Mexico Notes - September 2024
Now that judicial reform has passed, some comments on where Sheinbaum's presidency will begin.
In the past two weeks, Mexico's judicial reform passed the Congress, made its way through almost two dozen state legislatures, and was signed into law by President Andres Manuel Lopez Obrador in time to celebrate Mexican Independence Day. The president can now take a two week victory lap before handing power over the Claudia Sheinbaum.
No matter your opinion on judicial reform, take a moment to acknowledge the political effectiveness of getting this done. AMLO has lined up a political coalition for Sheinbaum to execute her agenda and it will benefit the new president. She will have no problem passing any budget or initial legislation that she wants to get through the Congress. Also acknowledge the political tricks that AMLO used to get this passed. Getting the votes required payoffs, offers to drop corruption investigations, and threats against family members of legislators. It's a real life version of the end of Animal Farm; Morena has fully converted into the new PRI that it opposed.
I outlined the scenarios for judicial reform a few weeks ago and I still think many analysts and investors are underestimating scenario B, the potential that Mexico's investment environment improves under Sheinbaum despite the reform.
Some of my optimism about Mexico comes from a perception that Sheinbaum will be more technocratic and pragmatic than AMLO. Note, I did not say "more moderate." Ideologically, she is probably further to the left than the current president in terms of how she views both economic and social issues. But she also cares about basic financial management and the secondary impact of policy decisions, things that the current president can't be bothered with. She wants more private sector investment in the country and understands compromises will be needed to pass her agenda and boost economic growth.
As a start, Sheinbaum appears ready to tackle some of the hard decisions about Pemex. AMLO has dodged Pemex's financial problems for six years while he has pushed his vanity projects of more drilling, less foreign influence, and an unneeded and poorly designed refinery. With major debt payments coming due and billions owed to the oil company's contractors, Sheinbaum will need to dig into the spreadsheets that AMLO never wanted to look at. She is likely to have Mexico's national budget absorb or guarantee some of Pemex's debt as part of an effort to fix the problem. She will also allow some foreign investment in the oil sector, though she must be cautious here because going too far in favor of foreign companies coming in would be a red line for AMLO.
One area where the current and next president are divided is the US election. Sheinbaum likely prefers Harris while AMLO knows how to get along with and get the best deals from Trump. If Harris wins, it will limit AMLO's role in future USMCA negotiations and give Sheinbaum a better hand in terms of relations with the US. If Trump wins, expect Sheinbaum to lean heavily on AMLO to help negotiate with the US, giving the former president greater influence in her trade and foreign policy.
AMLO won't have much influence on what Sheinbaum does on security and the next president appears to have good handle on the situation. Conversations I've had in recent weeks with analysts in Mexico portray a president who is prepared to take on the security challenge with more than happy rhetoric and press conferences. She is data-driven and wants police to lead security policy rather than the military. AMLO promised many of the same things in his campaign and then absolutely failed to deliver. One concern is how the military reacts to having their role in the country diminished after six years of an expanding footprint. Another concern is how the cartels react, particularly the Sinaloa cartel given their ongoing internal feud. Still, on security, I'm hopeful this time and this president are different than the last six years.
Questions I've received in recent weeks: "If Sheinbaum is better than AMLO, how did she let this judicial reform happen?" or "Why hasn't Sheinbaum been more critical of AMLO on security/economics/energy/judicial reform?"
The answer is that Sheinbaum cannot criticize AMLO at all while he is still president and will be limited in her criticisms even after she takes the presidency. Mexico's current president is very sensitive to public criticism. As president, she will have a wide leeway to act differently from AMLO on most policy issues. But speak about those differences publicly, and the soon-to-be former president will lash out. That is a line she will have to walk carefully in the opening months of her administration.
