AMLO victory

AMLO, now it’s El Presidente.

Over the past few weeks, I’ve met with investors, corporate directors, and foreign-policy focused groups who are all acutely interested in Mexico’s ongoing political transition. Regardless of the sector, everyone has questions on what to expect from the next Mexican administration.

President-elect Andrés Manuel López Obrador will assume office on December 1st with overwhelming majorities in both houses of Congress, and ongoing uncertainty surrounding the new team, how they will govern and potential political risks. These questions are heightened given that López Obrador will have more political power than any Mexican president in nearly 40 years, which means an impressive ability to push his policy agenda forward.

As next week’s presidential handover gets closer, we are getting a better sense of how the new administration is envisioning its strategy—bringing about both greater clarity and more anxiety.

The first major sign of how the López Obrador administration is looking to govern came in late October with the Mexico City airport consultation. As part of this consultation, the incoming government polled the public on whether or not they should continue constructing the city’s new $14 billion airport.

Approximately 1 percent of total voters participated, and overwhelmingly rejected the project. In response, López Obrador announced the airport construction’s cancellation—sending shivers through the markets, launching a protest in Mexico City, and ultimately leading credit rating agency Fitch to downgrade Mexico’s country outlook from stable to negative.

The administration’s response to these adverse reactions has so far been to schedule more consultations. On November 24th and 25th, voters will be asked to vote for ten social programs (including training and scholarships for 2.6 million young people and doubling pensions for citizens over 68 years old), a new oil refinery, and the much-discussed “Tren Maya,” a rail line that will connect five southern states. However, unlike the Mexico City airport project—which López Obrador vocally opposed in the consultation’s lead-up—these projects have his backing.

Mexico’s energy sector is another major point of uncertainty. In early October, a member of Congress from López Obrador’s Morena party introduced a bill to merge Mexico’s energy regulatory commission (CRE) and national hydrocarbons commission (CNH) into the Ministry of Energy. This proposed move was immediately criticized by the private sector, as it would strip the two regulators of their autonomy and reduce the sector’s credibility in international markets. And more recently, a bill impacting banking fees brought on a significant and adverse market reaction.

Yet the turmoil did not stop there, with Juan Carlos Zepeda, the head of CNH, sending waves through the sector this past week when he announced that he would be stepping down from the position. However, there are some bright spots, with the incoming team promising that all previous oil and gas contracts will be respected and a bidding round for drilling service contracts will take place in December.

Meanwhile, the incoming team released its security plan this past week, which revolves around eight primary themes. The first axis focuses on corruption—the new administration’s signature issue and dominate campaign theme—and promises to root out conflicts of interest and classify corruption as a serious crime.

In terms of addressing security, the plan also announced some shifts that included a focus on violence prevention, a potential amnesty initiative, and a new National Guard force run by the Mexican military. The latter initiative would require a constitutional change and could provoke pushback given the military’s continued involvement in security operations.

If there wasn’t enough uncertainty in Mexico, the bilateral relationship poses its own challenges. While it appears that the three countries will be soon signing a new NAFTA / USMCA agreement, the deal’s congressional passage is still fraught with political obstacles.

The new Democratic majority in the House of Representatives and groups of Republicans have all outlined areas of difference with the agreement. Democrats have called for adding new measures to the agreement, such as stronger environmental and labor standards. Republicans too have expressed misgivings with the agreement, rejecting the special workplace protections for LGBTQ individuals. The combination will likely make for congressional debate, which may jeopardize any chances of swift approval.

I’m sure that for many of you, anticipating and evaluating risk here in country is high on your agenda. If you are asking yourself how to mitigate or best respond, don’t hesitate to call me here at White & Case or follow me via TwitterLinkedIn, or Facebook.

And last, but not least, to my friends in the U.S., I wish you and your families a happy, healthy and safe Thanksgiving.

Sincerely,

Antonio Garza