Claudia Sheinbaum, former mayor of Mexico City, is scheduled to be inaugurated Tuesday as the country’s first woman president.Eduardo Verdugo/The Associated Press
Foreign investors who had hoped Mexico’s next leader would chart a more business-friendly approach than her predecessor may be set for disappointment, given the country’s recent judicial reforms, one risk consultant warns.
Claudia Sheinbaum, a scientist and former mayor of Mexico City, is scheduled to be inaugurated Tuesday as the country’s first woman president. She takes over from her mentor, President Andrés Manuel López Obrador, commonly known as AMLO – the founder of the ruling Morena party who has adopted protectionist policies and has been vocally critical of foreign investment, particularly in the energy sector.
“In the buildup to her election there was a lot of cautious optimism, that even though she was the current president’s chosen successor – and even though she’s from the ruling party – she would perhaps strike a different tone from the previous administration,” said Gavin Strong, who is the head of risk analysis in Latin America and the Caribbean with consultancy agency, Control Risks, in an interview.
“But more recent developments would suggest that things might not be quite as rosy as some people may have expected.”
While Ms. Sheinbaum is only now officially becoming president, the new federal Congress – led by Morena, which holds a near supermajority – took office at the beginning of September. Already, this congress has been pushing a new legislative agenda that has AMLO’s “fingerprints all over it,” Mr. Strong said.
“One of the questions we got asked a lot ahead of the election is how much influence the outgoing president was going to have over the new administration. And I think now it’s pretty clear that he’ll have a lot of influence.”
Two weeks ago, AMLO enacted a series of controversial judicial reforms that Mr. Strong said should be concerning for foreign companies operating in the region. Under the new system, judges will no longer be appointed based on their qualifications. Instead, judges will be elected by voters.
While some have heralded the changes as a way to hold the judiciary more accountable to the public, Mr. Strong cautions that the new system means the country’s courts are much more vulnerable to outside interference.
“It’s going to reduce the quality of judicial officials. It’s lowered the minimum requirements required for someone to pursue a career in the judiciary,” he said.
“And it’s going to open up the judiciary, probably, to greater levels of interference or influence by organized crime … it’s going to potentially increase executive interference into the judiciary.”
Mr. Strong noted that, while the Mexican judicial system is far from perfect at the moment, the reforms will likely exacerbate problems that already exist.
“For foreign investors, it means the likelihood is that if they’re embroiled in a dispute with the government that ends up in the courts – first – it’s going to take an extremely long time to for it to be resolved. And second, if you have courts that are aligned to the government or to a particular party, the chances of them getting an impartial recourse is limited.”
One area that the current system has been fairly robust relates to issues in the energy sector. In recent years, the current administration has passed nationalistic energy legislation that puts foreign investors and private players at a disadvantage to state-owned energy companies. Businesses have challenged these laws through injunctions with some success.
“The federal courts have actually ruled in favour of those lodging those injunctions,” Mr. Strong said. The latest reforms may mean some of these decisions are overturned.
Mr. Strong was in Toronto recently to meet with the Canadian clients of Control Risks about the political climate in Mexico. The company has its headquarters in London, Britain but has offices across the works and provides services such as risk analysis, pre-transaction due-diligence, support on security issues and incident response.