Save money at tax time with the foreign earned income exclusion

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January 16, 2024

kelly-sikkema-wgcUx0kR1ps-unsplash — The FEIE is a great benefit, but it only applies to income tax not to social security tax. (Unsplash)

If you are a United States citizen who lived and worked outside of the U.S. in 2023, you may be able to take advantage of one of the biggest tax benefits there are.

The foreign earned income exclusion (FEIE) allows U.S. taxpayers to exclude up to US $120,000 from income tax if they meet certain requirements. Assuming your average tax rate is around ten percent on $120,000, the FEIE could save you more than $10,000 in taxes. And to make the news even better, the exclusion applies to individuals separately, so if both you and your spouse independently meet the FEIE requirements, you can both benefit.

So what do you need to do to qualify for this tremendous tax break? In a nutshell, you need to satisfy three conditions. First, you need to have foreign earned income. Second, your tax home must be in a foreign country. Finally, you need to spend a certain amount of time overseas. Below I break down each of these steps and provide some other tips on the FEIE.

Step 1 – Do I have foreign earned income?

Earned income is money that you make for performing professional services. Examples include wages paid to an employee, income you earn as a self-employed person through your business, and fees charged by therapists, chiropractors, attorneys and other professionals. Basically, anything that requires you to personally do something to earn money. Earned income does not include pension distributions, interest or dividends, alimony or similar income streams that do not require you to perform a professional service.

Earned income is considered to be foreign earned income when the services for which you are paid are performed in a foreign country. For example, if you are a U.S. citizen employed by a U.S., Mexican or other foreign employer, and you live in Mexico and work from there, the wages you are paid are foreign earned income. If you are a self-employed painter or writer practicing your craft in Mexico, the money you make from selling paintings or articles is foreign earned income.

Generally, the income you earn from renting a foreign property is not earned income unless you perform significant services with regard to that income. For example, income I receive for renting the casita on our property in San Miguel de Allende is not earned income. Commissions received by a real estate professional for house sales and from managing rental properties would be earned income.

Step 2 – Do I have a tax home in a foreign country?

Your tax home is the place where you regularly work. If you don’t have a principal place of business because of the nature of your work, your tax home is considered to be the place where you regularly live. Where a person lives is determined by factors such as where they have their family and economic and personal ties.

For most of us, the distinction is inconsequential because we live and work in the same general vicinity. I live in Mexico and work from home, so my tax home is Mexico. For some people, however, it becomes an important distinction.

For example, a consultant who travels to different overseas locations and returns to their home in the United States between jobs would not be considered to have a foreign tax home, even though they would have foreign earned income because their professional services were performed outside of the U.S. Owning a home in the United States doesn’t necessarily mean that one lives in the United States, but returning to that home between jobs is strong evidence that it is where they have family, economic, and personal ties.

Employees who are permanently or indefinitely assigned to work in a foreign country are considered to have a tax home in that foreign country. Generally, if you expect your employment away from home to last for one year or less, it is temporary. If you expect it to last for more than one year, it is indefinite.

Step 3 – How long do I need to be out of the U.S.?

If you meet both the foreign earned income and tax home requirements of the FEIE, you still have to meet either the bona fide residence or the physical presence test.

The bona fide residence test assesses your intent to move overseas. If you go to a foreign country with the intention of making your home there, and you have no plans to return to the U.S., then you could satisfy this test. The catch, however, is that you have to be in the foreign country for the entire tax year beginning from Jan. 1. In other words, even if you moved to Mexico on Jan. 6, 2023 and stayed through December, you could not meet this test although you may have intended to remain in Mexico from the start.

The physical presence test, on the other hand, is dependent entirely on your being outside of the U.S. for at least 330 full days during a 12-month period, regardless of your intention to stay abroad or return.

Thus, if you arrive in Mexico on Jan. 6 and stay for the entire year, you would meet the 330-day test. Additionally, if you were still living in Mexico on Jan. 1, 2024 and remained the entire year, you could meet the bona fide residence test for 2024, even if you didn’t spend 330 days in Mexico during the year. Trips to the U.S. during the year do not impact your bona fide residence so long as your intention is to return to your foreign home (and you do return).

Here’s an example to help explain the concepts described above.

Jane is assigned by her employer to the Mexico City office for a project that will take an indefinite period of time to complete. Jane gives up her U.S. apartment, rents a place in Mexico City, and arrives there on Feb. 2, 2023. She unexpectedly has to return to the U.S. for 14 days in April 2023, but then returns to Mexico City. She also takes a 20-day vacation to visit friends and family in the U.S. in August 2023.

Jane has foreign earned income: the wages she earns from her employer while working in Mexico City. She also has a foreign tax home as she is indefinitely assigned to work in a foreign country and she does regularly live and work in Mexico City. Jane does not have a bona fide residence in Mexico for purposes of the FEIE in 2023 because she was not living in the country on Jan. 1. Jane also can’t meet the physical presence test for the 12-month period from Jan. 1-Dec. 31, 2023 because she was only present in Mexico for 304 days (365 days in the year, less 33 days from Jan. 1 to Feb. 2, less 14 days in April, less 20 days in August).

However, for purposes of the physical presence test, only part of the 12-month period that includes your 330 days must fall in the year for which you want to claim the FEIE.

Thus, if Jane begins her 12-month period on the day she first arrived in Mexico, she would meet the physical presence test for 2023 because she would have been present in Mexico for at least 330 days during the 12-month period from February 3, 2023 to February 2, 2024 (365 days in the period, less 14 days in April 2023, less 20 days in August 2023 and assuming she did not travel to the U.S. in January 2024, equals 337 days). In this case, Jane could use the FEIE to exclude from income the wages she earned while in Mexico in 2023.

Another important thing to know is that your period of physical presence does not need to be in the same foreign country. For example, if Jane did not have to travel to the U.S. in April and had vacationed with her family in Europe during August, she would have met the physical presence test for the 12-month period from Jan. 1 to Dec. 31, 2023.

What else do I need to know?

The FEIE is a great benefit, but it only applies to income tax not to social security tax. This probably isn’t an issue for employees because their employers are required to withhold that tax from wages during the year. However, if you are self-employed, you pay this tax out of pocket.

The social security tax rate is roughly 15% of your self-employment income, so the $120,000 that you can exclude from income tax under the FEIE would still be subject to about $18,000 in social security tax. To avoid having to pay a lump sum with your Form 1040 U.S. Individual Income Tax Return in April, you can make estimated tax payments during the year on the Internal Revenue Service website at www.irs.gov.

Claiming the FEIE also excludes you from taking certain tax credits, such as the earned income credit and the additional child tax credit. And, once you claim the FEIE you must continue to claim it as long as you are eligible, unless you request exemption from the IRS. All this is to say that you should talk to your tax advisor to see whether the FEIE is appropriate in your situation.

How do I claim the FEIE?

You do not have to ask permission from the IRS to claim the FEIE. Merely complete and attach Form 2555, Foreign Earned Income, to your Form 1040. See the Instructions for Form 2555 for line-by-line instructions on how to complete the form. For more information about the FEIE, see IRS Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad.

Paul Carlino is an attorney living in San Miguel de Allende and the founder of Pickleball Mexico. He writes for Mexico News Daily.

Mexican medical doctor shares her expertise in aesthetic medicine and dermatology

By

Henrietta Weekes

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January 16, 2024

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Dr. Lara will answer MND readers' questions about age preventive treatments. (Courtesy)

Medical tourism in Mexico is booming and an estimated 1.4 million people have come from the U.S., Canada and Europe to take advantage of up to a 60% reduction in costs for procedures according to Patients Beyond Borders. Mexico also boasts highly skilled doctors and nurses who often speak great English, a high quality of care and excellent amenities and conveniences.

Social media is teeming with aesthetic dermatology practitioners and promises and can be hard to navigate; you might even wonder if medical tourism is safe.

For a professional perspective, MND conducted an exclusive interview with expert dermatologist Dr. Daniela Lara Del Valle, founder and CEO of Clinica de la Piel Dermantra, San Miguel de Allende, about what to look for when considering cosmetic and aesthetic procedures, and her journey to running a successful clinic, where 80% of her new clients travel from the US and Canada.

Dr. Lara completed her training in General Medicine 17 years ago, at Mexico City’s prestigious UNAM (Universidad Nacional Autonoma de Mexico) followed by 2 years at La Salle University, before specializing in dermatology at the Dermatologic Hospital at UNAM. She then received a Fellowship in oncodermatology and dermatologic surgery with the CM Teknon Group at Barcelona University. Today, she attends up to five international congresses per year to keep her license as a Dermatologist and surgical Dermatologist current, in accordance with the Mexican Dermatology Board guidelines.

Over the next few months, Dr. Lara will answer MND readers’ questions about age-preventive treatments – Botox, neurotoxin therapy, dermal and lip fillers, treatment for lines and wrinkles – and provide top skin care tips.

Dr. Lara specializes in dermatology and aesthetic and cosmetic procedures

In retrospect, my journey to dermatology was interesting. Since I can remember, I dreamed about becoming a doctor, even though medicine was not part of my family history. I would play doctor, dressed up in one of my father’s white shirts for a doctor’s coat! Even in high school, I maintained excellence and aced exams. My mantra was always, ‘I’ll be successful!’ – but my drive was really due to an innate passion to help people. Medicine is definitely a calling.

Dermantra Clinic is located in San Miguel de Allende. (Courtesy)

I fell in love with dermatology during my 4th year rotation at the General Hospital of Mexico where I was taught and mentored by Dr. Amado Saul Cano, one of the most renowned dermatologists in Mexico. Friends and family encouraged me to persist in gynecology or oncology – which I had applied to and been accepted in rotation. I had to push back against the stigma that dermatology is a ‘lesser’ category of medicine, and as a woman, you are somehow less equipped as a doctor. These stereotypes persist, but a good reputation and success can prove otherwise! When I left college, I took an unpaid internship with one of the most prestigious dermatologists in CDMX, Dr. Isela Mendez, who remains a dear friend. I learned the importance of excellent customer experience and attended many advanced aesthetic training sessions with luminaries in the field like Nabil Fakih of Merz Pharma and Mark Stefanelli.

As a dermatologist, I can often figure out the problem and a solution within 5 minutes, just using a pen and paper. It’s a field where one has the power to literally change a person’s life, no matter what age – treating acne, lichen simplex, pityriasis rosea – you name it.

How did you come to San Miguel de Allende and what are your future business plans?

In 2017 I lost one of my three clinics in CDMX in the earthquake, and my concern for my two children’s safety increased, so I took a leap of faith and moved to San Miguel. I didn’t know the city, but my mother once owned a house here. People told me I was crazy, but my intuition was strong. It’s been an amazing city to build my business and raise my children.

Currently, my clinic, Dermantra, has seven medical offices, an ambulatory surgical room and three aesthetic rooms for cosmetic procedures. I employ three other doctors and one other dermatologist. We’re remodeling and expanding and I’m looking for some land to build a larger state-of-the-art clinic – either in San Miguel or Queretaro.

What services do you offer, and what are the most popular cosmetic and aesthetic treatments?

We offer all the services of Clinical Dermatology; treatment for diseases (acne psoriasis, melasma, rosacea, atopic dermatitis, hair loss, etc.), routine skin cancer diagnostics (i.e. full body check-ups), skin cancer or benign tumors surgery (lipomas, cyst, etc.).

In cosmetic dermatology and aesthetics, we offer services including skin rejuvenation, hair removal, etc. We have top of the line technology, like the Erbium fractionated laser, Dermapen (for microneedling treatments) and Micro Focalized Ultrasound with Visualization, called Ultherapy. For cosmetic services, we offer European, American, Japanese and Korean brands.

Botox treatment with neurotoxins or neuromodulators (wrinkle-relaxing injections of botulinum toxin), facial fillers and lip fillers or enhancements, are the most popular treatments. I also offer bolometric lifting, applying Botox to the upper corners of the face – which lifts the whole face. This is proving to be very popular, and not all doctors offer this. It’s one of my specialties.

Many of my clients have Dermantra recommended to them, and 80% of my cosmetic clients come from Texas, Los Angeles, New York and Canada. I’m happy that we also find the time to help the underserved in the community with facial dermatological issues. Community is very important to me.

Are cosmetic and dermatological procedures in Mexico easier on the wallet?

Many of my U.S. clients come to Mexico for Botox and filler treatments. The cost for most of my treatments is about a third of the cost of treatment in the U.S. The consultation alone is less expensive than a decent meal! If you’ve done your research to source a good, qualified doctor, the proximity of Mexico to the U.S. makes it a great reason to travel. My clients tell me they value the longer one-on-one time in my consultations compared to their experiences in the US. I think that level of nurturing and care is also a very Mexican trait!

What’s your expert opinion on getting aesthetic dermatology procedures in Mexico?

In aesthetic procedures, in both the U.S. and Mexico, a nurse, hairdresser or medical assistant can get a license to inject. Sadly, a general lack of regulation can lead to poor training, the use of fake or non-FDA approved products, and unregulated procedures – all of which can lead to unsatisfactory patient experiences.

Prestigious brands like Allergan or Merz seek out professionals like myself to be a part of their VIP doctor program and to invest in training for their products with some of the very best aestheticians in the world like Dr. Arthur Swift and Jani Van Loghen. Due to the worldwide reach of these companies, I travel and learn from the very best. I feel very blessed, and my work is very much about sharing those blessings. Helping change people’s outward identities to feel happier is a big responsibility, and I am proud of feeling up to that task.

For excellent results, make sure to work with someone who has invested time in their continuing education and always vet their credentials. In this business, a good reputation direct from clients is much more important than social media fame!

Hear Dr. Daniela Lara’s expert advice on Botox and similar treatments in tomorrow’s article.

Disclaimer: This article is for informational purposes only and should not be considered legal or medical advice. The writer and Mexico News Daily assumes no responsibility or liability for any errors or omissions in the content on this site. Individuals should always consult with qualified professionals regarding medical procedures, including plastic and/or cosmetic surgery, and medical aesthetic treatments, as well as consider their jurisdiction’s applicable laws and regulations.

Henrietta Weekes is a writer, editor, actor and narrator. She divides her time between San Miguel de Allende, New York and Oxford, UK.

Homicide rate in Mexico reaches lowest point since 2016

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MND Staff

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January 16, 2024

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Homicidios Zona Metropolitana Cuernavaca 5 — Preliminary data suggests 2023 was the least violent year of President López Obrador's administration. (Margarito Pérez Retana/Cuartoscuro)

Last year was the least violent year since 2016, according to preliminary homicide data presented by Security Minister Rosa Icela Rodríguez on Tuesday.

There were 29,675 homicides in 2023 for an average of 81 per day, Rodríguez reported at President López Obrador’s morning press conference.

There were an average of 81 per day in 2023 – down from 101 in 2018 – Security Minister Rosa Icela Rodríguez reported at President López Obrador’s morning press conference. (Rosa Icela Rodríguez/X)

Homicides declined 10.8% compared to 2022 based on final data for that year, which showed that there were 33,287 homicides.

However, the preliminary 2023 total will likely be revised upward, as has occurred in previous years.

Compared to the initial 2022 figure announced by Rodríguez on Jan. 17, 2023 – 30,968 homicides – the total reported on Tuesday represents a more modest reduction of 4.2%.

Data presented by the security minister on Tuesday showed that the last time Mexico recorded fewer homicides than 2023 was in 2016, when a total of 24,559 were counted.

Rodríguez said that homicides have declined 20% since López Obrador took office in December 2018, although the data she presented indicated a slightly lower reduction of 19.1%.

The president’s six-year term will go down as the most violent on record, with over 170,000 homicides recorded since he was sworn in just over five years ago.

However, Rodríguez highlighted that López Obrador is the first president since Ernesto Zedillo (1994-2000) to oversee a reduction in homicides over the course of a presidential term.

The security minister also presented data for a range of other crimes including femicide, the killing of a woman or girl on account of her gender. There were 848 femicides last year, lifting the total number of murders above 30,000, based on preliminary data.

Which states were the most and least violent in 2023?

Rodríguez noted that 46.8% of the 29,675 homicides recorded last year occurred in just six states.

Guanajuato – which has now been Mexico’s most violent state for several years based on total murders – recorded 3,104 homicides in 2023, according to preliminary data.

Soldier on a Cancún beach — Mexico’s homicide rate is generally improving, though some states continue to see very high levels of violence. (Cuartoscuro)

Criminal groups including the Jalisco New Generation Cartel and the San Rosa de Lima Cartel are the main perpetrators of the violence in Guanajuato, which is concentrated in a relatively small number of municipalities including Irapuato, Celaya and Salamanca.

México state, the country’s most populous state, ranked second for total homicides with 2,597 in 2023. La Familia Michoacana, which was involved in a deadly clash with farmers last month, is among the crime groups that operate in the state.

Ranking third to sixth for total homicides in 2023 were Baja California (2417); Chihuahua (2,072); Jalisco (1,955); and Michoacán (1,756).

The five states with the lowest number of homicides last year were Baja California Sur (27; Yucatán (34); Durango (91); Aguascalientes (95); and Campeche (101).

Out of the 32 federal entities, Mexico City ranked as the 16th most violent with 871 homicides, according to the preliminary data presented by Rodríguez.

Mexico News Daily

Drought continues to affect half of Mexican territory

By

MND Staff

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January 16, 2024

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Villa Victoria resevoir in Mexico state — Mexico continues to face extreme drought conditions, despite above-average rainfall in December. (Crisanta Espinosa Aguilar/Cuartoscuro)

Mexico’s above-average rainfall in December didn’t do much to reduce the drought conditions faced in a majority of the country.

According to the latest edition of Mexico’s Drought Monitor, published every two weeks by the National Meteorological Service (SMN), the percentage of the country affected by drought stood at 55% at the end of December. That’s essentially the same as the 54% figure from the end of November, although it’s much better than the 75% figure from the end of September.

Despite the fact more than half of Mexico remains in drought, this figure has improved significantly over the 75% recorded in September. (Conagua)

Mexico measures drought conditions by assigning drought levels of moderate, severe, extreme and exceptional. Two other categories — abnormally dry and no drought — indicate no drought conditions. At the end of December 2022, only 26% of the national territory was affected by one of the four drought levels. However, at the end of December 2023, that figure was just under 55%.

In the last two weeks of 2023, above-average rainfall was observed throughout Mexico — especially in the northwest — due to the emergence of five cold fronts. Despite this, a decrease in drought conditions was observed only in the region where Hidalgo, Puebla and Veracruz share borders.

“These rains were not enough to reduce the effects of the long-term drought,” the Drought Monitor stated. In fact, areas ranked from severe to exceptional “increased in the northwest, the north Pacific, the west and the center of the country.”

According to some analysts, 2023 was the driest year in the Mexican countryside since 1957. The worst-affected states have seen reservoirs run dry, crops fail and cattle die. At the end of 2022, none of Mexico’s 32 federal entities — the 31 states and Mexico City — had any municipalities ranked in the exceptional drought category, and Tamaulipas was the only state with any regions in the extreme drought category.

Mexico’s continued water stress will be felt everywhere, particularly in terms of the agricultural crop yield, which depends on 70% of the national water supply. (Wikimedia Commons)

At the end of 2023, six states contained areas in exceptional drought, and 18 had areas of extreme drought. One of the driest states is Querétaro, which had 15% of its municipalities in exceptional drought, 51% in extreme drought, 22% in severe drought and 12% in moderate drought.

Baja California and Baja California Sur were the only states not affected by any degree of drought at the end of 2023.

With reports from El Economista

Chinese electric vehicle manufacturer to build plant in northern Mexico

By

Cat Rainsford

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January 16, 2024

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419500473_912667740243132_8770973671866821559_n — Chinese manufacturer Solarever has announced it will build its new E-WAN EV in the northern Mexican state of Durango. (Esteban Villegas Villarreal/Facebook)

The Chinese company Solarever Electric Vehicles (SEV) plans to build a new plant in the state of Durango with an investment of 6,800 million pesos (US $397 million), Durango Governor Esteban Villegas announced on Monday.

Construction on the plant will begin in late February or early March and will be completed before the end of the year. The factory is expected to produce 5,000 electric vehicles (EVs) in its first year and 20,000 in its second, with an eventual production capacity of 50,000 vehicles per year.

Durango Governor Esteban Villegas (left) toured China last year to attract investment to his state. The Solarever announcement is the biggest result from that trip so far. (Fomento Económico y Turismo Durango Capital/X)

The factory will generate 1,000 direct jobs in its first stage and will be based in the Durango Logistics and Industrial Center, near the state capital of Durango city. SEV has also committed to bringing new technologies and clean energy products into the state, under a long-term partnership with the government of Durango.

The project is the biggest so far to come out of Villegas’ tour to China last August, which focused on Durango’s potential to develop EV and semiconductor production, in the context of nearshoring.

“Several months ago we went to China, and they said it would take four or five years to bring in a company of this size,” Villegas said. “But the dream had begun to crystallize in August, and by September the ambassador came with a work team, including Solarever.”

“What interested them most was the people and talent of Durango, which has large public and private universities,” the governor added. “The challenge was to get a first company like this to arrive and trigger the arrival of many more; today it’s becoming a reality.”

Solarever also manufactures solar panels for the U.S. market. (Solarever)

After SEV’s announcement, Villegas said that Durango is expecting the arrival of at least 15 additional foreign companies, of Chinese, French and U.S. origin.

Daniel Romo, head of business intelligence at Directorio Automotriz, said: “The SEV plant will start producing with parts shipped from China for final assembly in Mexico, and gradually become less dependent on imports as it builds its local and national sourcing networks. Surely this investment will attract other Chinese commercial partners to the region to supply this manufacturer.”

Initially, SEV will import the necessary parts via Durango’s international airport and rail network, and use this same infrastructure to export vehicles internationally. The company has a presence in the United States, Canada and Colombia, but also plans to supply the growing Mexican EV market.

It will start out producing three models – the E-WAN Cross, the E-TUS sedan and the E-NAT. Subsequently, it plans to unveil a fourth model, designed to be more compact and affordable than the E-WAN Cross, which is currently the cheapest EV available in Mexico.

“At SEV we are committed to developing Mexico’s national electric vehicles, so that the population can acquire their cars, travel comfortably and enjoy clean energy at a low cost,” said SEV president Simon Zhao.

With reports from El Economista and Cluster Industrial

Opinion: Mexico’s elections are important for the US too

By

Earl Anthony Wayne

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January 16, 2024

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Earl Anthony Wayne, ambassador (ret) — Earl Anthony Wayne served as U.S. Ambassador to Mexico from 2011-15. (Courtesy)

In a year filled with elections around the world, we should pay close attention to Mexico’s 2024 electoral contests. Mexico’s incumbent president, Andrés Manuel Lopez Obrador or AMLO as he is known, seeks to preserve his legacy by supporting the election of his chosen successor, Claudia Sheinbaum.

AMLO wants to assure the continuation of Mexico’s “fourth transformation,” as AMLO calls the reform process that he initiated. A determined opposition seeks to reverse many of AMLO’s actions and policies and warns that AMLO seeks to weaken Mexico’s democracy.

The outcomes of Mexico’s elections are very important for the United States. No other country in the world has more impact on the daily lives of Americans than does the U.S.’s southern neighbor. Mexico is the United States’ largest trading partner and production partner. It is also the entry way for massive amounts of deadly, illegal drugs and huge flows of migrants.

Managing these key issues will be debated sharply during both the U.S. and Mexican election campaigns, as will be the strength of democratic practices in both countries.

Mexico’s June 2024 elections will be large and complex; 98.6 million Mexicans are eligible to cast their ballots on June 2 for some 20,375 positions at the local, state, and national levels.

Rightly, most attention will be focused on the choice of a new president and the election of an entirely new national congress (500 deputies and 128 senators) in June. Although Mexico’s constitution does not allow incumbent president Lopez Obrador to run again, AMLO remains high in the polls, with approval ratings circling 60%, and he is throwing strong support to his chosen successor, Claudia Sheinbaum. Polls show Sheinbaum with a roughly 20% lead over the candidate of the opposition center-right coalition, Xóchitl Gálvez, at present.

Importantly, AMLO has indicated that if Sheinbaum’s coalition (named “Let’s Continue Making History”) wins a large enough majority in the new Congress, he will recommend constitutional reforms that would have the effect of weakening independent checks and balances in Mexico and centralizing more power in the hands of the president.

AMLO has been very critical of the Supreme Court, the National Electoral Institute and other autonomous institutions that were created over the years as Mexico was building its democracy. However, AMLO has not had the two thirds majority in both houses of Congress needed to approve the constitutional reforms he would like to see. His attempted reforms have sparked very large counter demonstrations and been rebuffed by Mexico’s courts, but he has persisted in his calls for constitutional change.

During AMLO’s tenure the independent global indexes on democracy and related issues, including corruption and rule of law, have reported deterioration and backsliding in the quality of Mexico’s democracy. The 2023 World Justice Project’s Rule of Law Index, for example, tracks a decline in Mexico’s rule of law score during AMLO’s term and currently ranks Mexico at 116 out of the 142 countries measured. Thus, the outcome of the Mexico’s elections could be very important for the strength of Mexico’s democratic institutions.

Not surprisingly, many in Mexico see the 2024 elections as a test for maintaining the strength of its democracy — echoing themes being heard in the U.S. election campaign.

In Mexico, the formal national campaigns have not yet begun, but there has already been a good deal of campaign activity. Currently, AMLO’s candidate, Sheinbaum, and the coalition led by AMLO’s Morena party have a substantial lead over the three party opposition coalition known as “Strength and Heart for Mexico” and their candidate, Gálvez. Many observers believe the gap can be narrowed before the vote in June. The question is how much, for both the presidential vote and to impact the eventual congressional majorities.

AMLO and his coalition have some clear weak spots on which the opposition will focus. One of the most evident is public unhappiness with the government’s handling of Mexico’s serious and persistent public security problems. In a recent poll by the respected Reforma newspaper, for example, 52% rated AMLO’s handling of organized crime as “bad”, and only 23% gave the president a good rating.

The widespread crime and poorly working justice system brings much violence to Mexican communities (with over 30,000 homicides annually in recent years and nearly 172,000 homicides since AMLO took office). This situation results in over 90% of impunity for most crimes.

This situation also has severely negative effects for the U.S. It facilitates massive smuggling of deadly drugs, such as fentanyl. The latest data suggests that drug overdose rates in the U.S. hit a new high of some 112,000 in 2023. The seizures of lethal synthetic fentanyl at the U.S.-Mexico border almost doubled from FY 22 to FY 23, and the fentanyl seized between FY 21 and FY 23 rose 241%. U.S.-Mexico anti-crime cooperation has improved recently but remains far less effective than is needed.

Thus, both Mexicans and Americans have a serious interest in the kind of crime and drug policies that Mexico’s new government will pursue. Several Republican politicians and candidates have already proposed using the U.S. military to go after drug cartels in Mexico, which could easily spark a crisis with a Mexican government seeking to defend its sovereignty.

Given the large flows of migrants crossing Mexico over the last year, the U.S. also has a very important interest in how good and willing a partner a new Mexican government will be in trying to tackle the very challenging cluster of issues involving the hundreds of thousands of migrants trying to enter the U.S. through Mexico. Both governments are struggling with how to manage migration, and polling shows that more Americans see this as a priority.

Of course, if a Trump administration were to emerge from the U.S. elections, we would likely see a much different and less cooperative U.S. approach to dealing with Mexico on migration as well as drug smuggling.

Crucially important is that across the same border, U.S.-Mexico trade averages $1.5 million a minute supporting millions of U.S. jobs, and trade has grown significantly since 2020. We cannot forget that despite all the problems Mexico has become the U.S.’s largest trading partner, with some 5 million U.S. jobs supported by that commerce.

U.S.-Mexico relations are so important to both countries that the governments will need to find a way to manage even very serious disagreements. The results of the elections, however, will make a big difference for good or for bad in managing the challenges.

Earl Anthony Wayne is currently teaching as a Distinguished Diplomat in Residence and Professorial Lecturer at American University’s School of International Service. He is a Public Policy Fellow at the Woodrow Wilson Center for International Scholars and Co-Chair of the Advisory Board of its Mexico Institute. Wayne is a former Assistant Secretary of State for Economic and Business Affairs, a former U.S. ambassador to Mexico and to Argentina and a former Deputy Ambassador in Afghanistan.

New wave of COVID-19 infections hits Mexico

By

MND Staff

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January 16, 2024

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Woman with a mask outside of a hospital in Mexico City — The increase in infections has led to hospital bed occupancy in some cities, but health authorities say it is not cause for alarm. (Cuartoscuro)

Four years after the start of the global COVID-19 pandemic, Mexico is once again facing a large wave of infections.

There were almost 200,000 active cases across the country on Jan. 11, according to an update from the National Epidemiological Surveillance System (Sinave).

Derived from information provided by more than 20,000 public health care clinics, the Sinave data shows that Mexico City had the highest number of active COVID cases with 21,425 on Jan. 11, followed by Baja California Sur with 15,466.

There were more than 8,000 active cases in Colima, San Luis Potosí, Tabasco and Querétaro, and upwards of 7,000 in Nuevo León.

Quintana Roo, Sonora and Aguascalientes rounded out the top 10 states for active COVID cases. Each of those states had more than 6,000 active cases on Jan. 11.

President Andrés Manuel López Obrador acknowledged on Tuesday that COVID case numbers have recently risen, but asserted that hospitals have not been overwhelmed by people requiring treatment for the disease.

White gloved hands inject a vaccine into someone's arm — Mexico’s population is 78% vaccinated against COVID-19, with 65% considered fully vaccinated with more than one dose. (Shutterstock)

“We have enough [hospital] beds. Yes, there are a lot of respiratory diseases at the moment — the flu and other kinds of illnesses that have to do with the climate, with the season,” he said.

“Fortunately, the situation isn’t critical, all patients are being attended to and there is space in the hospitals,” López Obrador said.

The federal Health Ministry said in a statement on Monday that just 5% of general care hospital beds set aside for COVID patients were occupied on Jan. 13, while only 1% of those with ventilators were in use.

It said that there was “a notable decline” in demand for medical care in comparison with previous COVID-19 waves. The decline, the ministry added, is the result of the national COVID-19 vaccination policy.

“Thanks to national vaccination, hospital occupation and [COVID-related] deaths remain at minimal levels,” the Health Ministry said.

According to The New York Times vaccinations tracker, 78% of the Mexican population has been vaccinated against COVID-19 and 65% are fully vaccinated. Authorities have been offering additional shots to some sectors of the population for the past three months, while doses of the Pfizer vaccine recently went on sale at some Mexican pharmacies.

Meanwhile, government data shows that the occupancy rate for general care COVID beds is 100% at seven hospitals — three in Oaxaca, two in Aguascalientes and one in each of Mexico City and Baja California — while five other hospitals have rates above 80%.

The Health Ministry acknowledged that some hospitals have recorded an increase in occupancy rates, but stressed that “this situation does not represent cause for alarm.”

“It’s the consequence of the change in the number of beds allocated for the care of COVID-19 patients,” it said, adding that hospitals can reconfigure their wards based on need.

COVID-19 took a heavy toll on Mexico in the initial years of the pandemic, with more than 330,000 deaths attributed to the disease.

Mexico’s COVID-19 mortality rate is the 32nd highest in the world, with just under 261 fatalities per 100,000 people, according to 2023 data compiled by John Hopkins University.

With reports from El Universal

Pro take: The US, Mexico and the USMCA in the 2024 elections

By

Mexico Institute/Wilson Center

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January 16, 2024

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Canada, U.S. and Mexico flags — The USMCA (US-Mexico-Canada Agreement) free trade pact will be an important topic in this year's elections both north and south of the border. (Depositphotos)

The 2024 presidential elections in the United States and Mexico represent a significant opportunity for regional collaboration, specifically in terms of trade and economic competitiveness.

In 2022, the value of trade between the three North American countries totaled well over US $1.7 trillion, and capital investment exceeded $219 billion. In the first half of 2023, Mexico received more than $30 billion in capital investment from the United States.

The outcomes of the election may constitute a continuation of the existing order or, perhaps, mark a turning point. Within a global dynamic of polarization and geopolitical reconfiguration, both countries will decide which direction to take for the coming years.

This is particularly important in terms of trade policy, specifically in the North American region, as it could substantially define the consolidation of this trading bloc as the most competitive and prosperous in the world for the following decades; or on the contrary, put at risk the commercial and economic stability of the region.

Of particular importance for the new administrations in terms of trade and regional relationships will be the USMCA (United States–Mexico–Canada Agreement), specifically its first review which will take place in July 2026.

The USMCA (formerly known as NAFTA, but renegotiated and implemented in 2020), has generated greater trade and investment certainty among the three countries, in addition to establishing mechanisms to resolve trade and labor disputes. This agreement will be subject to an in-depth review, which will undoubtedly open a complex negotiation process.

A challenge during the review process will be avoiding the contamination of the trade agreement with other issues and challenges that the region is facing. Conditioning concessions and trade agreements to commitments of another nature such as migration or security would generate an atmosphere of tension and incorporate additional factors that would make the negotiations even more complicated, with the danger of derailing the talks and putting at risk a future that today looks promising.

For this reason, it will be essential during the electoral campaigns to avoid narratives that attack and denigrate neighboring countries, but on the contrary, highlight constructive and cooperative proposals to strengthen the region and emphasize the importance of regional trade.

There are three key messages that the candidates should commit to in order to send positive messaging to the private sector. They are:

Upon the start of their respective administrations, begin promoting a meeting of the High-Level Economic Dialogue (HLED), which has been the institutional platform to establish an economic agenda between both countries.
Ensure the active participation of senior officials from both the United States and Mexico in the CEO Dialogue, to continue the work that has been done by the committees there and maintain the conversation with the private sector, so that the economic agenda can be jointly enriched, with special emphasis on the resilience of the supply chain in strategic sectors.
Last but not least, respect the rulings of the USMCA dispute settlement panels that are currently working.

The North American region has a great opportunity to consolidate itself as the most prosperous and competitive economic bloc on the planet. The conditions are in place, but politics could prove to be a substantial challenge.

This article was originally published by The Mexico Institute at the The Wilson Center.

Edgar Guillaumin Ireta holds a law degree from the Universidad Latina de América, and a PHD in Public Policies from Anáhuac University, Likewise, he has specialized studies at Stanford University and Harvard Business School. He has published and participated as a political analyst in various media outlets such as Expansión and CNN.

Mexico records net outflow of foreign capital in government securities since 2018

By

MND Staff

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January 15, 2024

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COVER-BANCO-BASE — The administration of President López Obrador will be the first to see these levels of capital flight in securities in 20 years. (Banco Base)

President Andrés Manuel López Obrador is set to conclude his six-year term as the first Mexican president in over 20 years to see a net outflow of foreign capital invested in government securities.

Citing data from the Mexican bank Banco Base, the newspaper Reforma reported Monday that a net total of just under 349.86 billion pesos (US $20.7 billion) in investments in government securities was taken out of the country between the commencement of the current federal government on Dec. 1, 2018 and the end of last year.

AMLO — Under President López Obrador, more than US $20 billion has left the country, with some experts blaming uncertainty about the president’s economic policies. (lopezobrador.org.mx)

Reforma described the accumulated capital flight as a “record” for a six-year period of government. During the 2012-18 government led by former president Enrique Peña Nieto, a net total of almost 666 billion pesos in foreign capital flowed into government securities.

Gabriela Siller, director of economic analysis at Banco Base, told Reforma that López Obrador, who will leave office Oct. 1, is on track to be the first president since Ernesto Zedillo (1994-2000) to record a net outflow of foreign money invested in government securities. A total of 68.97 billion pesos left Mexico when Zedillo was in office.

Siller said that the COVID-19 pandemic — which caused the Mexican economy to contract sharply in 2020 — was not the main cause of foreign investors’ withdrawal of money invested in government securities, noting that the capital flight began in early 2019 shortly after López Obrador took office. She concluded that uncertainty about economic policy in Mexico was the reason for the departure of funds early in López Obrador’s six-year term.

Siller also noted that a significant amount of foreign capital left Mexico last May, the month in which the federal government took over three sections of railroad operated by the rail company Ferrosur.

Ferrosur railway facilities occupied by Mexican military — A soldier watches over Ferrosur railway facilities that the government took over last year. The incident is believed to have triggered the departure of a significant amount of foreign capital. (Ángel Hernández/Cuartoscuro)

Citing data from the Bank of Mexico, Reforma said that just under 64.9 billion pesos invested in government securities left the country in May.

“There have been significant actions that generate fear and therefore [foreign investors] leave government securities,” Siller said.

She said that the wide difference between the Bank of Mexico’s benchmark interest rate — currently set at 11.25% — and that of the United States Federal Reserve (5.25%-5.5%) should bring more foreign capital into the country, but in the case of government securities that hasn’t been the case.

“It’s possible in 2024 that we’ll see a moderate inflow of capital [to government securities], but it won’t be enough to offset the net outflow recorded so far,” Siller said.

Claudia Sheinbaum, former mayor of Mexico City and Morena candidate for president in 2024. Siller believes that a Sheinbaum government would reduce the flight of capital from securities. (Cuartoscuro)

A large “wave” of foreign capital inflows is needed for this six-year term of government to end “in positive territory,” she said.

While she cited political uncertainty as a reason for the large exodus of foreign capital, Siller said that “fear” about the López Obrador administration has subsided.

She predicted that the flight of capital from government securities will decline during a government led by Claudia Sheinbaum. The former Mexico City mayor is the presidential candidate for the ruling Morena party and a heavy favorite to win the June 2 election.

At the end of 2023, foreign investors had 1.78 trillion pesos (US $105.4 billion) invested in Mexican government securities, according to the Bank of Mexico. The figure declined around 16% during the first five years of López Obrador’s term.

On a more positive note, foreign direct investment (FDI) has increased in recent years, and reached almost US $33 billion in the first nine months of 2023.

FDI is expected to continue rising in coming years as more and more foreign companies set up operations in Mexico to take advantage of proximity to the United States, affordable labor costs and other factors.

With reports from Reforma

Got 1 min? Benito the giraffe closer to rescue from Ciudad Juárez park

By

MND Staff

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January 15, 2024

1

GD6KtXuXUAA8log — Benito will be making the move from Ciudad Juárez to Puebla, after a court ordered the government to ensure the transfer takes place. (Salvemos a Benito/X)

Benito the giraffe, who has endured harsh living conditions in a city park in Ciudad Juárez, Chihuahua, will soon be on his way to Puebla’s Africam Safari wildlife conservation park, following a court order requiring his mandatory transfer.

The decision is the result of litigation initiated by the activist group Save Benito, against the Federal Environmental Protection Agency (Profepa) and Ciudad Juárez Central Park.

When he finally arrives in Puebla, Benito will make his new home at the Africam safari park, alongside a whole host of exotic animals. (Africam safari park/Facebook)

Since the 3-year-old giraffe arrived in Ciudad Juárez’s Parque Central in May, 2023, Benito has reportedly endured poor conditions, without shelter from the sun, or cold, rain and snow.

The judge gave Profepa and Central Park a minimum of 24 hours to report on the transfer, or face a fine of $10,374.00 pesos (US $615).

Earlier on Monday, Save Benito shared on the X social media platform that personnel from Africam Safari had arrived at Central Park to facilitate Benito’s transfer to Puebla, and that Profepa had officially notified Africam Safari of the decision to transfer Benito to its new home.

“I am very pleased to inform you that I have just had a call with the head of Profepa, Blanca Mendoza, who has confirmed that Puebla will be the new home of Benito the giraffe,” Sergio Salomón, Governor of Puebla, shared on X.

“We will be attentive at all times to the well-being of our new friend,” Salomón added.

It is not yet known when Benito will begin his journey to Puebla.

With reports from El Universal, Aristegui Noticias and Animal Político