The election of Mexico’s new president, Andres Manuel Lopez Obrador, raises numerous questions. Although the new president and his team enjoy strong popular support, investors are worried about the policies he is proposing for the next six years. Some of the proposals do not seem to be compatible with his promise to maintain fiscal discipline, central bank independence and economic pragmatism in general. Several existing reforms are being called into question, notably in the energy sector. Given Mexico’s strong economic fundamentals, these contradictions are unlikely to have much of a short-term impact. In the medium term, in contrast, the big risk is that they could jeopardise the government’s capacity to maintain fiscal discipline, keep the energy sector afloat and preserve investor confidence.
Barely six months after his election as president of Mexico, Andrés Manuel López Obrador’s first actions are already raising numerous questions. AMLO, as he is commonly known, was elected on 1 July 2018, but even before he was sworn in on 1 December 2018, his administration made several radical decisions, including the launch of a vast anti-corruption campaign, a referendum on the construction of an airport near Mexico City, which resulted in the project being scrapped, and the cancellation of several initiatives introduced by the previous government, notably energy sector reform. He also raised the minimum wage and announced several measures to reduce inequality. While affirming his intentions to respect his campaign promises concerning economic policy, AMLO and his team also reiterated their commitment to maintaining the central bank’s independence, presented a budget that complies with the fiscal discipline seen in recent years and signed a new trade agreement with the United States and Canada.
In general, Mexico benefits from solid macroeconomic and financial fundamentals, but the country is still vulnerable to a change of investor sentiment. The political upheaval triggered by AMLO’s election and the lack of clarity concerning his economic policy proposals have left investors dubious.
Although consumer stimulus packages and the anti-corruption fight will continue to ensure strong popular support for the government, investors’ loss of confidence and the lack of clarity over economic policies is eroding short-term growth prospects. The government’s credibility has been eroded when it comes to meeting its commitments, notably in terms of fiscal discipline. Uncertainty also shrouds the future of energy sector reform, which has played a key role in the country’s political life in recent years. Fortunately, the country’s external vulnerability is relatively low.
The political environment
On 1 July 2018, Andrés Manuel López Obrador, head of the left-wing Morena party (National Regeneration Movement), largely won Mexico’s presidential election with more than 53% of the vote. AMLO, as he is commonly known, was sworn in on 1 December 2018 for a 6-year non-renewable term.
A coalition comprised of the Morena party and several small left-wing parties won the legislative elections held on the same day, winning majorities in both the House of Representatives and the Senate. When the parliamentary session opened in early September, the coalition had strengthened its position, with a total of 310 deputies and 69 senators (out of a total of 500 and 128, respectively). This is the first time since 1997 that a coalition has won absolute majorities in both houses. Moreover, the opposition is fragmented and the next elections (provincial and local) will not be held until 2021, which leaves the ruling coalition a lot of manoeuvring room to implement reforms.
Mayor of Mexico City from 2000 to 2005, and then the anti-establishment candidate defeated in the presidential elections of 2006 and 2012, the victories by AMLO and his Morena party were no small feat. The political alternative they proposed won strong popular support and reflects the clear rejection of Mexico’s two traditional parties, which have shared power for almost a century. The Institutional Revolutionary Party (PRI), which was created after the 1910 revolution and became the centre-right party in the mid-1980s, has governed the country from 1929 to 2000, and then from 2012 to 1 December 2018. The conservative National Action Party (PAN) ruled Mexico from 2000 to 2012.
AMLO largely owes his electoral success to his promise to fight corruption and insecurity, even though similar promises have been made by all of the candidates elected since the mid-1980s.