Automotive Author:EqualOcean News Editor:Leci Zhang Jun 06, 2024 02:43 PM (GMT+8)

With Mexico's ruling coalition gaining a two-thirds majority in the two-house Congress, incumbent President Andres Manuel Lopez Obrador is expected to continue his push for constitutional reforms that could affect private investor confidence and, in turn, economic growth and sovereign ratings.

Mexico

EqualOcean reports that Mexico's President-elect Claudia Sheinbaum's ruling coalition is close to securing a two-thirds majority in both houses of parliament, paving the way for controversial constitutional reforms. Preliminary results from Sunday's election show that the left-wing party led by Sheinbaum and its allies will hold a supermajority in the lower house, although the Senate may fall short of the necessary seats once new members take office in September. These political shifts in Mexico have caused concerns among markets and investors about potential reforms, leading to a sharp drop in Mexican asset prices on Monday.

Sheinbaum's mentor, current President Andres Manuel Lopez Obrador, proposed a series of constitutional reforms in February. Critics argue that these reforms could dismantle key oversight institutions, weaken judicial independence, and concentrate more power in the executive branch. According to government presentations based on preliminary election results, at least 82 of the 128 senators will come from the ruling party and its allies, just shy of a two-thirds majority. In the 500-member lower house, the ruling party and its allies will hold at least 365 seats, accounting for 73% of the parliament. Lopez Obrador, whose term overlaps with the newly elected legislators until his departure in September, hinted on Monday that he will make a final push to advance these reforms before transferring power to Sheinbaum. "I'm going to talk it over with Claudia ... to see which of those initiatives we can push for and get approved," Lopez Obrador said.

Concerns over this political turbulence led to a more than 6% drop in the stock market and a decline of up to 4.3% in the peso. In addition to proposing the elimination of what he calls inefficient and wasteful spending, Lopez Obrador suggested abolishing constitutionally established agencies such as the National Institute for Transparency, Access to Information, and Personal Data Protection (INAI), the Federal Economic Competition Commission (COFECE), the National Council for the Evaluation of Social Development Policy (CONEVAL), and the Federal Telecommunications Institute (IFT). Throughout his term, Lopez Obrador has frequently criticized these agencies, including the National Electoral Institute (INE), which he is currently trying to overhaul. Nicholas Watson, Managing Director at Teneo, said the reforms are a way of "instituting electoral reform to cement Morena's political hegemony,"

Lopez Obrador also seeks major judicial reforms, including the direct election of Supreme Court justices, other judges, and electoral officials. Critics argue that such elected positions would undermine their current independence. The number of Supreme Court justices would be reduced from 11 to 9, with all judges required to be reappointed in a special election in 2025, which is seen as a blow to the independent judiciary. Lopez Obrador argues that these changes are necessary because the current judiciary serves a minority and sometimes organized crime. Legislative reforms would also reduce the number of deputies in the lower house from 500 to 300 and the number of senators from 128 to 64.

However, S&P Global Ratings noted that despite the more centralized political decision-making and mixed political signals under Lopez Obrador, significant checks and balances still exist. It warned that "Measures that weaken checks and balances could affect private-investor confidence by creating perceptions of greater risk, potentially affecting economic growth and sovereign creditworthiness,"