What a Populist President Would Mean for Mexico

Re-Blogged From Stratfor

Highlights

  • Polls suggest Mexico’s populist coalition, led by the National Regeneration Movement, could win the presidency in the July 1 federal elections, along with a majority in the lower house and a near majority in the Senate.
  • If the coalition gains only a lower house majority, it will face heavier pressure from established parties, including the Institutional Revolutionary Party (PRI) and the National Action Party (PAN), to moderate its populist stance.
  • But the PRI and PAN will be weaker in the wake of the vote, assuming the polls bear out, and will have to rely on federal courts to halt potentially controversial legislative measures, such as energy or education reforms.

Andres Manuel Lopez Obrador, the National Regeneration Movement's candidate for Mexico's presidency, addresses the crowd at a campaign event on April 20, 2018.

(HECTOR VIVAS/Getty Images)

Less than two months before Mexico’s next presidential election, populist candidate Andres Manuel Lopez Obrador leads the polls by 10 points. Lopez Obrador is a leftist leader with a vague policy agenda that raises more questions than it answers. And if he makes it to the presidency, it will be on a wave of anti-establishment feeling among Mexican voters with whom his condemnations of corruption, and of President Enrique Pena Nieto’s economic and energy reforms, resonate. For many observers in and outside the country, his election is a worrisome prospect.

The Big Picture

Populist candidate Andres Manuel Lopez Obrador leads the pack of candidates running for the Mexican presidency in federal elections set for July 1. Investors and Mexico’s private sector remain concerned that a Lopez Obrador presidency will try to implement a populist political agenda. Stratfor’s previous assessments stated that Lopez Obrador would face congressional constraints on his power. As the election approaches, though, polls suggest that his coalition has enough support to overcome those barriers. That means Lopez Obrador could have the votes he needs in both houses of Congress to move forward with his agenda.

The Risks for Investors

Most concerns about what Lopez Obrador’s administration would mean for Mexico stem from his campaign. On several occasions during the race, he has threatened to audit oil and gas contracts signed under Pena Nieto’s energy reform. He also has promised to roll back parts of the 2013 education reform, to reduce the price of fuel for consumers and to cut government spending overall.

Whether he can move forward with these initiatives will depend on how many seats his coalition wins in Congress. Though Lopez Obrador has railed against the energy and education reforms throughout his campaign, the chances of his alliance winning the seats necessary to repeal the measures looked slim — until recently. Reports from two Mexican polling firms now show the coalition, made up of Lopez Obrador’s National Regeneration Movement, or Morena, as well as the Social Encounter Party and the Labor Party, winning 60 seats in the Senate and about 260 seats in the Chamber of Deputies. These gains would give his coalition a slim majority in the lower house and a near majority in the upper house, putting Lopez Obrador in a good position to pass laws without interference from the opposition should he win the presidency. That’s a disconcerting possibility for firms investing in Mexico’s energy sector.

The oil-and-gas contract audits Lopez Obrador has promised, or even a slowdown in bidding for energy exploration and production, are a tolerable risk for investors, since they won’t last beyond his six-year term. But changes to legislation — particularly the business-friendly reforms of the Pena Nieto administration — would outlive the next presidency. Furthermore, the consequences of the new laws could extend well beyond private businesses operating in Mexico; investment into the country may drop off as a result, and the peso could depreciate.

How the PAN and the PRI Will Manage

A near majority in the Senate for Lopez Obrador’s coalition also would dramatically weaken two of Mexico’s historically dominant political parties, the Institutional Revolutionary Party (PRI) and the National Action Party (PAN). If the Morena coalition takes the 60 seats that it’s projected to win, it would be just five seats shy of a simple majority in the Senate. Morena lawmakers may be able to coax enough legislators to their side in negotiations to push them over the edge in votes on controversial reforms, including bills to rescind periodic evaluation requirements for unionized teachers or to boost social spending. For the PAN and the PRI, this arrangement will take some getting used to. In response, the parties will form a short-term political alliance to try to limit Morena’s power. They may even have to rely on the courts to halt Lopez Obrador’s legislation, depending on how well Morena performs in the elections.

It’s almost certain that Lopez Obrador’s coalition will emerge from the July 1 election stronger.

If the PAN and the PRI retain their clear majority in the Senate, they most likely will be able to stall out Lopez Obrador’s controversial reforms. Lopez Obrador would have to resort to pressure tactics in that case to get senators from the establishment parties to consider his legislation. He could, for example, threaten not to pass yearly spending bills in the lower house unless lawmakers in the Senate agree to his reforms. Because the approach would quickly lead to congressional gridlock, however, the president would have to use it sparingly.

Its almost certain that Lopez Obradors coalition will emerge from the July 1 election stronger. But how firmly the presidential front-runner sticks to his populist platform if elected depends on the number of seats his coalition picks up in the vote. Either way, Lopez Obrador will have just six years to make his mark on Mexico, since presidents in the country serve only one term. If Morena falls far short of its projected winnings in the Senate, Lopez Obrador probably will pick his battles carefully. If, on the other hand, his coalition achieves a near majority in the Senate, he can pursue more of the legislation he has campaigned on without having to modify his agenda under pressure from his political opponents.

CONTINUE READING –>

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