The rearrangement of the political board that will emerge after the midterm elections will complicate the projects they had contemplated for the second half of their government. Among them, the approval of an expanded tax reform, the constitutional changes to reverse the 2013 energy reform, and the possible disappearance of some autonomous regulators stand out.
Until now, the majority that AMLO had in both houses of Congress allowed him to pass smoothly the secondary reforms to the Electricity Industry Law and the Hydrocarbons Law, which are currently paralyzed by the decision of specialized judges in competition, since they are laws that favor CFE and Pemex over private industry.
Greater certainty
This change in the Congress of the Union will give greater certainty to the Mexican economy, since the balance reduces operating margins to a single party in power, the economists and academics consulted by Expansión agree. However, it also generates pressure for the following years, since the promise of a fiscal reform for the country cannot be postponed.
“There is a possibility of reduction in uncertainty that could eventually be marginally beneficial for greater economic growth,” says Adrián de la Garza, chief economist and director of Economic Studies at Citibanamex.
When there is only one party in power, there is a high degree of uncertainty that it will introduce legislative changes that will cause noise to the private sector, and with it, business plans will be postponed, says Mario Correa, an independent economic analyst . Now, the results of the elections represent a certain guarantee for investment, since there will be no changes that are not agreed upon in Congress.
Avoiding concentration of power is good for investors, especially those in the financial sector, who buy instruments in pesos. For direct physical investment there will continue to be caution, since changes are needed in the development strategy that is being followed, “there is great potential in the energy sector, but there the strategy goes in the opposite direction,” says Correa.
However, the results of this weekend’s elections do not mean that Morena and President López Obrador are defeated, as they will retain the majority.
Based on the results that have been given in the PREP, Morena, if he brings together his allies PT and PVEM, will retain the absolute majority in Congress (50% plus 1), although there will be no qualified majority, something that does not happen in the country since the time of the PRI in the 1990s, says Carlos Alberto Jiménez Bandala, head of the doctorate in Administration at the La Salle University Business School.
“Morena is taking 185 districts out of 300 possible. By direct vote, Morena takes the majority of the districts. Plus the multi-member representation, it would have between 203 and up to 210 deputies out of 500 ”, he details.
And the tax reform?
The tax reform that seeks to collect up to 3 additional points of GDP and that has been proposed by the Ministry of Finance cannot be postponed, despite the fact that Morena does not have a qualified majority.
” We think that a tax reform will be presented in September , but perhaps not with all the elements that Morena would like the reform to have. It would seem that it is a reform that is not exhaustive, it is not a radical change in the country’s fiscal framework. “says Adrián de la Garza, Citibanamex chief economist.
In the same vein, Mario Correa considers it possible that the far-reaching changes that are needed in fiscal matters will not materialize.
Another energy reform?
In his intention to strengthen Pemex and the CFE , President López Obrador had assured that, if necessary, and after Sunday’s midterm elections, he would present constitutional changes to fundamentally modify the 2013 energy reform.
However, the new legislative reality may prevent the president from successfully passing a probable reform of this magnitude to privilege the position of both state-owned firms in the energy market.
Jiménez Bandala, an academic at La Salle University, does not rule out that the government will be able to make more changes in energy matters, since they will lead to “how investment is going to be drawn in the country’s strategic sectors.” “That will limit foreign investment, because there are different rules that may not appeal to current players, “he adds. So far, however, the judges have stopped the president’s initiatives in this regard.
Autonomous bodies
López Obrador had also threatened to disappear some autonomous regulators: the Federal Economic Competition Commission (Cofece), the Energy Regulatory Commission (CRE) and the National Hydrocarbons Commission (CNH). For this, it would need the approval of both Chambers. The last two are the energy sector regulators, who have suffered a profound weakening so far this six-year term, while the first has become the president’s main counterweight in terms of the regulatory changes that are intended to be imposed on the energy market. .
And the recovery?
The economist Mario Correa predicts that household consumption will take time to recover, as millions of people lost their jobs with the pandemic, and many must replace savings that they resorted to in emergency to pay off their debts.
Another challenge is related to the inequality in the disparity of the economic recovery between the north and the south of the country. “The southern states are not going to recover until mid-2022. Instead, the northern states could recover this summer. This will widen inequalities and deepen poverty in the states where reactivation is most required, ”Jiménez Bandala warns.
With information from Luz Elena Marcos, Dainzú Patiño, Diana Nava and José Avila
