This wave of constitutional reforms looks like an electoral strategy rather than a genuine reformist push, as we expect most reforms to be blocked in Congress. However, the reforms could also set the party line for a future Claudia Sheinbaum administration. Multinationals operating in Mexico should monitor at least some of these reforms, particularly those affecting autonomous and electoral institutions, state-owned enterprises, the judiciary, and labor regulations.
Overview
- On February 5, President AMLO submitted 18 constitutional and two secondary reforms, covering the following areas, among others: the pension model, autonomous institutes, electoral system, judiciary, energy and strategic state-owned enterprises, and public security.
- To pass a constitutional reform, MORENA would need at least 66% of the votes in each legislative chamber plus 51% of the state Congresses’ approval. MORENA and its allies lack that majority, while the opposition has the numbers to block the reforms.
- In an unexpected move, the main opposition parties, PAN, PRI, and PRD, have endorsed the pension reform. AMLO likely expected the opposition to reject this initiative. This way, he could blame his rivals for hindering social progress.
- Despite backing the pension reform, the opposition pressed the president for clarity on the funding sources. The pension reform has raised concerns about fiscal sustainability, as achieving a retirement replacement rate of 100%—matching the worker’s last salary—may not be viable in the context of growing fiscal constraints. The OECD’s average replacement rate is 62.4%.
- On the other hand, the PAN and PRI expressed their reluctance to support other constitutional reforms, particularly the one eliminating autonomous institutes. The opposition is also unlikely to support the proposed electoral, public security, and Judiciary reforms.
- The autonomous institutes, Electoral Institute, judiciary, and public security reforms are the most controversial. Critics often see them as attempts to centralize political and regulatory power under the executive branch, potentially formalizing the militarization of public security, and diluting democratic institutions.
- These reforms have also been interpreted as a party line, setting the priorities for a potential Sheinbaum administration.
Our View
These reforms may be a strategy for improving MORENA’s results in the upcoming elections. While MORENA’s presidential candidate, Claudia Sheinbaum, is polling at least 16 points above the main opposition candidate, Xóchitl Gálvez, maintaining an absolute majority in Congress (50%+1) or securing the qualified majority (66%) looks more challenging. Therefore, AMLO may have launched these reforms to rally his base and blame the opposition if they are turned down, which is the most likely scenario.
These proposed reforms could also aim to set the priorities for a second MORENA administration. In the most likely scenario, Sheinbaum wins the election and the opposition successfully blocks the most controversial items of the reforms but cannot stop the campaign against autonomous institutes and the efforts to centralize regulatory authority under the executive branch. In a downside scenario, MORENA wins the legislative elections by a landslide, leading to the adoption of some of these reforms in the next legislature. In an upside scenario, reforms are blocked, MORENA loses the absolute majority in Congress, and the next legislature strengthens the National Electoral Institute (INE) and autonomous institutes, proposes a sustainable modernization of the pensions model, and boosts the National Guard under civilian leadership.
While unlikely to be approved, these reforms could pose significant operational, regulatory, and political risks to multinationals. If a pension reform is implemented, the fiscal deficit would deteriorate, increasing debt servicing instead of any other type of public spending, like infrastructure. The dissolution or marginalization of autonomous bodies, like the Federal Institute for Access to Information and Data Protection (INAI), or the Federal Economic Competition Commission (COFECE), could significantly reduce transparency and antitrust enforcement. A judiciary reform could erode the independence and professionalization of that branch, which may become increasingly politicized. Finally, formalizing the National Guard under SEDENA’s authority could decrease transparency and increase the participation of the military in law enforcement.
At FrontierView, our mission is to help our clients grow and win in their most important markets. We are excited to share that FiscalNote, a leading technology provider of global policy and market intelligence has acquired FrontierView. We will continue to cover issues and topics driving growth in your business, while fully leveraging FiscalNote’s portfolio within the global risk, ESG, and geopolitical advisory product suite.
Subscribe to our weekly newsletter The Lens published by our Global Economics and Scenarios team which highlights high-impact developments and trends for business professionals. For full access to our offerings, start your free trial today and download our complimentary mobile app, available on iOS and Android.