There are undoubtedly many challenges, many that our country faced in 2018 and were not resolved, and new ones left by the now former president López Obrador.
Oktoberfest is the festival celebrated in the German city of Munich from mid-September to mid-October since 1810, where drinking beer is part of the tradition. However, I regret to disappoint you, but I am not going to refer to that. I have been talking with investors for several months about the new administration in Mexico that began on October 1st. Since most of the conversations are in English, I repeated ‘October first’ many times, and because I consider the incoming administration to be much better than the previous one, ‘October first’ sounded more like ‘Oktoberfest’. In this sense, the foreign exchange market has already started to reflect it. The Mexican peso was the best-performing currency in the world this week. There are undoubtedly many challenges, many that our country faced in 2018 and were not resolved, and new ones left by the now former president López Obrador.
The new president of Mexico for the next six years, Claudia Sheinbaum, was sworn in last Tuesday, October 1st. She is the first woman to hold the presidency in the more than 200 years of our country’s history, despite the fact that the two names of our first president could have been female, Guadalupe Victoria was a man. In her first speech, Sheinbaum emulated AMLO’s style and reiterated that her predecessor’s social programs would continue. In this sense, I recognize that part of Claudia Sheinbaum’s inauguration was an AMLOve Fest. However, I also consider that it could have been the last ode to AMLO. On one hand, I believe that requesting a leave of absence from Morena to not be a party member during her presidency says a lot about Claudia Sheinbaum. On the other hand, in my opinion, several phrases imposed a diametrically different style from that of former president López Obrador. Among them, I consider the ones that left me with that feeling the most were: “Politics is done with love, not with hate. Happiness and hope are founded on love for others, family, nature, and the homeland,” “we condemn classism, racism, machismo, and any form of discrimination,” “in our government, we will guarantee all freedoms, freedom of the press, assembly, and movement,” and “I will govern for everyone.”
Regarding what interests financial market participants the most, Sheinbaum mentioned that she will maintain macroeconomic stability – fiscal prudence and respect for the autonomy of the Central Bank – and that she will promote private sector investments. She even stated that “private sector investments, both national and foreign, will be secured,” and that she will “promote the USMCA and encourage nearshoring.” However, the point that seems most relevant to me and is already an action and not just part of the speech is the change she is proposing to the energy reform that has been in Congress since February 5th. The change would allow private sector participation in oil extraction and production. As we know, with the 2013 energy reform, it is not necessary to reform the Constitution in Mexico to allow private sector participation in crude oil extraction and production activities. However, one of the reform proposals by former president López Obrador seeks to reverse the 2013 reform. It should be noted that although this initiative was not approved during his last month in office, it has remained on the legislative agenda.
President Sheinbaum’s idea of advancing towards an energy transition to green and renewable sources requires the participation of the private sector. As a result, Sheinbaum’s options are: (a) Encourage legislators to abandon the discussion and approval of that reform initiative; (b) ‘put sand in the wheels’ of AMLO’s reform, so that, over time, it ‘gets lost’ in the debate and is not approved; or (c) modify AMLO’s reform to somehow allow private sector participation. In my opinion, this last option is probably the most politically skillful and is gaining ground, according to a recent article in this newspaper (‘Sheinbaum ‘gives a chance’ to private companies to extract oil: Deputies modify AMLO’s energy reform’, October 2).
In this regard, this week, several deputies at the committee level (not yet in plenary session) added the phrase ‘or through contracts with private entities’ at the end of the paragraph of the proposal to reform Article 27 of the Constitution, where it mentions that ‘…for the purpose of generating income, the State will carry out the activities of exploration and extraction of oil and hydrocarbons through assignments to state-owned public companies (Pemex)…’. In my opinion, this is fully aligned with one of the three improvements that Claudia Sheinbaum’s administration is already implementing compared to the previous one: (1) Decision-making based on cost-benefit analysis, instead of occurrences; (2) 21st-century energy vision; and (3) a security approach based on the rule of law, instead of ‘hugs, not bullets’ (‘Let it be October 1st already’, September 3 and ‘A difficult September, but with optimism towards the future’).
By Gabriel Casillas
Source: El Financiero
