Monarch News – January/February 2019

Executive Summary

Since our last publication in mid-December, Mexico President Andrés Manuel López Obrador (AMLO) has invested some of his considerable political capital in an effort to thwart fuel theft in Mexico, which caused USD 3 billion in losses for the government last year. The government has reduced theft, but at the price of gasoline shortages throughout central Mexico. Nevertheless, this effort has been very popular among Mexicans fed up with corruption, including the corruption that feeds fuel theft.

As described in detail below, AMLO has also moved forward on multiple fronts to fulfill his campaign promises. He has launched his signature social programs, advanced infrastructure and energy projects, and continued to constrain the autonomy of a wide range of independent institutions (but, notably, not the Bank of Mexico or the Supreme Court), thereby mitigating their capacity to provide a counterweight to his executive authority.

In the economy, growth prospects for 2019 have been reduced again, now averaging about 2%. This reflects a combination of factors out of AMLO’s control, but it is also due to sharp cuts in government spending and government generated gasoline shortages. At the same time, Fitch cut Pemex’s credit rating to just above junk status, thereby telegraphing its lack of confidence in AMLO’s strategy for the firm. Also in the energy sector, the government cancelled its fourth power auction and called on private electricity firms to renegotiate some contracts as part of a strategy to increase power generation and competitiveness at the Federal Electricity Commission (CFE) while keeping electricity prices in check.

On the bilateral front, ratification of the USMCA in the Unites States continues to face strong opposition from congressional Democrats concerned about enforcement of the agreement’s labor and environmental provisions. This challenge has been made harder by the partisan rancor surrounding the recent government shutdown and increased tensions in the bilateral relationship. Over the past few weeks the bilateral policy environment has been further complicated by disagreements over how to manage caravans of Central American migrants passing through Mexico on their trek to the United States, and how to respond to recent developments in Venezuela.

Full Newsletter: Monarch News – January/February 2019

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