Summer’s near, but no vacation in sight.

Memorial Day is now behind us and summer just around the corner. The long holiday weekend left Congress with just a few days to take action on the debt limit in order to avoid a catastrophic US government default. This week, President Biden and Republican leadership reached a deal to suspend the debt ceiling, which contains compromises for both political partiesThe House of Representatives passed the bill Wednesday evening and the Senate  did so late last night. The bill now heads to the President’s desk for signature. 

With the stated purpose of restoring peace in Ukraine and upholding the free and open international order based on rule of law, this year’s Group of Seven Summit convened less than two weeks ago in Japan. Top of mind for G7 leaders were the ongoing Russian invasion of UkraineChina’s aggressive economic tactics, and the aftermath of the COVID-19 pandemic.

Of note at the Summit, G7 leaders stressed the need to “de-risk” from China––instead of more extreme “decoupling” measures—in order to decrease supply-chain dependency and boost economic resiliency. Leaders also agreed to step up sanctions against Russia and provide more military aid for Ukraine. This week, the BRIC group of emerging markets also met, with a focus on expanding their influence and challenging the US.

In our own hemisphere, Mexico’s President Andrés Manuel López Obrador continues to unsettle investors by taking steps to concentrate power in the executive and undermine rule of law. Further south, Brazilian President Luiz Inácio Lula da Silva’s embrace of Venezuela’s autocratic leader Nicolas Maduro at a recent South American summit raised concern that there is no longer region-wide consensus on what constitutes a democracy.

On May 19th, López Obrador deployed the Navy to seize 75 miles of railway in southern Mexico. The railway ––operated by Grupo Mexico via governmental concession-– is seen as critical to López Obrador’s Inter-Oceanic Corridor project that aims to connect Mexico’s Pacific and Gulf coasts.  The Mexican president defended the action as motivated by “national security and public interest” and temporary. Over the past few days, it appears that the government and Grupo Mexico reached an agreement over the use of the railroad tracks

In March, López Obrador sent a series of bills to Congress to reform administrativemining, and environmental laws. This legislation gives broad, and at times seemingly arbitrary authority to the executive, narrowing private investor rights in key sectors. The mining overhaul—which became law in early May—will establish a public bidding mechanism for mining concessions, reduce their maximum term, and impose new environmental safeguards. And Mexico’s legislative bodies will debate the president’s administrative reforms in its fall session. 

López Obrador’s latest moves have been broadly criticized as an overstep of executive power and damaging to market confidence. Investors are increasingly concerned by these aggressive measures in the lead up to Mexico’s June gubernatorial elections and 2024 presidential elections.  

Mexico’s judiciary has taken action to keep the executive branch in conformity with the country’s constitution. Last week, the Mexican Supreme Court struck down a presidential decree, which declared that the controversial Mayan Train and Inter-Oceanic Corridor transportation projects were a matter of national security. This designation would have allowed the Mexican government to keep aspects of the project secret and prevent legal challenges from critics such as environmental groups. Earlier in the spring, the court also ruled that López Obrador’s measures to reform the country’s electoral system were unconstitutional.

Last Sunday, protestors took to the streets across the country in defense of Mexico’s Supreme Court. In a press briefing earlier this week, López Obrador claimed that the judicial branch is launching a “technical coup d’état” against his administration’s agenda. As you might imagine, commentators across the country have expressed alarm at the president’s “authoritarian populism” and potential democratic backsliding.  

On immigration, May 11th brought an end to the controversial Title 42 policy, a public health measure in place since March 2020 that allowed US border authorities to rapidly expel migrants in over 2 million cases. Despite predictions of chaos and a drastic increase in crossings, border apprehensions have been down 70 percent since May 11th. In Title 42’s place, the Biden administration implemented a new regulation that restricts asylum eligibility for migrants, and in recent weeks Mexican authorities stepped up enforcement to stop US-bound migrants.  

Combatting fentanyl remains a top priority on the Biden administration’s bilateral agenda. Earlier this week, the US Treasury Department imposed sanctions on individuals and entities based in China and Mexico for facilitating fentanyl trafficking. This move came after the administration’s announcement in April of a strengthened approach to combat the drug’s supply chains

Geopolitical considerations–– including Mexico’s cooperation––continue to present obstacles in US efforts to halt the fentanyl epidemicThe US recently charged 28 members of the Sinaloa Cartel, which has built a global fentanyl smuggling network. López Obrador criticized the US investigation of the cartel for “abusive, arrogant interference”, and in the face of continued violence, the Mexican president recently said he would support a peace agreement with the cartels to stop the bloodshed.

On the trade front, it appears that the US-Mexico-Canada agreement (USMCA) consultations over Mexico’s energy policy may be on hold for the moment. Following a trilateral meeting in Washington DC, Canada’s trade minister said that Mexico was making progress to address concerns and a dispute panel wasn’t necessary for now; the Office of the US Trade Representative appears to be taking a similar position. 

This Sunday, Mexican voters will head to the polls to elect the governors of Coahuila and the State of Mexico. One year ahead of Mexico’s 2024 presidential elections, López Obrador’s MORENA party is poised to increase its reach in Mexico’s 32 states, where it currently holds 22 governorships. Polls indicate that MORENA will win in the county’s most populous State of Mexico––where for the first time both candidates are women–– and an opposition party PRI will retain power in the border state, Coahuila. 

Regardless of the outcome, MORENA is already well positioned going into the 2024 presidential elections. Since taking office in 2018, López Obrador’s personal approval rating has hovered at 60 percent. The lead MORENA contenders include close allies of the president: Mexico City Mayor Claudia SheinbaumForeign Affairs Minister Marcelo Ebrard, and Minister of the Interior Adán Augusto López Hernández, widely seen as the election’s dark horse

Here at White & Case Mexico City, we continue to monitor the latest developments in-country to provide the very best service to our clients. Lastly, you might be interested in the firm’s World in Transition series  of virtual conversations that focus on key changes impacting companies and markets. 

I hope you’ll stay in touch over the summer and I encourage you to reach out via FacebookTwitter, or LinkedIn


Antonio Garza