Sunday July 1 confirmed what opinion polls had already predicted in the days and weeks preceding to the election. After two unsuccessful presidential bids, Andrés Manuel López Obrador was elected Mexico’s next president.
With 53.6 percent of the total votes favoring AMLO (as he is commonly known), Anaya, Meade and Jaime “El Bronco” Rodríguez conceded their defeat and wished the new President good luck. However, the win is just the first step. Throughout the year and during his campaign, Mexico’s President-Elect made controversial pledges regarding key topics for the Mexican economy such as infrastructure, the Mexico-US relationship and macroeconomic foundations. Whether he will fulfill all his campaign promises still remains to be seen.
In his victory speech, the President-Elect called for reconciliation and reiterated promises to fight corruption and to reduce the levels of violence the country suffers. “I call for the reconciliation of all Mexicans. And to put above personal interests, as legitimate as they might be, the general interest,” he said.
Here are some of the controversial policies AMLO proposed that have generated uncertainty among the private sector.
- No new taxes nor tax increases. Taxes are probably among the most unpopular measures governments have to deal with, so it is no surprise that AMLO went down this route. However, Mexico is in need of a new tax scheme, since many agree that government tax collection is not enough. According to the OCDE, Mexico only collects 17.4 percent of its GDP in terms of taxes, making it the member country with the lowest collection levels. Chile, the country that follows Mexico in terms of tax collection receives on an annual basis 20.7 percent of its GDP. The tax reform approved in the US in late 2017 cuts corporate taxes from 35 percent to 21 percent, making its fiscal scheme more competitive. This puts additional pressure on Mexico to approve a new fiscal scheme that at the same time helps Mexican companies be more competitive but that also collects enough money to finance the government’s expenses. According to analysts, given that several campaign promises AMLO made, such as social benefits for senior citizens, students and young people that do not study nor hold a job, are not financially viable with the current tax scheme, the new government will either be faced with the decision of changing the country’s tax code or financing spending proposals with debt.
- Generation of a fiscal adjustment through the re-engineering of public spending. Although there are no specifics about this particular topic, on many occasions AMLO mentioned that, through the eradication of corruption, the needed resources can be generated to finance his public policies.
- Support the production of crops (grains in particular) to reduce the current deficit in the segment and generate alimentary self-sufficiency for the country. This is largely seen as one of the promises that will be the hardest to meet. Mexico has become an agro-alimentary powerhouse for fruits and vegetables. The country is the 10th largest food exporter in the world and is poised to continue climbing the rankings in the following years. According to GCMA, Mexico’s food trade balance has a surplus of US$3.9 billion, an increase of 34.3 percent from 2017. Mexico is among the most competitive countries for the production of fruits and vegetables, but the country’s climate and geography does not permit a significant production of grains. “Mexico’s greatest strength lies within its microclimates and we have become great producers and exporters of fruits and vegetables. However, we are not leaders in grains and oilseeds. We have to focus on our competitive advantages,” said Juan Carlos Anaya, Director General of GCMA in an interview with Mexico Business Review .
- Infrastructure and NAIM. AMLO has been a vocal opponent of the NAIM and on many occasions has mentioned that the airport’s construction will be halted on its current territory and will instead be moved to the military base in Santa Lucia. This position made waves among the country’s private sector. However, recently the President-Elect conceded that the NAIM may continue as long as no public money is invested and it is financed exclusively by the private sector.
- The Energy Reform. Although when the Energy Reform was approved, AMLO vowed to carry out a referendum on whether it should be revoked. Ever since, the President-Elect has moderated his speech and has only said that his administration will review the contracts assigned to ensure that the law was respected.
After the electoral storm, the calm comes
Prior to 2000, whenever a presidential administration came to an end, the country’s economy would enter a tailspin. To avoid this, in the election buildup, AMLO’s team worked intensively to meet with investors and leaders from the financial sector to ensure the country’s macroeconomic stability. A day after winning the elections, the soon to be Minister of Finance and Public Credit, Carlos Urzúa, held a conference with investors explaining the policy the next government will follow. Among the main issues that stand out, Irzúa pledged utter respect for the autonomy of Banxico, extreme fiscal responsibility, a flexible exchange rate, transparency in resource management, building agreements with all political parties, keeping public finances healthy and consultation on the reforms through an institutional channel.
Although the impact of AMLO’s presidency remains to be seen, investors and the business community have been assured that the main principles that make Mexico competitive will remain intact. Guillermo Ortiz, former Minister of Finance and Public Credit said in an interview with Mexico Business Review that the priority should be to ensure the country’s economy does not suffer. “The first thing that must be done is to preserve the country’s macroeconomic stability and the capacity that Mexico has developed to absorb external shocks,” he said. “Mexico has become a more resilient economy and we must place appropriate importance on the elements that have fostered this resilience.”