Getty PhotographsAfter handing the reins of energy to Claudia Sheinbaum on 1 October, Mexico’s outgoing president, Andrés Manuel López Obrador, hoisted her arm aloft in a joint present of victory.
López Obrador – a vastly standard however controversial determine in Mexico – bequeathed extra than simply the presidential sash to his political protégé.
She inherits a nation, and an financial system, that’s performing nicely in some areas, and going through important challenges in others.
The excellent news from her authorities’s perspective is that Mexico has strengthened its commerce place with its neighbour to the north, displacing China because the US’s biggest trading partner.
Mexico has benefitted from “nearshoring” – that’s, the relocation of US and Asian corporations from China to northern Mexico to bypass punitive US tariffs on Chinese language exports.
“Mexico has at all times been engaging to capital flows due to our geographical place, our free commerce agreements with North America, our work power,” former Mexican commerce negotiator Juan Carlos Baker Pineda advised me earlier than the election.
“However over the previous few years, it more and more appears that in the event you [a foreign firm] wish to do enterprise with the US you want some form of footing in Mexico.”
The outlook is optimistic, he believes, pointing to Amazon’s latest announcement that it’s going to make investments $5bn (£3.8bn) in Mexico over the subsequent 15 years, and a further $1bn funding by German carmaker Volkswagen. Mr Baker Pineda additionally cites promising plans from South African, Japanese and Chinese language corporations.
Critics are much less satisfied that the relocation of producing from Asia to northern Mexico advantages the Mexican financial system reasonably than simply bolstering the businesses concerned. The important thing, Mr Baker Pineda believes, lies in creating the suitable “company and authorities choices on this nation to maintain this pattern within the long-term”.
In relation to the speedy financial issues President Sheinbaum faces, essentially the most urgent is state-run vitality agency Pemex. It has money owed of round $100bn, making it the world’s most indebted oil agency.
“The debt is an issue not only for Pemex however for Mexico,” says Fernanda Ballesteros, Mexico nation supervisor for the Pure Useful resource Governance Institute.
In recent times, the López Obrador administration has decreased the quantity of tax Pemex has needed to pay the federal government. This has been cut by 60% to 30%.
On the similar time, the outgoing authorities gave Pemex quite a lot of money injections, which López Obrador says he would like to see continue.
Nonetheless, a gradual decline in productiveness at Pemex lately has additional sophisticated the financing of the state-owned vitality large, which employs round 1.3 million individuals in keeping with the federal government’s personal statistics.
Getty Photographs“President López Obrador’s insurance policies and priorities have been to double down on fossil fuels and provides unconditional assist to Pemex,” says Ms Ballesteros. The corporate is now poorly positioned, she argues, for the required transition to cleaner and extra environment friendly energies within the coming a long time.
“Over the previous six years, 90% of Pemex’s infrastructure investments have gone in the direction of a brand new refinery in Dos Bocas in Tabasco state, and the acquisition of a refinery in Deer Park in Texas.”
The federal government says it’s on track to attain its aim of complete self-sufficiency in fuels by the primary quarter of 2025. Nonetheless, Pemex’s ongoing financial difficulties imply the Sheinbaum administration has its fingers tied over servicing the colossal debt.
Environmental skilled Eugenio Fernández Vázquez says that Pemex is a “large problem” for Sheinbaum. “Not simply in coping with the oil business, which is big when it comes to Mexico’s GDP, but in addition in taking Pemex’s large debt burden off the general public’s shoulders,” he explains.
Sheinbaum should strike a troublesome stability, he provides, in getting Pemex to promote extra of its merchandise “that are clearly fossil fuels and oil-based, whereas on the similar time addressing Mexico’s local weather change obligations and coping with pressing points in our cities, like air air pollution”.
For a president championed as Mexico’s most environmentally aware chief – earlier than getting into politics, Sheinbaum was an completed environmental engineer – that should rankle. Particularly whereas additionally spending billions in public cash to prop up a greenhouse gas-emitting behemoth.
Again within the realm of Mexico’s advanced relationship with its northern neighbour, President Sheinbaum faces two very totally different potential companions in Washington – both the primary feminine president of the US in Kamala Harris or a second Trump presidency.
Whoever wins in November, there are some tough cross-border points to handle, whether or not on commerce or undocumented immigration, the unlawful site visitors of weapons into Mexico, or fentanyl into the US.
Moreover, the United States-Mexico-Canada Settlement (USMCA) free commerce deal is up for renegotiation in 2026, with the whole lot from minor tweaks to main rewrites potential.
USMCA was launched in 2020, when it changed the earlier North American Free Commerce Settlement between the three nations.
Sheinbaum additionally has to control the peso. Within the days after her election victory in June, the foreign money tumbled towards the greenback.
This was largely in response to a choice by the outgoing president to press forward with a wholesale reform of the nation’s judicial system underneath which all 7,000 judges and magistrates in Mexico will probably be chosen by standard vote. The plan can be supported by Sheinbaum.
Washington’s disapproval of the measure, as publicly expressed by the US Ambassador to Mexico, Ken Salazar, instructed it might complicate, even jeopardise, components of the USMCA renegotiation. Relations between Ambassador Salazar and the brand new administration are already notably frostier.
Getty PhotographsDiplomatic spats apart, marrying the brand new constitutional guidelines with the authorized necessities of the free commerce settlement might show far thornier than first anticipated.
Nonetheless, these are the very first days of President Sheinbaum’s administration. As a part of her predecessor’s legacy, she enjoys an nearly unprecedented stage of assist with the ruling social gathering in an unassailable place throughout the nation.
Her key election promise – to increase López Obrador’s social programmes in pensions, household stipends and pupil grants, and construct what she calls the “second flooring” of his political mission – secured her the backing of hundreds of thousands of Mexicans.
She will additionally depend on a loyal congress and, following the reform, doubtlessly the management of the judiciary, too.
Taking workplace in such a robust place is a luxurious, one which supporters and critics alike anticipate her to make use of to correctly tackle a few of Mexico’s principal financial obstacles.
