CEO’s Executive Summary
On December 19, the U.S. House of Representatives finally approved the United States-Mexico-Canada Agreement (USMCA). The Protocol of Amendments to the agreement, detailed below, won over the AFL-CIO, which garnered the support of the Democratic leadership in the House of Representatives without losing the backing of the Trump administration or the Mexican government. All parties – including Mexican President Andrés Manuel López Obrador (AMLO) – proudly declared victory…until the U.S. implementing legislation was made public. But a dispute over specific language in the legislation was quickly resolved, allowing the House to pass it and send it to the U.S. Senate, which is expected to ratify the agreement in early 2020.
A ratified USMCA, hopefully, will boost a Mexican economy that has officially fallen into recession. Reflecting this, the Bank of Mexico cut rates again – the third consecutive cut – but fiscal policy has not been similarly stimulative. Instead, the spending side of the 2020 budget, approved in late November, perpetuates the austerity Mexico experienced throughout 2019 in order to free up funds for AMLO’s preferred projects and ensure a 0.7% primary surplus. In part to make up for this lack of fiscal stimulus, AMLO announced an infrastructure agreement with the private sector. Private firms promised to invest US$44 billion in 147 projects, in the process sending a positive signal about business confidence in the current government.
In the energy sector, Pemex posted another massive loss and another production drop after several months of stability. But the firm also announced a new discovery, which leadership hopes will help reverse Pemex’s fortunes. At the same time, the energy ministry approved a new regulation that dramatically undermines the value of clean energy investments in Mexico; the affected firms immediately challenged it in court.
At the end of his first year in office, AMLO’s poll numbers remain high, around 67%, giving his allies in Congress room to press forward rapidly with AMLO’s legislative agenda. Most recently this has included another set of changes at a series of autonomous institutions – the human rights commission, the electoral institute, the judicial council, and the Supreme Court – designed to make them more compliant with the AMLO administration. At the Supreme Court, AMLO’s minister nominee, Ana Margarita Ríos-Farjat, received broad support to fill the seat left vacant by the resignation of Eduardo Medina Mora. Although Ríos-Farjat is widely respected and known for her personal integrity, her confirmation may give AMLO a group of four ministers who are likely to be sympathetic to AMLO’s policies, producing a minority large enough to potentially block efforts to declare government policies unconstitutional.
Finally, the security situation in Mexico continues to be of concern, including a series of high-profile events that caught the attention of the White House, placing security front and center on the bilateral agenda for the first time in the Trump-AMLO period. This included the arrest of the Secretary of Public Security during the Calderón Administration on charges of taking bribes from the Sinaloa Cartel.
Full Newsletter: Monarch News – November/December 2019
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