Investors in Mexico fear 'market-unfriendly' reforms

Luc Williams

The full results of Sunday's election have not yet been announced, but official partial results indicate Sheinbaum won nearly 60 percent. votes, defeating her main rival, Xochitl Galvez from the center-right opposition coalition, by about 30 percentage points.

“This is exactly one of the scenarios that investors did not like.”

According to commentators, Sheinbaum's high victory is largely due to the achievements of the current president, Andres Manuel Lopez Obrador, commonly referred to by the acronym AMLO, who, thanks to increasing social benefits and eliminating inequalities, has gained the support of a large part of Mexicans, although he is also a figure that polarizes society.

The National Revival Movement (Morena), to which Sheinbaum and Lopez Obrador belong, has a chance, according to analysts, of obtaining or approaching an absolute majority in Congress, which would make it easier for it to push through constitutional reforms that have so far been blocked by the opposition.

“This is exactly one of the scenarios that investors did not like,” said Jacobo Rodriguez, a financial analyst from Roga Capital, quoted by Reuters. Piotr Matys, an expert from In Touch Capital Markets, said that the ruling coalition may now be tempted to pursue a “market-unfriendly” policy.

Investors found Lopez Obrador's ideas radical and unsustainable

In reaction to the predicted high victory of Sheinbaum and Morena on Monday, the exchange rate of the Mexican peso fell by approximately 3.4%. against the dollar, and share prices on the Mexican stock exchange lost about 6%. values.

In February, Lopez Obrador presented a number of proposals for constitutional reforms, including increasing the minimum wage and pensions, electing judges, including Supreme Court justices, in general elections, eliminating some supervisory offices and restrictions on private investment. Investors found these ideas radical and unsustainable.

According to analysts, much will now depend on the extent to which Sheinbaum will be able to become independent from Lopez Obrador. AMLO himself announced that he would talk to Sheinbaum about the possibility of introducing some of the reforms in September, in the short term, when he will still be president, but the new members of Congress will start work.

“The idea of ​​tax reform is a debate we should have”

The issue of the budget deficit also raises concerns. During his six-year term, AMLO doubled the minimum wage, reduced poverty, increased the peso and decreased unemployment. Sheinbaum announced further expansion of AMLO's social programs, but analysts believe it will not be easy.

Lopez Obrador's administration managed to increase tax revenues by prosecuting tax evaders, but spending in the last year of his term raised the budget deficit to the highest level since the 1980s. According to experts, Sheinbaum would have to increase taxes to fulfill her election promises, and she has not announced such an unpopular move.

“The idea of ​​tax reform is a debate we should be having. Everyone is talking about what they are going to do, but no one is mentioning how they are going to pay for it,” said political analyst Fernando Dworak, quoted by Reuters. He estimated that if Sheinbaum does not have money to expand social programs, her promises will be like “letters to Santa Claus.”

The need to eliminate social inequalities so that young people do not have to join gangs

Another problem that Mexico's first president will face is brutal crime attributed to powerful drug cartels. The campaign before Sunday's elections was described as the most brutal in Mexico's modern history. 38 candidates for various local government offices were murdered. Even Sheinbaum's staunchest supporters expect increased action against crime, the BBC emphasizes.

Sheinbaum herself supported the continuation of AMLO's policy, which emphasized the need to eliminate social inequalities so that young people would not have to join gangs. She expressed hope that the homicide rate would be reduced from the current 23.3 to approximately 19.4 per 100,000. inhabitants in 2027, i.e. to a level comparable to Brazil.

The future president also pointed to her work as mayor of Mexico City, where – according to official statistics – the homicide rate dropped by half under her rule. However, some experts believe that the methods used in the capital do not necessarily have to be effective throughout the country.

About LUC WILLIAMS

Luc's expertise lies in assisting students from a myriad of disciplines to refine and enhance their thesis work with clarity and impact. His methodical approach and the knack for simplifying complex information make him an invaluable ally for any thesis writer.