The private sector in Mexico lives days of intense uncertainty before the decisions of the Government of López Obrador

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Andrés Manuel López Obrador, president of Mexico, visited Campeche, where he supervised the progress of the work on the Mayan Train project.
Andrés Manuel López Obrador, president of Mexico, visited Campeche, where he supervised the progress of the work on the Mayan Train project.Special Photographer (Presidency of Mexico)

On top of the uncertainty due to the omicron variant, investors and businessmen in Mexico live days of tension in anticipation of key decisions that will determine their interest in the country, the second largest economy in Latin America. A replacement of judges in the Supreme Court of Justice, the vote of the Senate regarding the next governorship of the central bank and a decree that shields public investments in protection infrastructure piled up in the last weeks of the year, exacerbating the climate of mistrust.

A Banco de México survey published this Wednesday shows that governance is the factor that most private sector economics specialists see as the greatest obstacle to economic growth, with 45% of them mentioning it in their responses. This compares with the 25% mentioned in November 2020. Political uncertainty was mentioned above inflation and the country’s internal economic conditions.

This is already reflected by the markets, after a depreciation of the Mexican peso against the dollar increased last week when rumors were confirmed that the president, Andrés Manuel López Obrador, had withdrawn the nomination of Arturo Herrera, former Secretary of the Treasury, as governor of the central bank. Instead, the president nominated Victoria Rodríguez, undersecretary in the same agency with no experience in banking and monetary policy. The markets assimilated the unexpected news as a curve ball, pulling the national currency to a record level, coupled with the global news of the new variant of the coronavirus, omicron, which, to date, continues to rage.

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Many companies have paralyzed their investments in Mexico until they are aware of the direction the country will take. On Wednesday they are awaiting the appearance of Rodríguez before the Senate. They also hope that it will be decided in the Supreme Court if one of the initiatives sent by López Obrador to modify the Electricity Industry Law to favor the State company is constitutional – the implications of this would be the loss of millions of dollars in investment made. by private companies -. A replacement of magistrates in the Court has hung this issue by a thread, since the new minister, Loretta Ortiz, is the founder of the president’s party and has admitted being close to López Obrador. If it is not decided before December 12, it is possible that the case will remain in the hands of Ortiz.

And, also as a curve ball launched from the National Palace last week, there is a decree that declares all infrastructure work of the Government as a “matter of national security”, effectively shielding it from any protection or challenge in the judiciary. This would further obscure the selection processes of contracted companies and the accountability of spending. A coalition of politicians and congressmen from various opposition parties presented a constitutional controversy before the Supreme Court, throwing the future of the decree into administrative limbo and, with it, the necessary certainty to invest.

The unpredictability of the López Obrador Administration has become one of its hallmarks, and, economically, it has come at a cost. The Mexican peso depreciated before he took power, in October 2018, when he announced the cancellation of the mega infrastructure project that was a new airport for Mexico City. It has also gradually depreciated due to the obstacles that regulators have placed on private parties in the energy sector. He depreciated again, albeit briefly, when he sent an initiative to Congress to reform the Constitution and undo the current energy regulatory framework (and days after the Secretary of the Treasury, Rogelio Ramírez de la O, assured in a forum that there would no longer be any more constitutional reforms).

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It is also in the holding of Mexican bonds in the hands of foreigners, whose amount is the lowest in eight years, according to data published in the central bank’s balance of payments. Although this also has to do with the pandemic, the departure of this capital began in the summer of 2018, when López Obrador won the presidential elections and continued in 2019, before the coronavirus struck. Proof that domestic factors have been present in investors’ decisions is that many emerging countries have seen the return of capital, and not in Mexico, says Luis Gonzali, debt and macroeconomics strategist at the firm Franklin Templeton in Mexico City. .

Entering the second half of López Obrador’s six-year term, “the key, in investment matters, is to see how much of this political noise is turned into risk,” says Gonzali. As of the legislative elections last summer, the president’s party lost strength in Congress, emphasizes the specialist, thus limiting its possibilities of materializing its agenda. “We believe that the majority will remain in the political noise and very little is going to become a risk, because they do not have the political muscle to do these things that they want to do. We believe that the noise will continue in the next three years, but little of that is going to materialize, ”says Gonzali.

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George Holan

George Holan is chief editor at Plainsmen Post and has articles published in many notable publications in the last decade.

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