Mexico's Weight Falls as Sheinbaum Advocates Judicial Reform - Latest Global News

Mexico’s Weight Falls as Sheinbaum Advocates Judicial Reform

(Bloomberg) — The Mexican peso fell after President-elect Claudia Sheinbaum said a proposed reform of the country’s justice system would be among the first issues discussed in Congress, unnerving investors who fear it could lead to an erosion of the ruling party’s control.

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A constitutional reform of the justice system will be part of a series of legislative projects left over from President Andres Manuel Lopez Obrador’s administration that she plans to push forward during the political transition, Sheinbaum said after a meeting with the outgoing president. She added that she would propose that the programs be widely discussed not only in Congress but also by academics and civil society groups.

“There should be a broad discussion in the months before the new Congress is inaugurated,” Sheinbaum said during a press conference late Monday, adding that she wanted the controversial judicial reform to be discussed by “bar associations, law schools, judges and judicial staff.”

Following her comments, the currency fell as much as 1.8 percent to $18.58 in early Asian trading, the biggest move among emerging market currencies as liquidity remains tight.

The peso has fallen more than 8 percent after the ruling coalition performed better than expected in congressional elections, heightening investor fears that lawmakers could pass reforms that undermine checks on power. The judicial reform would bring popularly elected judges to the Supreme Court and other lower courts in the country, potentially changing the balance of power in Mexico.

Other reforms that will be included in a first wave of bills, according to Sheinbaum, include a reform of the ISSSTE pension plan for public employees and a ban on re-election to public office. Lopez Obrador agreed with the proposal for a discussion process involving a broad segment of the Mexican public, she added.

“The market was hoping she would distance herself from President Lopez Obrador because her mandate could potentially be seen as an extension of his six-year term,” said Gabriela Siller, an economist at Mexico’s Banco Base. The peso could rise to 20 to the dollar amid fears that reforms would upset the country’s business climate, she added.

Rather than reducing the number of reforms, Sheinbaum added new ones — an assistance program for women and one to support schoolchildren — and insisted they would be among the top priorities. Other reforms that had raised concerns among investors, such as one that would eliminate some independent regulators, would be discussed at a later date, Sheinbaum said.

Sheinbaum spoke from the podium at the National Palace in Mexico City, where Lopez Obrador normally holds his hour-long daily press conferences. The outgoing president did not attend the press conference, and the incoming president did not confirm whether she will continue his tradition of morning press conferences after taking office.

She added that she will name her cabinet next week. She also said she plans to host a U.S. delegation at her campaign headquarters on Tuesday and that she is not currently planning a trip to Mexico’s northern neighbor.

Priority reforms

Another point of contention among investors is whether the new Congress, which begins its term on Sept. 1, will rush through the reforms before Sheinbaum takes office as president on Oct. 1. She said the goal is for discussion on key reforms to begin as early as September, but did not clarify when they might be voted on.

Asked whether authorities were concerned about the currency’s volatility, Sheinbaum said she did not expect the reform discussion process to lead to additional volatility.

Sheinbaum added that she will soon discuss the 2025 plan with Finance Minister Rogelio Ramirez de la O, who will remain in office at the start of her term.

To allay investors’ concerns, Senate Majority Leader Ricardo Monreal said on Monday that the ruling party would keep an eye on the markets during discussions on constitutional reform.

“If this rhetoric continues, the peso will most likely remain volatile in the short term,” said Miguel Iturribarria, strategist at BBVA Mexico. “We could see an increase in the risk premium, not only for the peso but also for other local assets.”

– With assistance from Matthew Burgess.

(Updated with additional comments from Sheinbaum)

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