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After the June 2 elections, last Monday the Mexican peso became the most depreciated currency in the world, as it started the day trading at 16.97 pesos per dollar and ended at 17.70; which means a drop of 4.3%.
At the close of Friday, June 7, the peso depreciated 2.65%—the equivalent of 47 cents—to reach 18.36 units. Some analysts consider that the markets’ concern is due to the fact that Morena’s overwhelming victory will give President Andrés Manuel López Obrador an advantage in Congress to carry out his reforms in September 2024.
For his part, the president attributed the depreciation of the Mexican currency to the elections and added that the national economy is “very solid.”
“It reached 25 pesos during the pandemic and yesterday it didn’t even reach 18, we are talking about 7 pesos less. Of course we were already getting used to 16.60. It is what has to do with the markets but it is not even something general, it is because there were elections,” he mentioned in his morning conference.
Since February, López Obrador assured that if he attracted the vote for Morena candidates, the so-called “plan C” could be implemented, which includes twenty reforms. The one that has worried the markets the most is the one related to the Judiciary and the elimination of autonomous bodies:
- National Institute of Transparency, Access to Information and Protection of Personal Data (INAI).
- Federal Economic Competition Commission (Cofece).
- Federal Telecommunications Institute (IFT).
- Energy Regulatory Commission (CRE).
- National Hydrocarbons Commission (CNH).
- National Council for Evaluation of Social Development Policy (Coneval).
- National Commission for the Continuous Improvement of Education (Mejoredu).
With the majority in both the Chamber of Deputies and the Senate “the probability of passing constitutional reforms that Morena and President López Obrador want to promote increases,” said Marco Oviedo, doctor in economics from Yale University, deputy general director of Debt. Public of the Mexican Ministry of Finance from 2008 to 2011 and current senior strategist for Latin America at the Brazilian investment bank XP, in an interview for Catopard.
The twenty constitutional proposals were blocked by the Supreme Court of Justice during February; However, a reform of the Judiciary that includes the possibility of electing ministers by popular vote means that “the markets are not optimistic regarding these reforms, especially those that affect the judicial system, the autonomous bodies and the electoral system, since that increase the risk of loss of institutional order,” commented Oviedo, who was also chief economic advisor to the Office of the Presidency during the Felipe Calderón administration.
Although some analysts consider that the depreciation of the peso could be temporary, Oviedo believes that it depends on the progress of the constitutional reforms. “As we see progress on these reforms, the currency will continue to suffer,” he warned.
For example, he says, “there is a period where López Obrador’s presidency, his last days, and the configuration of the new Congress will overlap. There was talk that perhaps López Obrador would send the reforms in that final period of his mandate. In such a scenario, the weight can go up to 20 [respecto al dólar]”.
On Tuesday, June 4, the Secretary of the Treasury, Rogelio Ramírez de la O, confirmed his continuity in office during the Claudia Sheinbaum administration and announced the economic priorities of the next government.
“Our project is based on financial discipline, abiding by the autonomy of the Bank of Mexico, adherence to the rule of law and facilitating national and foreign private investment,” said Rogelio Ramírez de la O.
However, Oviedo stressed that the message does not change the main concern of the markets: the concentration of power in Morena. “Although the message is positive, because it confirms the commitment to maintaining healthy public finances, it does not contribute anything new to the issue. The situation is very difficult for the current Secretary of the Treasury because at this moment, in his position, he cannot do something.”
Mexico’s economic outlook is uncertain and, according to the former deputy general director of Public Debt of the Mexican Ministry of Finance, we will have to wait until September or October to observe President López Obrador’s actions regarding the constitutional reforms he wants to promote and his impact on the Mexican peso.
“I repeat. I do not believe that what we are experiencing is temporary, unless there is a ‘U’ turn; If President Claudia Sheinbaum decides to moderate herself and say ‘well, we are going to reconsider, we are going to try to do things differently’, then it will be another story,” the economist concluded.
