The signals that the president-elect of Mexico sent to the markets these days were not enough to calm nerves. In the five days since the results of the presidential elections were announced, in which Claudia Sheinbaum was the winner, the value of the Mexican currency plummeted by 7.9%. Around noon on Friday, the dollar was sold at 18.30 pesos, consolidating its worst week since 2020 when the pandemic hit. The reason for the nervousness: the ease with which the ruling party will be able to pass twenty controversial reforms in September.
On Sunday, Mexicans voted to give Morena, the party of President Andrés Manuel López Obrador, a supermajority in the Chamber of Deputies and a relative majority in the Senate. This makes it easier for the 20 bills proposed by AMLO in February to pass during the month of September, a window of time in which López Obrador will continue in power before Sheinbaum takes office in October.
The reforms are broad, with proposals for increases in pensions for the elderly and the salaries of some public workers, but in the focus of the markets are the most controversial, such as a profound reform of the judicial system in which judges and magistrates are elected through popular vote. In addition, the autonomous bodies that regulate the different economic sectors, such as the Energy Regulatory Commission, among others, would disappear under Morena’s plan.
From the perspective of investors and the private sector, this represents a loss to the counterweights that guarantee their investments in the country. On the other hand, there is a risk that Morena, faced with this new concentration of power, will decide to continue indebting the Government at the levels that López Obrador did during his last year in office. The fiscal deficit is projected to close the year at 5.9% of the Gross Domestic Product (GDP) – almost double what was seen in previous years.
Sheinbaum reacted to the decline in the markets quickly. First, on Monday, he announced that the current Secretary of the Treasury, Rogelio Ramírez de la O, would remain in office under his government, ensuring continuity. The next day, the official called a call with investors and fund and bank analysts in which he assured them that the fiscal deficit would decrease and that the autonomy of the central bank would be respected. This momentarily stopped the fall of the peso and even recovered some of the lost ground. On Wednesday, Sheinbaum reported that he had spoken by phone with heads of the World Bank (WB), the International Monetary Fund (IMF) and the Organization for Economic Cooperation and Development (OECD) and published a photograph of a meeting with BlackRock executives , the largest investment fund manager in the world. “They are committed and enthusiastic about increasing investment projects in Mexico,” said the president-elect.
But that same day, the Morenoist “steamroller” also spoke and injected again the uncertainty that the markets feared. Ignacio Mier, the leader of the Morena bench in the Chamber of Deputies, informed the press that, in September, his priority will be to pass four reforms: to the Judicial Branch, the military, the disappearance of the electoral body to create a new one and the disappearance of autonomous organs. This knocked down Mexican assets again.
Finally, on Friday, President López Obrador confirmed in his morning conference that he will seek to pass the reforms because “Justice is above the markets.” Under his presidency, and until this week, the Mexican peso had appreciated 12.5%, meaning that most of the gains obtained since December 2018 were lost this week.
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