[Afghanistan's cash heads forthe airport 0 » The Danish krone copes with success 11 ‘Colombia's gold rush funds FARG fighters 13." The week ahead 12 Ealtedby Chvistopher Power Global Economics Mexico May Finally Get AModern Oillndustry > President-elect Enrique Pefia Nieto wants to open oil fields to outside investors > “He knowsitwouldbean extraordinary step forward” When it was discovered in 1976, Mexico's offshore Cantarel oilfield was ‘one of the world’s largest, and it quickly became a money machine for PetrOleos Mexicanos (Pemex), the giant state: ‘owned oil company. Thanks to this bo- nnanza, Mexico became one of the top three sources of crude for the U.S. and Pemex became the biggest source of tax revenue for the government. Cantarell seemed to justify Mexico's expulsion of the big British and American oil com panies in 1938, and its policy ever since Of forbidding outside investors from ex ploring and producing in the country. ‘The ban on major outside investment in Pemex is even enshrined in the Mexican constitution, ‘Today, Cantarell’s output is shrinking. Pemex’s total produe: tion declined to 2.5 million bar- rels a day last year, from 3.4 million in 2004, and in the last quarter oil ex: ports to the U.S. hit the lowest quarter ly average since 1993. Pemex estimates ithas 27 billion barrels of untapped oil in the deepwater Gulf, but itis rely- ing on limited in-house experience and third-party technology to exploit it. So far it has failed to find any commer. cially viable crude after 20 attempts, Pemex lost $7.4 billion last year on ‘$126 billion in revenue, its fifth consec utive annual loss. Incoming President Enrique Pefia Nieto has declared that overhauling Pemex will be his “signature issue.” His Institutional Revolutionary Party- led alliance wants outside oil compa: nies to invest in Pemex’s exploration and development activities. “He knows itwould be an extraordinary step for- ward, as extraordinary as was Nata,” says historian Enrique Krauze, refer- ring to the North American Free Trade Agreement, which was implemented in 1994, Nafta spurred a sixfold increase in Mexican sales tothe U.S. ‘The prospect of Pefta Nieto allowing outside investment in Mexico's oilfields thas caught the attention of companies such as ExxonMobil. Mexico needs to open up to “partnerships and collabora tions and bringing technology” to bear on its resources, ExxonMobil chief Rex. Tillerson said on June 27. “The interest \would be huge from the international standpoint, similar to Trag,” says Jeremy Martin, an oll specialist at the Institute of the Americas in La Jolla, Calif. Opening up the oil sector may boost ‘gross domestic product by as much as 0.8 percent a year, according to re- search firm Capital Economics. Com: bined with the discovery of signifi cant amounts of shale gas in northern ‘Mexico, tapping deepwater oil could China's moke-and-mirors numbers 12 create an era of low energy costs for the country. Inviting outsiders to invest in Pemex could also transform the psychology of business in Mexico. To change Pemex, Peita Nieto will have to challenge entrenched interests, from the unions to local officials, who have all benefited from Pemex’s largesse. If he succeeds he could tackle other mo- nopolies and duopolies in power gener- ation, telecom, and cable television that ‘make life so expensive for Mexicans. Iwill not be easy for Petia Nieto to pull offan ambitious reform of Pemex. ‘The alliance led by his party, known in Mexico as the PRI, will have 240 seats in the 500-seat lower house. That leaves the PRI well short of the two-thirds ma: jority needed for constitutional changes to open up the oil industry to pri vate investment. One thing in Pefiahy 10 — sy 22 20% Nieto's favor: The National Action Party, ‘or PAN, of outgoing President Felipe Calderén may back his plans to reform Pemex. PAN Senator Rubén Camarillo said on July 3 that his party favors open- ing the energy industry and will support reforms that benefit Mexico regardless ‘of who proposes them. Popular opinion is also starting to shift in favor of big changes at Pemex. Brazil's success in turning around its oil industry and mastering the art of deepwater drilling has Mexicans won: dering why Pemex can't do the same. Then there's fear of the so-called straw effect, (efecto popote), in which some oil de- posits that strad dle international boundaries in the Gulf might be ex ploited first from the US. side, leav, Pea Neto says werheutne’ ing crude by the Pemex willbe time Pemex man his "signature ages to obtain the fesue" technology and ex: perience it needs 10 produce from those depths. Pera Nieto has said he may pres cent the needed constitutional chang: es after the new congress begins work ‘on Sept. 1 and before he takes office ‘on Dec. 1. He may have gone some way toward building consensus for the con- stitutional changes within the PRI party by consulting with Pemex’s powerful oil ‘workers’ union and other labor groups, which have traditionally supported the party. “More investment means more jobs,” Pemex labor union leader and PRI Senator-elect Carlos Romero Des- champs said in a June 19 interview. “The president-to-be also has to woo holdouts in his own party, which creat ced Pemex. “Support from PRI factions is fundamental to pass reform,” says Jorge Chabat, a political science professor at the Center for Economic Research and. ‘Teaching in Mexico City. “There may be some PRI members left [who are) against the idea of opening the sector to foreign investment, but at the end of the day they will fall into line” —Bric Martin and Carlos Manuel Rodriguez, with Nacha Cattan The bottom tne Wh i output down 26 percent Since 2004, Pemex may try to court iestnent ad ‘exports rom theo mais. Afghan Cash Heads for the Airport Locals use planes and traditional money handlers to export wealth “The money leaving ...shows that ‘Afghans fear the war will escalate” Afghan central bank inspector Fahim Satari stands in Kabul International Ai port in front ofa local businessman headed for Dubai, counting by hand the stack of $100 bills police found the pas senger carrying to the gate. Saari de- clares the cash to be under the $20,000 per passenger limit imposed to stem the flood of money leaving through the terminal. n the year to March, $4.6 bil- lion fle via the airport, asum equal toalmost one-quarter of the country’s sross domestic product. The year before, $2.3billion in cash lft via the airport. ‘The los billions are undercutting US. efforts to stabilize the country as it repares to withdraw its troops by 204. “The money leaving the country shows that Afghans fear the war will escalate after NATO troops leave” says Saifuddin Saihoon, an economics professor at Kabul University. ‘Omar Zakhilwal, President Hamid Karzai’ finance minister, said on June 28atan investment summit for Afghani- stan held in New Delhi that the airport ccurbs were meant to force people to use ceasy-to-monitor banks when moving money abroad. Yet only 7 percent of ‘Afghans have bank accounts. And they have another option. Inside a scrufly three-story building guarded by police in central Kabul, the hawaladars of Saraye Sarai Shahzada market, an eight decade-old institution based on trust, and a deeply ingrained emphasis on hhonor, are busy at work. When approached to transfer funds ‘overseas, a hawaladar typically accepts the cash, then calls a counterpart in, Dubai, Pakistan, or Iran, where an equal amount is handed in person to the in tended recipient. Transfers can be com: pleted in minutes. Debts between bro: kers are settled later: “Since the airport restrictions came in, more people are demanding our services,” says Najeeb Ullah AKhtary, the president of the curreney-exchange union, which counts the hawaladars as members. In February and March, the ‘hawala business was up 10 percent, with ‘one transfer of $700,000. The hawala networks flourish in Afghanistan, where the reputation of formal banks was savaged by the 2010 Kabul Bank scan: dak: The lender's politically connected ‘owners lost more than $900 million ‘of depositors’ money through insider loans. “People don’t trust banks very ‘much, and the banks can’t send money as quickly as we do,” Akhtary says