Mexico snapshot

Mexico City, June 2020

Politics 

Mexico is one year away from its midterm elections, in which governors, municipal presidents and local Congresses will be elected and certain members of Congress will be up for reelection. There is already likely to be conflict between the National Electoral Institute (INE) regulatory body and some deputies related to the election, as the INE has assumed some of the oversight authority over this year’s electoral cycle that the Congress had previously been in charge of but this year failed to pass the proper legal framework in time. Concurrently, the President continues his confrontational stance against the opposition at every press conference he holds, having gone after political parties, journalists, academics, and civil society alike with various claims. He has sought to polarize Mexican society, essentially declaring that those who are not in favor of the transformation of Mexico, are against it. The President’s statements should not be taken in vain as they are a clear reflection of his political, social and economic agenda, especially for 2021. It is expected that in the coming months, in the context of societal polarization, the President will advance political decisions that will place even greater emphasis on his model of transformation.

There remains significant risk that the President will take away the autonomy of public institutions, however Mexico has some checks and balances in place that have helped to slow down certain initiatives. The National Regeneration Movement Party (Morena) could use its congressional majority to make important changes to the budget and the withdrawal of funds to trusts. Meanwhile, extraordinary sessions were just held in both chambers of Congress, where votes were held on issues related to adjustments to laws and regulations so that the USMCA can come into force.

Economy

The economic outlook has deteriorated as a result of the Covid-19 pandemic. In April 2020, Mexican industrial production recorded the largest contraction in its history, as manufacturing activities were closed to mitigate the spread of the pandemic, and disruptions affected external supply chains. The monthly Indicator of Industrial Activity (IMAI) fell 29.63 percent annually during April, according to data from the National Institute of Statistics and Geography (Inegi). However, the Mexican government announced that the reopening of commerce would begin on June 1st, meaning certain industries such as automotive and mining began working from the beginning of the month. Overall, it is not yet clear what a return to the new normal will look like. According to the Central Bank (Banxico), some of the main challenges the Mexican financial system faces are: to avoid the exacerbation of operational and solvency problems that economic agents may face; to maintain the flow of credit required by companies, households and some financial intermediaries; and to maintain adequate liquidity conditions, both in domestic and foreign currency. Banxico estimates that the growth forecast of Mexico’s 2020 Gross Domestic Product (GDP) will have a contraction of up to 8.8 percent. In a more optimistic scenario made by the institution, the national economy will contract 4.6 percent, and would still mean its worst fall since the global crisis of 2009.  These numbers, combined with policy decisions such as the implementation of economic austerity in the government or the president’s agenda driving the cancellation of investment into projects such as refineries and the construction of the new Mexico City airport among other initiatives,, as well as the uncertainty in the energy sector related to the new administrative rules,  help explain why Mexico is no longer among the top 25 countries in the Foreign Direct Investment (FDI) Confidence Index.

Rule of Law

Violence against judges has reached very high levels in recent years, and this problem has not ceased with the administration of Andrés Manuel López Obrador. On June 16, 2020, Federal Judge Uriel Villegas and his wife were murdered in Colima. This is an event that deserves to be highlighted, since violence in Mexico has become pervasive. The incident is emblematic of the problem of public security and corruption in Mexico today, which has not been brought under control. On the other hand, the unilateral decisions of the administration of President López Obrador to modify regulations in the electricity sector, which are currently under judicial review, generated a break in communication with the private sector and legal uncertainty in the investments done in the last years because of the energy reform. Moreover, the President of the Board of the Chamber of Deputies, Laura Rojas, formally questioned the constitutionality of  the President’s recent decree, which provides for the permanent armed forces to carry out public security tasks. The controversy is based on the fact that legal certainties are required for both the National Guard and the citizens. In this moment of political polarization and economic uncertainty, maintaining judicial independence and the rule of law are essential elements for Mexico´s governance. 

National Security

On June 26, Mexico City’s Minister of Security, Omar Harfuch, was targeted by an assassination attempt in the morning on his way to his daily security meeting with Mayor Claudia Sheinbaum. The unprecedented attack was attributed to the New Generation Jalisco Cartel (CJNG), one of the strongest drug trafficking groups in Mexico, using weapons normally provided exclusively for the army. 

Although Mexico is a country that has had violent events in recent years, never before has a Minister been attacked in the capital. The longstanding “pact” not to operate in Mexico City has been broken in recent years, as organized crime has shown its  strength and organizational capacity. The problem is that the criminal groups have recently established a more significant presence in the city and are highly armed. The CJNG has been involved in numerous violent acts across the country, but the attack on a senior security official in Mexico City is certainly a milestone in their attempts to reclaim their space in the capital’s criminal circles.

This event underscores the growing security challenges facing Mexico City. Public policy responses to date have failed to curtail the rise of cartel violence. For example, the intelligence assistance provided by the new National Guard throughout the city has not made any meaningful impact. It is clear that a solution will only be possible via a better integrated approach by multiple government agencies and stakeholders.

Social

The country has been marked by the demonstrations that have taken place in Jalisco and Mexico City. In the context of the protests in the United States, which resulted from the murder of George Floyd, some similar, smaller protests were held in Mexico, but the largest demonstrations took place in response to the police killing of Giovanni Lopez, a civilian who was arrested in Jalisco in May and later killed. This event, combined with the Mexican context of forced disappearances, increased discontent and produced violent demonstrations. 

At the same time, the social movement in the United States has led to a more fluid discussion on racism and classism in Mexico. While both issues have been well known for years, activism in Mexico is gaining strength in this area. However, the President does not seem to give it much importance, claiming that he did not know about the existence of the institution in charge of these issues, the National Council for the Prevention of Discrimination (CONAPRED). As a result of a discussion forum organized by CONAPRED, the President has shown a certain contempt for the institution. What is relevant in this matter is that it is not the first time that the President shows discontent towards the institutional bodies; this is a recurrent act in his speeches, which endangers their autonomy and/or existence