Mexico's outgoing president vows to pursue changes to the constitution despite nervousness in the markets

MEXICO CITY — Mexico's outgoing president vowed Friday to continue with j fundamental reforms despite nervousness among investors and suggestions from his own hand-picked successor to take things slowly.

President Andrés Manuel López Obrador said he would pursue 20 constitutional amendments after his Morena party won a two-thirds majority in Congress in Sunday's elections, including nominating all judges and enshrining a series of unfunded benefit mandates in the constitution.

Sunday's elections have ensured that Claudia Sheinbaum, the candidate of López Obrador's Morena party, will be the next president. Sheinbaum had spent most of the week speaking with international financial organizations and investors, trying to calm markets after a 10% decline in the peso's value.

She suggested on Thursday that no decision has yet been made on the reforms and that there should be a dialogue about them.

“It hasn't been decided yet,” Sheinbaum said Thursday. “My position is that a dialogue must be opened, that the proposal must be discussed.”

But on Friday, López Obrador scoffed at any resistance to the changes. He called critics of the reforms “the drivers of nervousness” and claimed that big companies were worried about losing judges who he said would protect them. Currently, judges are appointed or approved by lawmakers.

“There are judges who are employees of the big companies,” López Obrador said during his press conference this morning. “They have a number of judges on their key chains, adding that 'justice is above the markets'.

Analysts say the president is angry about that The country's judiciary has blocked several of his previous reforms because they were declared unconstitutional.

The markets did not seem reassured on Friday. The peso closed at 18.36 at $1, down about 10% from the week before the election. Mexican shares also closed down about 2.7% on Friday.

“All indications are that volatility in Mexican financial markets will continue,” said Gabriela Siller, director of analysis at Nuevo Leon-based Banco Base, noting that Mexico could suffer a rhetorical bruise ahead of the U.S. presidential election.

But most worrying for markets, López Obrador's Morena party has won a two-thirds majority in Congress, which would allow them to implement changes to the constitution such as the judicial reform, as well as mandates for a series of unfunded government benefit programs. .

López Obrador vowed Friday to continue pushing for 20 constitutional amendments, including one that would undo the country's current system of individual retirement accounts and eliminate most independent government oversight and regulatory bodies.

Sheinbaum spoke by phone or in person this week with officials from the World Bank, the International Monetary Fund and the head of investment firm BlackRock, after the peso plunged on Monday and the stock market briefly fell.

But the question remains how much influence López Obrador will continue to exert after Sheinbaum comes to power on October 1.

López Obrador has previously said he will withdraw from politics completely after leaving office. But on Friday he said he would continue to talk to Sheinbaum if she called, vowing to “continue to exercise my right to dissent throughout my life.”

Any questions about how committed Sheinbaum remains to her political mentor, López Obrador, were erased Friday when she wrote in her social media accounts on Friday that “tears came to my eyes with emotion” as the president congratulated her on her victory.

Markets are also concerned about Mexico's current budget deficit of about 6% of GDP, and payments to Pemex, the country's debt-laden state oil company.

Mexico also continues to struggle with persistently high inflation of almost 5%, despite high domestic interest rates of 11%. These high government bond yields had also supported the value of the Mexican peso over the past year. But a devaluation like this week's is likely to worsen inflation.

López Obrador has previously bragged about the strength of the peso a reduction in the number of Mexicans living in poverty (Although extreme poverty has increased.) But experts say the peso's former strength and poverty gains are partly due to remittances, the money sent home by migrants working abroad, and that these amounts have increased since 2019 have almost doubled.

On Friday, López Obrador predicted that Mexico would see this year a record $65 billion in remittances.

Remittances rose from about $36 billion in 2019 to $63.3 billion in 2023. According to the World Bank, remittances accounted for 4.2% of Mexico's entire GDP, a number that is now almost certainly higher.

In the first four months of 2024, remittances increased by 8.3% compared to the same period in 2023.

Markets are also nervous about the continued costs of supporting Pemex and the cost of the subsidies that will have to continue to flow to the president's state-run transportation projects.

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