The Mexican peso broke through the 19.50 to the US dollar barrier on Thursday, depreciating for a fourth consecutive day as the government’s judicial reform proposal continues to weigh on the currency.
The peso closed at 19.28 to the dollar on Wednesday, but sank to as low as 19.52 to the greenback Thursday morning, according to Bloomberg data.
The currency subsequently regained some of the ground it lost, but by late afternoon the USD:MXN exchange rate was back at 19.52.
That rate represents a depreciation of 4.5% for the peso compared to its closing position of 18.64 to the US dollar last Friday. The last time the peso was weaker was in late 2022.
The government’s proposed judicial reform — which seeks to allow citizens to directly elect judges — has contributed to the weakening of the peso this week.
The proposal — which critics argue threatens the independence of the judiciary — could be approved as soon as next month, when the ruling Morena party and its allies will have a supermajority in the lower house of Congress and a strong majority in the Senate.
If approved, citizens will be able to elect Supreme Court justices and other judges from candidates put forward by the sitting president, Congress and the judiciary itself. The first judicial elections are slated to be held next year.
Among the additional factors that weighed on the peso on Thursday were a general strengthening of the dollar and data showing that inflation declined in the first half of August.
The decline in inflation as well as data showing that quarter-over-quarter economic growth slowed to just 0.2% between April and June increased the likelihood that the Bank of Mexico (Banxico) will make a second successive cut to interest rates after its board’s monetary policy meeting on Sept. 26.
The wide gap between Banxico’s key rate — currently 10.75% — and that of the United States Federal Reserve (5.25%-5.5%) supported the peso for a long period, but an unwinding of global carry trades and political developments in Mexico have hurt the currency in recent weeks.
Kimberley Sperrfechter, emerging markets economist at Capital Economics, said that the decline in inflation to 5.16% in the first half of August, along with weak economic data for June and “the Fed’s confirmation that it will kick off its loosening cycle next month means that we expect Banxico to lower its policy rate by another 25bp, to 10.50%.”
In addition to publishing inflation data, national statistics agency INEGI reported Thursday that month-over-month economic growth in Mexico was 0% in June. Annual growth was 1.1%.
US ambassador: ‘Direct election of judges is a major risk’ to democracy
In a statement posted to social media on Thursday afternoon, United States Ambassador to Mexico Ken Salazar outlined his opposition to the judicial reform proposal President Andrés Manuel López Obrador sent to Congress in February.
“Based on my lifelong experience supporting the rule of law, I believe popular direct election of judges is a major risk to the functioning of Mexico’s democracy,” he said.
“Any judicial reform should have the right kinds of safeguards that will ensure the judicial branch will be strengthened and not subject to the corruption of politics,” Salazar added.
The ambassador also said he believes that “the debate over the direct election of judges … as well as the fierce politics if the elections for judges in 2025 and 2027 were to be approved, will threaten the historic trade relationship we have built, which relies on investors’ confidence in Mexico’s legal framework.”
“Direct elections would also make it easier for cartels and other bad actors to take advantage of politically motivated and inexperienced judges,” Salazar said.
“… We understand the importance of Mexico’s fight against judicial corruption. But direct political election of judges, in my view, would not address judicial corruption nor would it strengthen the judicial branch of government. It would also weaken the efforts to make North American economic integration a reality and would create turbulence as the debate over direct election will continue over the next several years.”
Analyst: Approval of reform could ‘rapidly deteriorate’ business environment
Gabriela Siller, director of economic analysis at Banco Base, wrote on X that the approval of the judicial reform proposal “could rapidly deteriorate the environment to do business” in Mexico.
She also said that approval of the reform could “lead the Mexican economy toward a recession, as occurred in 2019 after the cancellation of the construction of the [new] Mexico City airport.”
Siller asserted that the reform will have a negative impact on economic growth by slowing down new inflows of foreign direct investment as well as reinvestment of profits by companies that already have a presence in Mexico.
“Given that the reform to the judicial power would weaken Mexico’s legal framework, the administration of justice and the application of USMCA rules in the country, it places the trade relationship with the United States at risk and would inhibit new investments from that country,” she wrote.
Siller said earlier this week that approval of the reform would “move Mexico away from the nearshoring opportunity.”
La reforma al Poder Judicial podría tener un impacto sobre México de al menos 1.9% del PIB, por el freno en la llegada de nuevas inversiones y el freno de reinversión de utilidades de las empresas extranjeras que están en México.
A esto se sumaría el efecto dominó sobre otras…
— Gabriela Siller Pagaza (@GabySillerP) August 22, 2024
Concern about the proposed reform is widespread and growing, including among court workers and judges, who commenced a strike this week.
New York-based investment bank Morgan Stanley downgraded its investment outlook for Mexico earlier this week, issuing an “underweight” warning on Mexican shares due to concern over the proposed judicial reform.
For its part, the Bank of America described the reform as “very high risk” for Mexico’s corporate sector.
US banks are ‘misinformed’, says Sheinbaum
President-elect Claudia Sheinbaum asserted Wednesday that both Morgan Stanley and the Bank of America are “misinformed” because the approval of the judicial reform will lead to “a better justice system in Mexico.”
The banks and other foreign companies and individuals with investments in Mexico have nothing to worry about, said Sheinbaum, repeating a view she has expressed previously.
She also rejected claims that the reform poses a threat to the USMCA, the North American free trade pact that superseded NAFTA in 2020.
Sheinbaum will take office Oct. 1, while recently elected lawmakers will assume their positions in the Chamber of Deputies and the Senate a month earlier.
The coalition led by Morena will be able to approve the judicial reform proposal and other constitutional bills without the support of opposition lawmakers in the lower house as it will have a two-thirds majority. It will require the votes of three opposition senators to get such initiatives through the Senate.
With reports from Aristegui Noticias, Reuters, El Financiero and FX Street
AMLO IS confirmed a confirmed Socialist his agenda will destroy Mexico. Not destroying Cartels will destroy his legacies he doesn’t have any we need Trump to destroy Cartels for America’s future. AMLO is a Maduro idol ultimate Corupt politician
After 6 years of AMLO, Mexico is doing better than ever. Replacing corrupt judges is the next step to an even better Mexico.
So, you mean replacing corrupt judges with corrupt Moreno judges will make Mexico better?
Ha ha ha
Agree. Mexico’s future is bright and those who have profited from the corrupt past are squealing like stuck pigs.
How can direct election by the people be a threat to democracy and be called Communist?
It’s probably the trumpy logic of we need a strong man, except if that is a left leaning one. Also regarding the corruption issue, I always hear how Mexico is backsliding. While at the same time we are getting many reports on how they are getting historical amounts of narcotics off the streets, how projects that were promised are getting finished, how corrupt police etc. are actually getting removed from their jobs. While not perfect, none of what Mexico has done has ever been perfect and these options are better than the past. Realistically, it comes down to comfort. USA is comfortable with treating Mexico as a tool for its own end and can’t stand it not working hand in hand in the way Canada follows suit. If you ever hear someone say Mexico is getting worse, they don’t remember or don’t care that Mexican leadership was working very closely with cartels. At this point there is more murder in elections because they don’t fall in line for money, the need to threaten and kill those who don’t. That wasn’t as prominent back in the day because it wasn’t needed to have corrupt officials, police etc.
Please stay on topic.We’re dealing with the direct election of judges which i’m sure you know nothing about.
It’s almost incredible that they continue with the foolish ideas IN SPITE of the numerous warnings and ultimately, the damage done to Mexican people by the use of puppet judges by the cartels and obviously, the loss of new investment and the loss of reinvestment of profits earned here
This is the way it’s long been done in Alta California.Where are you from?
“popular direct election of judges is a major risk to the functioning of Mexico’s democracy” Sure it has to be done right, but keeping the present judges is a bigger risk. Nothing will improve if criminals can continue to bribe judges. The good judges can apply again. Is he saying the system in the USA is better?
Hendrik, you are absolutely correct. Obviously you read the article closely. The controversy, to me, is another attempt by the Mexican elitist media and the US to intervene in the results of the election and in the positive direction that Mexico is headed in.
44.
Years practicing law in Alta, California my understanding is th Méxco would become a lot more like the judiciary in Alta California.
If this was proposed in Canada or the U.S., it would immediately be deemed laughable, yet alone unconstitutional. Morena is showing its true, almost authoritarian, colors. Beware USMCA!
Beware of false profits of doom like you.
Some of the current judges are corrupt and need to be removed, but AMLO’s solution will not solve the problem long term. Getting rid of corrupt judges needs to be apart of a comprehensive strategy to reduce extortion and other cartel activities. This will not be easy but Mexico has some very bright innovative people with integrity that should be able to devise a strategy and implement it. It will be tough, but doing nothing is no longer an option.
Am I missing something? Isn’t this all good news? Both in terms of judicial reform and declining inflation? Is it just me or do I sense a Negative tone in the MND?
I agree kenneth. It seems MND is ‘captured’ by some very scared business entities. This reporter paints a very negative and bleak future if judicial reform takes place but provide not a single shred of reasoning.
On it’s face judicial reform that is transparent to the electorate sounds better for me and thee. So, what’s the fear; that enabled and entitled corporate entities will lose their favored and coddled position (ie: corrupt) with the federal gov’t?
I think you’re not connecting the dots. You do realize that AMLO is also wanting to eliminate non-political entities that monitor voting. The big picture is; eliminate voting monitors, so that the ruling party can cheat in judicial elections and get the judges they want while telling the people it’s all fair and square..
I would delete this duplicate if I could.
President-elect Claudia Sheinbaum asserted that both Morgan Stanley and the Bank of America are “misinformed”
She must say these things so that she doesn’t undermine AMLO in public, and, given her background, she may even believe it is the best thing to do
But, even if everybody else is ‘misinformed’, when the economic consequences happen to Mexico, even before the first election in six years, the President will have the opportunity, given her supermajority, to unwind the reforms that are most dangerous.
She is a very very intelligent and logical person and she’ll have had ample time to try to ‘re-inform’ those who pull out of near shoring and so forth, but when that fails, the sole responsibility will be on her shoulders, and I think she will step up and reverse the most damaging reforms. At least I hope so.
But we might have to wait years to see it happen
MS and BoA have no apparent interest in the democracy or wellbeing of México. I wouldn’t trade that for profits
Claudia Sheinbaum don’t be a “puppet” to AMLO and continue to follow AMLO advice because this will ruin your reputation and your administration/government. Break “COMPLETELY” away from AMLO control otherwise you are going to have the “worst ” economy, and YOU WILL GO DOWN IN FLAMES. Quit talking to AMLO for advice, don’t be a “fool” thinking AMLO advice is correct. Stand on your own two (2) feet. and be new leader to all the Mexican people that voted for you. The poor and the extreme “poor” are looking for a new Leader to get them out of “poverty”. You can do it by yourself, but don’t follow AMLO option that is full of “caca”.(crap).
Be a real strong independent president and clean out all corruption throughout the government. (Judges, in the Military, ” politicians” and even federal and local law enforcing policeman who cheat the people every day. REMEMBER YOU ARE IN CONTROL, NOT AMLO.
It seems that the salamander hasn’t practiced law in nineteen years. Perhaps he should visit alta california and talk to real lawyers and real judges who have long had an electoral system for the judiciary. What a shameful slight on AMLO.
I would argue the comments about Sheinbaum being a puppet are not founded at all. She has way more education that AMLO and has a strong background in literally the same things we are concerned about. I think the biggest concern is that she is a woman so they are thinking she can’t lead and will always just follow her puppet master. That is not founded in her history, it only makes sense if you ignore everything she has done in her career on her own merit. And only pointed out the fact that they have similar feelings about what Mexico means to the people of Mexico. Remember, when AMLO came into power, supposedly the country would collapse and he would just stay in power. Reality is, he was the only president in recent Mexican history to NOT ATTACK PROTESTERS and I mean it in a literal sense. The previous president Pena Nieto which the USA loved he was seen as having worked with the cartels to get the kids killed that were never found. AMLO had people protest against him but the worst thing people can say is he talked back to critics and power, but he never did what previous leadership did which was way way worse. But then again most US viewpoints just ignore that part and think its a backslide to talk back just because you disagree instead of idk not saying anything and disappearing people. But I digress as Sheinbaum makes a lot of sense with the specific points she makes when talking about any topic she has to work with. I suggest literally listening to her, but I guess that might require understanding spanish or putting in effort to read the subtitles….
It seems that the salamander hasn’t practiced law in nineteen years. Perhaps he should visit alta california and talk to real lawyers and real judges who have long had an electoral system for the judiciary. What a shameful slight on AMLO.
I would delete this duplicate if I could.
MXN peso at 19+ is a bargain. Will be back to sub 17 quickly.
The Peso will likely continue to lose value to the USD, which bodes well for Mexico’s exports. Gaining value relative to the USD makes Mexico’s exports more expensive for US consumers. That point is all too important, especially since Mexico’s largest trading partner is the US. Put another way, Mexico relies heavily on trade (exports) with the US, and if their products become too costly, US consumers could turn elsewhere for alternatives. Another aspect that may weigh the Peso’s value is the forecasted US Fed’s “imminent” rate cuts next month. If the Mexican Government doesn’t correlate, we will likely see exchange rates as they are—possibly 20-21:1. Moreover, you read in MND about all foreign direct investment in MX. That incoming capital affects rates. Maybe the Peso moves to ~18:1, which requires some manipulation, but I predict 20-22:1 within 12 months.
In my opinion, the court in the US was packed heavyly alter conservative when Trump was in office. As a result, the citizens lost the protection of the “Chevron Deference” and this was a huge win for corporate America. In my mind, this decision by the Supreme Court opened the gateway for a new level of corruption in the USA. It is difficult to separate the corruption in Mexico from the USA. I believe the US is just a little more sophisicated in it’s actions of corruption. Two examples is Purdue Pharma or Dupont; both companies have killed hundreds if not thousands of people and they are still in business. Imagine that!
100% I am glad someone gets it. The way the corruption is displayed is almost in your face in Mexico. An example my dad mentioned while he was a kid was that he felt that everything was working against the average Mexican and you knew the government didn’t care. When he was a kid, there was a sort of subtext in the sense that you knew you were just treated like you didn’t matter if you were poor. The just be quiet and work because you should be lucky that you have a job. (kinda like today how people want Mexicans to shut up about their rights because jobs jobs jobs are coming from foreigners, you should feel so lucky) While in the USA it is treated like legitimate laws that are setup for the people even though they are changing things to make life more difficult to the average citizen in the USA.
The main concern is the ones running for judge will be put forward by the party in control, which is Moreno party, (amlo) who is leading the charge. Kind of scary when a political party can control judges
Have they not seen the cartels murder people running for office, so that only corrupt sycophants govern for them? Just look at recent elections. 200 murdered. No wonder the banks are concerned. For that matter, we all should be afraid of the outcome.