Why AMLO’s Judicial Reform Is Scaring Investors – BNN Bloomberg

(Bloomberg) — Outgoing President Andrés Manuel Lopez Obrador is once again shaking up Mexico’s political landscape by pushing through a controversial reform that would dramatically overhaul the country’s judiciary.

Foreign governments, a weakened opposition party and local and international companies operating in Mexico have spoken out against the proposed reform, warning of threats to democracy and even the infiltration of drug cartels into the courts.

AMLO, as the president is known, is set to step down on October 1. His party, Morena, narrowly missed winning a supermajority in both houses of Congress in the June 2 elections, but was close enough that it had little need to compromise with the opposition. President-elect Claudia Sheinbaum, AMLO’s protégé, has backed the reform.

1. Why are critics unhappy with the judicial reform?

AMLO wants all judges, including those of the Supreme Court, to be elected by popular vote, something few other countries do. He has also proposed shortening judges’ terms, capping their salaries and creating a judicial disciplinary body whose members would also be elected by popular vote.

The reform lowers the requirements for judges, making it possible for someone with a law degree but little experience beyond that to be elected as a judge.

There are also concerns that the reform could open the door for cartels to influence the justice system by running their own candidates in elections or by pressuring inexperienced judges. Given Morena’s popularity and the likelihood that her candidates will win many judicial elections, critics worry that the changes could remove a check on the power of the dominant party.

2. Who is against it?

Some of Mexico’s largest trading partners. U.S. Ambassador to Mexico Ken Salazar said the proposal would weaken the country’s rule of law and in turn drive away investors who need certainty. He also cited concerns about cartel influence and corruption. Mexico needs capable judges to handle complex cases involving extradition and commercial disputes, he said.

His Canadian counterpart said he has heard from investors who worry that the reform could undermine their confidence in the Mexican government.

Global Companies in Mexico, a group that includes Nestle SA, AT&T Inc. and MetLife Inc., said the bill being discussed by authorities could discourage investment. The group urged the government to amend the bill to ensure the independence of the judiciary and to ensure it complies with international trade rules. The group is made up of more than 60 companies whose activities account for 10% of Mexico’s GDP, according to its website.

Justice system workers have also protested the measure. During a nationwide strike on August 20, workers said the reform has “serious consequences” for the independence of the judiciary and Mexican democracy.

3. How has the market reacted?

The Mexican peso fell as much as 10% against the dollar immediately after the election as markets digested news of Morena’s victory. It remains one of the worst-performing currencies this year, with fears about the reform compounded by the unwinding of a popular trade with the Japanese yen. Traders may see the reform as a way to undermine the limits of Morena’s power.

Morgan Stanley downgraded Mexican stocks to underweight after the bill was sent to Congress. Citigroup recommended closing peso overweight positions on both yen gains and reform progress.

Fitch Ratings reported in July that the reform could have a negative impact on the investment appetite and business climate of non-financial companies.

4. Has the next president spoken out yet?

Sheinbaum has tried to ease concerns about the reform. He said that electing judges does not mean they are aligned with the president. He said the main goal of the changes is to end longstanding corruption in the judiciary.

Sheinbaum has also denied that the vote will result in the election of biased and unqualified judges, saying that various expert committees will evaluate the suitability of the candidates before the popular vote takes place. The president will not appoint Supreme Court justices, which will ensure the autonomy of the judicial system, she added.

She also said that investors should not worry about the reform because it will give Mexico a better justice system. “Those who know the judiciary, including investors, know about the corruption there,” she said.

5. Will Congress easily pass this reform?

Because the reform seeks to change the constitution, it requires a two-thirds majority in both houses of Congress to pass. The ruling Morena party and its allies won a supermajority in the lower house in the June vote and fell just two seats short of winning two-thirds of the Senate, according to the country’s electoral institute.

However, opposition parties have disputed the figures, saying they overrepresent Morena and her allies. The electoral tribunal will have the final say. The most likely outcome is that the governing coalition will retain its supermajority in the lower house and come close to winning it in the Senate as well.

Lawmakers in the ruling coalition are confident they will get the votes they need, “and much more,” to approve the reform, said lawmaker Juan Ramiro Robledo Ruiz, head of the lower house’s constitutional committee. His group must approve the reform before it goes to both houses of Congress in September.

6. What important dates do you need to remember?

On August 26, the lower house’s Constitution Committee will discuss and likely approve the final version of the judicial reform bill, after lawmakers made more than 100 amendments that were raised in various public forums.

On September 1, the new Congress will be installed and the lower house can decide which of AMLO’s constitutional reform proposals will be discussed first. Reform of the judiciary will certainly be a priority and could be discussed in the lower house as early as September 2.

7. What other major reforms are proposed?

In addition to the judicial reform, AMLO’s other proposals are worrying investors. One seeks to eliminate autonomous regulatory bodies, such as the antitrust regulator and the transparency institute. An energy law plans to reduce the role of private companies in the energy sector in favor of increasing the power of the state agency Comisión Federal de Electricidad.