Mexican presidential candidate Enrique Peña Nieto.On the eve of a presidential election, Mexico is wealthier than it was when the retiring Felipe Calderón took office almost six years ago. The country is a rare bright spot in the global economy. Last year, Mexico’s economy grew faster than Brazil’s—and it is set to do so again in 2012, at an estimated 3.9 percent, again more than Brazil at 2.2 percent. Long resigned to a growth rate closer to the United States, its main trade partner, than to Brazil, its erstwhile regional rival, Mexico has left behind its mezzanine economy.

Of course, the two-year-old growth spurt has transpired in the face of stiff headwinds. Investor sentiment over Europe’s debt crisis regularly translates into skittishness about the stability of developing countries, and given that Mexico’s financial markets are wide open to investors, the country is extremely vulnerable to capital flight. And then there’s the gratuitous drug violence, which is estimated to shave between one and three points off Mexico’s output annually.

Should the gale abate, Mexico’s central-bank governor suggests that Mexico might trend toward 5 percent growth over the next several years—almost triple the country’s average growth rate since 2000 and more than Brazil’s during its recent period of high growth (2007–2010).

Chip on Their Shoulder

Yet the rhetoric in the lead-up to Mexico’s presidential election on July 1 suggests the three main candidates see the economy’s recent performance as a blip. Josefina Vázquez Mota, the candidate of the incumbent National Action Party, has opted for the campaign slogan “Different.”

That’s because Mexico’s economy faces several distinct challenges if it is to enjoy brisk growth. On the home front, monopolies—especially in energy and telecommunications—are obvious impediments to long-term growth. Reformers will need to face off against heavyweights like Pemex, the world’s seventh-largest oil producer, and telecom monopolist Carlos Slim Helu, a second-generation Lebanese immigrant who weighs in at 7 percent of GDP.

Abroad, there’s a sense that while Mexico has become one of the world’s biggest free traders, it has been let down—at times bilked—by its major trade partners. Reliance on trade with the United States caused Mexico’s horrendous 7 percent economic contraction in 2009, to say nothing of the fact that Washington delayed permission to grant Mexican truckers long-haul access to U.S. highways for over a decade, until 2011. Brazil insisted on renegotiating a car trade agreement last year after Mexican exports spiked. Then there’s China, whose entry into the World Trade Organization in 2001 coincided with Mexico’s subsequent anemic growth.

With a large lead in the polls, Enrique Peña Nieto of Institutional Revolutionary Party (PRI) is signaling his readiness to punt on these issues, promising instead small but rapid reforms after taking office. In response, critics of the princeling have lobbed a torrent of abuse against the candidate not known for his “deep thinking.”

An Adaptive Infrastructure

But regardless of who becomes the next president, Mexico’s economy is on an upward trajectory. Over the past twenty years, the central bank has managed to bring down inflation to negligible levels. Combined with a low national debt, Mexico has created a macroeconomic environment that the Financial Times last year called “virtually bulletproof.” Peppy institutions and technological change enable most of the gains.

Over the past year, Mexico’s main telephone regulator has forced down interconnection fees. Earlier this month, one of Slim’s telecoms settled out of court by conceding to regulator demands to end monopoly pricing. Pemex, meanwhile, is suffering from declining oil output and is gradually ceding its monopoly on Mexico’s oil and gas. If it doesn’t, Mexico will be a net fuel importer within ten years.

Instead of a fight to the death, the monopolies are ticking toward accommodation and exploring new opportunities. Digital convergence is nipping into Slim’s traditional market dominance, but it also offers him entry into television. Pemex recently relinquished its monopoly on petrochemicals, in part to plan for a Mexican shale-gas revolution. And in February, Mexico and the United States agreed to jointly explore oil and gas sites in a massive swath of the Gulf of Mexico previously under moratorium.

NAFTA is once again paying dividends for Mexico, albeit quietly. America’s fitful rebound belies significant growth in U.S. auto sales, which are crucial to Mexico’s manufacturing base; car and car parts generated $23 billion in revenue for Mexico last year. And now that Mexican truckers are finally driving on U.S. highways, the cost of exports to the United States is likely to drop 3–5 percent because the cargo won’t have to be transferred from a Mexican rig to an American one at the border.

These stimuli will be reinforced as higher wages in China have made Mexico the most popular spot for “re-shoring,” that is manufacturing destined for the North American market. Low transport costs, high productivity, steady wages and an excellent manufacturing infrastructure are key variables in the calculus.

The outcome of Sunday’s election certainly matters, but neither the country’s democratic future nor the integrity of its market economy is at risk. Mexico’s institutions are remarkably strong. Forging them may indeed have cost Mexico growth in the early 2000s, but the result—the difference between price and value—is longevity. Mexico’s payout is coming.

Sean Goforth is author of Axis of Unity: Venezuela, Iran and the Threat to America.

Image: World Economic Forum