By Dave Graham
MEXICO CITY (Reuters) - The arrest of Mexico's best-known trade union leader on fraud charges has thrown down the gauntlet to powerful interests standing between President Enrique Pena Nieto and his plans to shake up Latin America's second-biggest economy.
For a generation, even presidents shied away from taking on teachers' union boss Elba Esther Gordillo, making her Mexico's most prominent female politician and a formidable enemy to those who accused her of fostering corruption rather than education.
Pena Nieto, who has been in office for less than three months, crossed that line on Tuesday when police arrested Gordillo and three other people with her at Toluca airport near Mexico City.
Mexican television showed Gordillo, 68, wearing a prison uniform and standing behind bars as a state prosecutor formally charged her with embezzling around $200 million from union coffers and using the money to pay for U.S. property, luxury goods, designer clothes, works of art and plastic surgery.
She is not allowed to apply for bail under the charges.
Gordillo, who deferred comment to her lawyers, faces a maximum jail sentence of 30 years, though prisoners can apply to be moved to house arrest at age 70.
"It is clearly a criminal case," Attorney General Jesus Murillo said in a television interview. "The case is very solid."
A former grandee of the ruling Institutional Revolutionary Party, or PRI, Gordillo has denied accusations of corruption.
She was snared a day after Pena Nieto signed a law aimed at improving education standards that she had opposed because it would weaken her union's clout.
Pena Nieto said on Wednesday that he would work with the teachers' union to improve the education system and promised not to interfere in the investigation of Gordillo.
"This probe must be seen through to the end in strict adherence to the law at all times," he said in a televised address.
The Mexican president is preparing to launch a series of ambitious measures that aim to overhaul taxes, open up state oil giant Pemex to more private capital and ease tycoon Carlos Slim's tight grip on Mexico's telecommunications industry.
"The fundamental point is that resistance by the de facto powers to reform will be confronted with energy and determination," Federico Berrueto, director general of Mexican polling firm GCE, said after Gordillo's arrest.
In Mexico, the "de facto powers" refer to various entrenched interests that include Slim's business empire and dominant broadcaster Televisa, run by Emilio Azcarraga.
Both have repeatedly fought off regulatory efforts to loosen the control they wield over their respective markets.
The government is due to unveil a major telecommunications proposal in the next few days, while separate initiatives on overhauling Pemex and boosting Mexico's weak tax take are expected to go to Congress during the second half of 2013.
The education law signed by Pena Nieto on Monday still faces a fight from Gordillo's union because it requires a secondary law to be implemented.
Changes to the energy sector could face resistance from the Pemex union so Gordillo's arrest was also interpreted as a government warning to other labor bosses that they too might face close scrutiny.
Although Gordillo is unpopular in Mexico, her arrest has also stirred fears that Pena Nieto could be leaning toward the authoritarian past of the centrist PRI, which ruled Mexico continuously from 1929 to 2000.
Brasil Acosta, a PRI congressman from Pena Nieto's home turf, the State of Mexico, said the party had to be careful that the case against Gordillo was not brought for the wrong reasons.
"If it isn't legally proven, we'll be looking at an act of political repression, which would be dangerous," he said.
Carlos Salinas, who was president from 1988 to 1994, removed two troublesome union leaders as he embarked on his own historic reform drive, but his administration ended mired in allegations of graft.
Appointed by Salinas in 1989, Gordillo became one of the most controversial figures in Mexico.
She has been widely criticized for her lavish lifestyle and she became more vulnerable after splitting with the PRI ahead of the 2006 presidential election, when the party suffered its biggest-ever defeat.
"I imagine he (Pena Nieto) was looking to land a decisive blow against someone, and she was the easiest target," political analyst Denise Dresser told Mexican television.
Gordillo was taken to Santa Martha Acatitla women's prison on the edge of Mexico City on Tuesday night.
The PRI, reviled by many Mexicans as corrupt and heavy-handed by the time it lost power in 2000, pledged to mend its ways after Pena Nieto recovered the presidency last year.
The former State of Mexico governor vowed to usher in greater accountability and transparency, and his allies are portraying the investigation into Gordillo as part of the new PRI's broader efforts to clean up Mexico.
"They send a clear message. We're not playing games when it comes to governing," said Alejandra Del Moral, a 29-year-old PRI congresswoman.
Gordillo has long been a symbol of the PRI's cozy relationship with trade unions and established interests, which critics blame for fomenting inefficiency and helping to keep the economy lagging behind its emerging market peers.
Opposition lawmakers quickly argued that to realize lasting change Pena Nieto must go further than just arresting Gordillo.
"Today we're going to demand that Pena Nieto carries on with the others in the way he started with Elba Esther," said Armando Rios Piter, a senator for the leftist Party of the Democratic Revolution, or PRD. "There are hundreds and perhaps thousands who represent this model of corruption."
Among these, he said, is Carlos Romero Deschamps, head of the oil workers' union at Pemex and also a PRI senator.
Revamping the state-run Pemex is one of the toughest tasks facing Pena Nieto. Created when the PRI nationalized the oil industry in 1938, the company became a symbol of Mexican self-reliance and his party has been very reluctant to touch it.
Romero Deschamps has denied taking part in corruption and fought off such allegations in the past, and both the PRD and the conservative National Action Party, or PAN, called for an investigation into his wealth after Gordillo's arrest.
With no outright majority in Congress, Pena Nieto needs support from opposition parties for any major reform of Pemex. They are likely to seek concessions in exchange for votes.
(Additional reporting by Gabriel Stargardter and Lizbeth Diaz; Editing by Kieran Murray, Simon Gardner and Xavier Briand)