Free Trade or Protectionism?

AMLO`s influence on Mexico`s economic climate

Starting December 1st this year, Andrés Manuel López Obrador (short: AMLO) will become Mexico`s first leftist president since the country`s democratic consolidation in 2000. How much influence the political change will have on the country`s economic climate decisively depends on AMLO continuing on his predecessor government`s neo-liberal path or not.

In the past, Mexico being part of NAFTA and eleven other free trade agreements has had a highly export-oriented economy focused on attracting FDI. While AMLO has not announced any termination plans for the free trade agreements yet, he has promised to make the country more independent from exports as well as diversifying them. In order to fight poverty, he aims at increasing internal production and consumption.

Furthermore, policy changes are to be expected in the energy and security sectors.

Energy sector

In 2013, the predecessor government under Nieto implemented a reform of the energy sector, thus opening it up for more FDI. AMLO has already announced that he is planning on checking the respective contracts. However, this revision is not targeted at their termination but at examining their legality with view to corruption claims, as is currently customary for new governments in the LATAM region.

Moreover, the state-owned energy company Petróleos Mexicanos (PEMEX) will be reformed while potentially receiving beneficial treatment in public procurement processes vis-à-vis international competitors. These news are likely to reduce foreign company`s interest in investing in Mexico`s energy sector, at least until final political decisions have been made. Additionally, renewable energy will be promoted and production levels should be increased.

 

Security sector

Mexico`s security situation is dramatic. Alone in 2017, the ongoing drug war killed a record rate of 25.339 people. The crime hotspots are big cities as well as the Guerrero and Veracruz regions where drug cartels are situated. AMLO`s response to the violence is the creation of a national guard consisting of army, navy, and the federal police. All security institutions are supposed to be better coordinated and work together more closely.

However, Mexico`s security system is currently overstretched and underfunded, its judiciary is widely inefficient and lacks the necessary resources to reduce the growing backlog of cases. Based on these circumstances, it is highly unlikely that there desperately needed reforms will – in the short term – lead to the desired changes. This in turn could endanger Mexico`s economic climate since foreign investors require a strong rule of law to safeguard their investments in the long term.

In sum, it remains to be seen which of his election promises AMLO is implementing how and to what degree. If he is successful in fighting corruption and (drug-related) crimes, his leftist economic policy might still create a better economic climate for foreign investors than his predecessor governments provided.

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