CEO’s Executive Summary

Although the new USMCA awaits approval by the Canadian Parliament, it surmounted its toughest hurdle in the U.S. Congress late last year, allowing us to begin this newsletter on matters other than U.S.-Mexico relations for the first time since the middle of last year.

The Mexican economy fell into a shallow recession in 2019, even as wages for average Mexicans increased. The outlook for 2020 is not much better, with independent growth estimates ranging from 0.5% to 1.5%. This is due to continuing high interest rates, low business confidence, and challenges at Pemex where AMLO appears unlikely to accept the reopening of private sector auctions or Pemex farmouts this year. This raises questions about the national oil company’s ability to avoid a downgrade of its bonds to junk, despite having stabilized production by the end of 2019.

The sluggish economy also raises questions about the government’s broader capacity to sustain its social welfare programs and infrastructure projects while also protecting the fiscal stability that President Andrés Manuel López Obrador (AMLO) so highly values. At the same time, the messy rollout of the new Institute for Health and Well-Being (INSABI) – designed to make primary and secondary health services free to all Mexicans – and new criticism of AMLO’s three-airport solution to Mexico City’s air transport problems, continue to raise questions about the viability of AMLO’s signature programs.

Taking advantage of still sky-high approval, AMLO is pressing Congress to complete work on the legislative components of his “fourth transformation” program for Mexico. Since the fall legislative session will likely be distracted by the initiation of the 2021 electoral process, we expect the current legislative session to be a busy one. The legislature should easily approve most of AMLO’s proposals, including eliminating the autonomy of the National Electoral Institute, despite a deep division in the governing Morena party that recently broke into the open.

According to President Donald Trump’s senior advisor and son-in-law, Jared Kushner, U.S. relations with Mexico are “much better than they have been for a long time.” This includes collaboration on migration policy and now on security matters as well. And within Mexico, the get tough on crime approach of a legislative proposal informally presented by the attorney general divided the government and produced sharp opposition from legal scholars and human rights advocates, and it died when AMLO turned against it.

Full Newsletter: Monarch News – January/February 2020

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