed to authorize the referendum. Now it is up to the National Electoral Institute to verify that enough of the signatures are legitimate, and then for the Supreme Court to decide if the referendum would be constitutional. Should the referendum be dismissed for either of these reasons, Lopez Obrador will probably lead his supporters into the streets. The political impact of these protests, however, will turn on the PRD, which suggests they will be noisy but not politically decisive.

Under the leadership of Carlos Navarrete the PRD will protest, it will lead marches and rallies, but it will not return to a strategy of governing from the streets. This difference in political tactics is what distinguished the PRD moderates from Lopez Obrador’s Morena, and this is the difference the PRD will present to voters in July 2015.

The State of the Union: Inclusion, Prosperity, and Peace

On September 2 President Enrique Peña Nieto delivered his second annual Informe, Mexico’s version of the State of the Union Address. Despite the striking successes of the past year, EPN avoided any note of triumphalism and instead focused on the need for inclusion and effective governance to lead Mexico to a future of prosperity and peace. Beyond the traditional list of the administration’s achievements over the previous year, the speech incorporated three broad takeaways: the era of reform has ended and a new one of governing has begun; infrastructure investment will drive growth; and the government must make sure that the coming prosperity also helps the poor.

Even before he began to speak, the President presented an image to the country designed to evoke the theme of inclusion and effective governance – a President flanked by the leaders of each House of the Mexican Congress, both representing the PRD, the party that has been most critical of the President’s key legislative achievement, energy reform. The speech itself was peppered with references to working together, and it called on all Mexicans to play their part in creating a better country. The speech highlighted the “eleven transformative reforms that form the foundation for building a new Mexico in the coming years,” but it gave credit for this achievement to a “great national consensus” evident since late 2012 that arose from a “shared will to transform Mexico.”

The speech introduced no new dramatic reforms and only a few new policy initiatives. It promised no new taxes and no tax increases. Overall, it did not present a vision of a flashy future characterized by policy implementation and consolidation. Instead it focused on transforming “reforms” into a prosperity that Mexican citizens will begin to see and feel in their daily lives. And central to achieving this outcome will be huge investments in infrastructure and a revised approach to fighting poverty.

The President proudly touted an array of infrastructure projects that will soon be under way – 46 road projects, 24 rail projects (including the extension of four subway lines in the Mexico City area and trains connecting Mexico City with Toluca and Queretaro), and of course Mexico City’s new international airport – clearly the signature public works initiative of the Peña Nieto administration. In conjunction with anticipated private investment in the energy and telecommunications sectors, the administration is clearly betting that opportunity coupled with government leadership and a stable operating context will translate into large-scale investment that will jump-start job creation and growth.

Finally, the President announced 15 new programs and a name change for Mexico’s signature antipoverty effort. Opportunidades has been enormously successful at helping keep children from poor families both healthy and in school. It has been much less effective at transforming the resulting human capital into a productive employment. Renamed “Prospera,” it will now address this problem with grants for university study or technical college, priority placement in the national employment system, and access to financial education and a national entrepreneur fund.

The President’s emphasis on inclusion and governance, on pivoting from change to predictability, on infrastructure investments that will jump-start growth, and on renewed attention to the needs of the poor are hardly surprising. This was the administration’s broad outline from the start – policy reform for the first year/year-and-a-half leaving enough time to begin reaping some economic and electoral benefits in advance of the 2015 midterm elections. And the likelihood of success should benefit from internal PRD politics that have placed Carlos Navarrete at the party helm.