20181204-法国巴黎银行-MEXICO_POLICY_TRACKER_DAWN_OF_A_NEW_REGIME_37页_2mb

Summary of MEXICO POLICY TRACKER: DAWN OF A NEW REGIME

Core Content

This document outlines the shift in Mexico's political and economic landscape following the inauguration of President Andrés Manuel López Obrador (AMLO) in December 2018. It highlights the new administration's emphasis on nationalism, social welfare, and a departure from the previous neoliberal economic model. The report also discusses the implications of these changes on fiscal policy, the energy sector, public consultations, and the broader economic environment.

Main Views and Key Information

AMLO's New Regime

• Break with the past: AMLO's inaugural speeches emphasized a complete break from the previous liberal economic model, advocating for a more nationalistic and interventionist approach.
• Populist tendencies: The new regime is expected to have a populist character, with a strong presidential figure acting as a central planner.
• Fiscal pressure: AMLO has pledged to fund his policies by eliminating corruption and government luxuries, rather than increasing taxes or public debt.
• Public consultation: The government is committed to respecting public consultations, which may influence future legislation and policy decisions.

Key Policies

• Social focus: AMLO has outlined a range of social policies, including:

  • Scholarships for poor students and those from public schools.
  • Creation of 100 public universities in 2019 to provide education to 69,000 students.
  • Support for rural communities through road construction and guaranteed prices for local producers.
  • Interest-free loans for farmers and meat producers.
  • Improved healthcare system.
  • Higher pensions for the elderly and support for people with disabilities.

• Energy sector reforms: AMLO has criticized the previous energy reforms and plans to:

  • Reverse some of the reforms, including those related to energy and education.
  • Limit fuel price increases to inflation.
  • Restrict crude oil exports to boost domestic production and processing.
  • Propose two new refineries and revamp existing ones.
  • Increase investment in PEMEX through tax restructuring and pension funds (SIEFORES).
  • Emphasize the freedom of association for oil sector workers.

Fiscal Outlook

• Fiscal pressure: The new government's ambitious spending plans may challenge the primary surplus and debt stability.
• Budget forecast: The 2019 budget is expected to be presented by late December, with significant new expenditure anticipated.
• Inflation risks: The government's reduction of fuel subsidies and potential for increased public spending may lead to inflationary pressures.
• Exchange rate expectations: The document predicts a downward adjustment in the USDMXN rate for 2019, with the forecasted rate at 19.6 by the end of the year.

Institutional Changes

• Banxico: The central bank is expected to undergo significant changes, with 40% of its board members likely to change within two months.
• Federal influence: The federal government is expected to increase its influence over state and regional affairs, challenging the traditional federalist model.
• Legislative dynamics: The new government may push for changes to Article 35 of the constitution to eliminate the binding effect of public consultations, potentially leading to more direct legislative control.

Economic Challenges and Risks

• Fiscal and credit risks: The transformation of the energy sector and the fiscal profile may lead to credit rating downgrades sooner than expected.
• Inflationary policies: The new regime's focus on social spending and reduced subsidies could increase inflation.
• Foreign relations: The new government's approach may lead to tensions with the US, particularly due to its stance on trade and energy policies.
• Political opposition: The administration's actions may weaken political opposition, especially with the potential for changes to the constitution and the influence of AMLO's allies.

Expected Accomplishments

• Fight against poverty: 28%
• Economic improvement: 12%
• Fight against corruption: 10%
• Job creation: 8%
• Access to health services: 6%

Expected Failures

• Delinquency: 20%
• Relation with the US: 13%
• Fight against drug trafficking: 10%
• The economy: 5%

Key Dates to Watch

• 1 Dec 2018: AMLO takes office.
• Early Dec 2018: PEMEX's 2019 financial plan.
• 15 Dec 2018: 2019 fiscal package to be presented.
• Mid-Dec 2018: 2019 minimum wage hike.
• Dec-Jan 2019: Public consultations on energy, fiscal reforms, and education.
• Q1 2019: Congress may vote on changes to Article 35 of the constitution.
• Q2 2019: AMLO's new government may propose new policies and initiatives.

Conclusion

The new administration under AMLO is expected to significantly alter Mexico's economic and political trajectory, with a focus on social welfare, nationalistic policies, and a stronger presidential role. These changes may lead to increased fiscal pressure, inflation, and potential credit rating downgrades. The report advises a more cautious approach to investing, with a preference for shorter-term instruments and a reduction in overall exposure due to the uncertainty surrounding the new regime's policies and their economic implications.