CEO Executive Summary

The NAFTA negotiation “drama” remained as intense and, in some ways, mysterious as ever this past month. Indeed, both optimists and pessimists can point to many things that support their world view about the future of NAFTA. Yet the true state of play remains as elusive to pin down as ever, thanks largely to the unpredictability of the man who occupies 1600 Pennsylvania Avenue.

New challenges arose in the U.S.-Mexico relationship over the last month, with the cancelation of a planned meeting between Presidents Trump and Peña Nieto, followed by the resignation of the U.S. Ambassador to Mexico, and topped off by the White House announcement of a plan to impose stiff tariffs on steel and aluminum imports. Although the tariffs ultimately included an exemption for Canada and Mexico, they put a damper on seventh round of NAFTA negotiations in Mexico City. At the same time, important signs are emerging that the negotiations are making meaningful progress, with some—including the Canadians—expressing outright optimism about the state of affairs. All parties seem intensively focused on trying to conclude the negotiations before the Mexican presidential elections in July.

For at least a few more days, Mexican Presidential politics are in an interregnum between the primary season and the presidential campaign, which has thus far been dominated by corruption-related accusations levied against all three leading candidates. The most problematic have been the charges against the PAN/PRD candidate, Ricardo Anaya, not only because of the damage they can do to his campaign, but also because they appear to be orchestrated by the PRI-led government and to have improved Andrés Manuel López Obrador’s (“AMLO”) prospects. Meanwhile, the three alliances released their lists of proportional representation congressional candidates. The PRI list is dominated by party stalwarts, and the PAN/PRD list is balanced among the parties in the alliance. The candidates selected for the Morena-led alliance seem to confirm our belief that AMLO is constructing a big-tent coalition, not unlike the PRI of the past, to strengthen his electoral chances and his capacity to govern should he win. AMLO also reignited discussion about energy policy under his administration, which we increasingly believe will be nationalist but pragmatic, likely to slow and redirect the Energy Reform rather than reverse it.

In the Mexican economy, growth held steady, inflation continued to fall, and the debt-to-GDP ratio fell for the first time in a decade, but the trade deficit widened to a record high. Looking at specific sectors, the government approved legislation to regulate Financial Technology (“FinTech”) in Mexico and stepped on the Energy Reform gas pedal. There were also three significant Telecommunications rulings. The Supreme Court decided in favor of Televisa, stating it is not a preponderant agent in the pay TV sector, and against América Móvil, requiring it to give its competitors access to its network and equipment. The Telecommunications Commission ruled that América Móvil must break up its fixed line telephone business.

Full Newsletter: Monarch News – March 2018