Mexico’s finance minister tried to reassure investors in a hastily scheduled call on Tuesday that the leftwing government remained committed to fiscal discipline after its landslide election win.
But traders continued to sell the peso on fears of radical constitutional change after voters handed a huge mandate to president-elect Claudia Sheinbaum in Sunday’s vote and gave the ruling Morena party a big majority in congress.
Markets took fright after the result, fearing the commanding win would allow the government to advance plans that investors worry could dismantle checks on executive power and threaten the rule of law.
That prompted Sheinbaum to announce that Finance Minister Rogelio Ramírez de la O, who is respected by investors, would stay on in her cabinet after President Andrés Manuel López Obrador hands over power in October.
The minister spoke to investors in a two-minute call on Tuesday morning promising to cut the budget deficit next year and stick to orthodox economic policies.
“Our project is based on financial discipline, abiding by [central bank] autonomy, adherence to the rule of law and facilitating national and foreign private investment,” he said, according to a recording of the call.
However, Ramírez de la O took no questions and the brief call did not address the key concerns about constitutional reform.
Markets reacted negatively to the scale of Sheinbaum’s victory, with the country’s peso down 5 per cent since the result. The benchmark IPC stock index slumped 6 per cent on Monday, with banking stocks worst affected, but rallied 3.3 per cent on Tuesday.
Aaron Gifford, a sovereign credit analyst at T Rowe Price, said the call failed to allay concerns. “It seems like we’ll have to wait for more details around the transition plan, especially given fears of AMLO pushing through some reforms during the month that he overlaps with the new congress,” he said, referring to the president by his initials.
Voters on Sunday gave a strong endorsement to the government of López Obrador, a charismatic nationalist who doubled the minimum wage and expanded welfare programmes.
López Obrador, Sheinbaum’s longtime mentor, also increasingly concentrated power in the presidency.
López Obrador said after the election that he would meet Sheinbaum to discuss the constitutional reform proposals, adding that judicial reform was a priority. The president has been battling the Supreme Court since it blocked many of his key legislative changes.
“We can’t keep a judiciary that isn’t at the service of the people,” he said on Monday.
His solution is to dismiss the court and hold direct elections for replacement judges. This is one of 20 constitutional reforms proposed in February.
Other measures include locking in inflation-linked increases to the minimum wage, reforming pensions, guaranteeing state healthcare for all, and education scholarships for the poor.
Only Bolivia currently elects supreme court justices, with legal experts and civil rights campaigners strongly opposed to a move they say would politicise the court and increase government control.
When the reforms were proposed, Morena did not have the two-thirds majority in Mexico’s congress to pass the reform package, but when the new congress convenes at the start of September, Morena and its allies will have a constitutional majority in the lower house and will be only a few seats short in the senate.
Political analysts say it will probably be easy for the government to win the extra votes by cajoling demoralised opposition legislators to switch party, a process in Mexico known as “grasshopping”.
The proposals that most worry investors are to directly elect judges, increase pensions spending and eliminate independent regulators. The opposition and civil society most likely will not be involved in shaping the reforms, said Valeria Moy, director of public policy think-tank IMCO.
“The negotiation won’t be with anyone else, just among themselves,” she said of the ruling party. “When you have all the power, you use it.”
“The reform will happen. The battle is over how deep it is,” said Saúl López, a professor at the Tec de Monterrey’s school of government, adding that it remained to be seen whether Sheinbaum would look at a less radical technical reform or focus on the symbolism of elected judges.
The president believes that independent regulators are “neoliberal” entities subject to capture by industry, and has proposed to eliminate them.
Sheinbaum has broadly backed the proposals but on Monday posted a message promising dialogue and that she would act responsibly. Moy said: “The country from now will depend on the prudence of one person.”
Additional reporting by Philip Stafford
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