CEO’s Executive Summary

Congressional approval of the USMCA crept forward in recent weeks, with indications, but unfortunately not clear signs, that it will be ratified before the end of the year. At the same time, migration tensions between Mexico and the United States abated as Mexican efforts to deter the northward flow of Central Americans seemed to be successful, while the spectacular failure of Mexico’s attempt to arrest one of the leaders of the Sinaloa drug cartel revived security concerns as a top tier bilateral matter.

The Mexican economy remains stagnant, reflecting weak investment that continues to be driven by the USMCA delay and government actions that undermine investor confidence. In October this role was played by three new laws that make tax evasion a felony and punishable by pre-trial detention without bail and asset confiscation before conviction, and by the Sinaloa operation that increased concerns about security in Mexico. The government’s 2020 budget proposal, meanwhile, received praise for its top-line promise of a 0.7% fiscal surplus, but also raised concerns because of the optimistic growth and oil production estimates that underpin this surplus.

In the energy sector, the rhetorical battle between AMLO administration nationalists and pragmatists continued, leaving it unclear if petroleum and electricity auctions will be restarted next year or if Pemex will be permitted to enter into joint ventures with private oil companies. And in infrastructure, the administration is moving closer to an announcement of a massive investment program in conjunction with the private sector, while the Santa Lucía airport project got a boost from the courts.

With Mexican President Andrés Manuel López Obrador’s poll numbers still in the high 60s, it is unsurprising that the Morena-dominated legislature continues to move his agenda forward. In October, this included the approval of a presidential recall vote that could be held in early 2022, and the reversal of the 2013 education reform, which the opposition promises to challenge in court. But the Supreme Court that will hear this challenge will have a new composition. The resignation of conservative justice Eduardo Medina Mora under pressure should give AMLO his fourth sympathetic justice, enough to block rulings of unconstitutionality which require the approval of eight of the court’s eleven justices.

In Baja California, it remains unclear if the incoming governor, Jaime Bonilla, will serve the two-year term to which he was elected in June or a five year term according to a state law whose constitutionality is being challenged in court. Finally, as noted, the October 17 failure by security forces to capture a leader of the Sinaloa drug cartel turned downtown Culiacán into a war zone, and it raised serious questions about the crime-fighting capacity of the AMLO Administration.

Full Newsletter: Monarch News – September/October 2019

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