• The composition of the Chamber of Deputies of the new Congress will challenge President Andrés Manuel López Obrador’s ability to enact constitutional changes and consolidate the agenda of his party, Morena.
  • Companies should watch the coming budget battle in Congress because of its implications for the economy overall and for tax collection.
  • Prospects for a major tax reform that López Obrador was considering earlier this year seem to be dimming, leaving the government with few options other than closing loopholes and increasing tax pressure on existing payers to meet the government’s social spending goals. 

López Obrador’s Government Passes the Halfway Mark

This week Mexico’s Congress for the next three years and the second half of the López Obrador administration began.  June’s midterm elections reflected the country’s political plurality, a strong and efficient electoral system –in spite of high political polarization, Covid-19 and the presence of organized crime– and the natural weakening of the incumbent government and its party.

President López Obrador’s party, Morena, and its allies lost 52  seats in the Chamber of Deputies, and now have 278  out of the Chamber’s 500 seats.  There were no races for the Senate, which renews only every six years, and where Morena and its allies hold a simple majority (75 out of 128 seats).  The governing coalition took 11 governorships and now controls 16 of the country’s 31.  It also will have an absolute majority (50%+1) in 18 state legislatures.  With this outcome, López Obrador and his allies came short of the supermajority needed in both Houses of Congress, as well as a majority of state legislatures, to pass constitutional reforms.  The general perception is that López Obrador, although remaining popular and with high approval ratings (57%), lost ground in June’s election and can be defeated.

What is at Stake

At the outset of his administration, López Obrador outlined an ambitious reform program.  He has attempted profound changes on several policy fronts, including energy, the judiciary, public health, and pensions, among others.  Several of these changes have been challenged in the courts or were blocked by the political opposition.  However, the President has made clear his intent to continue pressing on with his agenda, including a comprehensive electoral reform that is widely believed to be designed to favor his party.  His prospects, however, are limited by Morena and its allies lacking a congressional supermajority for constitutional changes, and by the fact that they hold a smaller legislative bloc than in the past, even for “must move forward” ordinary legislation like the budget.

What to Watch

Political maneuvering will start early in the first congressional period (September 1 to December 15) given the present context and that time is not in favor of the President (who is prohibited by law to run for reelection).

  • During the past Congress, the President was able to maintain strong party discipline. This will become harder as the administration’s end nears and the race for the 2024 presidential election picks up.  The President has already named a list of potential Morena candidates for 2024.
  • One of the first fights that will take place in Congress will be over the distribution of committee chairmanships. The result will help gauge the Morena’s capacity to control the legislative process.
  • The government will submit the Budget and Revenue Law on September 8. Most analysts expect a fierce legislative battle.  The opposition will try to limit funds for the President’s main programs and projects.  With respect to taxes, the government must find additional revenue to cover expenditures, but prospects for a major tax reform or an expansion of the tax base seem to be dimming.  Given the President’s recent pledge of “no new taxes”, which appeared to be driven by both political calculations and concerns over lagging growth and investment, Morena seems more likely to move to close tax loopholes and harden collection measures and audits for current taxpayers.
  • Early on, Congress is expected to take on legislation to regulate next year’s the referendum on whether the President should continue or not his mandate, something he has set at the center of his direct democracy agenda, though it has been widely interpreted as a strategy to galvanize his base more than anything else. Similarly, the President announced that he will push for a comprehensive electoral reform which would, among other things, renew all members of the National Electoral Institute and the Electoral Court. These two issues are likely to contribute to the current polarized environment and keep legislators busy throughout the next couple of months.

 

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Photo of Kimberly Breier Kimberly Breier

Kimberly Breier has more than 20 years of experience in foreign policy, primarily focused on Western Hemisphere affairs. Prior to joining the firm, Ms. Breier, a non-lawyer, was Assistant Secretary in the Bureau of Western Hemisphere Affairs at the U.S. Department of State.

Kimberly Breier has more than 20 years of experience in foreign policy, primarily focused on Western Hemisphere affairs. Prior to joining the firm, Ms. Breier, a non-lawyer, was Assistant Secretary in the Bureau of Western Hemisphere Affairs at the U.S. Department of State. She also served as the Western Hemisphere Member of the Policy Planning Staff.

Ms. Breier was previously the founder and Director of the U.S.-Mexico Futures Initiative, and the Deputy Director of the Americas Program at the Center for Strategic and International Studies (CSIS). She also was Vice President of a consulting firm, leading country risk assessment teams for private clients in Mexico, Argentina, and Chile.

In addition to her private sector and think tank experience, Ms. Breier served for more than a decade in the U.S. intelligence community as a political analyst and manager, primarily focused on Latin America.

From January 2005 to June 2006, Ms. Breier served at the White House in the National Security Council’s Office of Western Hemisphere Affairs, first as Director for Brazil and the Southern Cone, then as Director for Mexico and Canada, and also as an interim Director for the Andean region.

Prior to her government service, Ms. Breier was a senior fellow and director of the National Policy Association’s North American Committee—a trilateral business and labor committee with members from the United States, Canada, and Mexico.

Photo of Gerónimo Gutiérrez Fernández Gerónimo Gutiérrez Fernández

Gerónimo Gutiérrez Fernández, is a senior advisor at the firm. He provides strategic advice to businesses and governments on political risk, public affairs, communications, and business development. Gerónimo, a non-lawyer, has over 20 years of experience in senior government positions under five Mexican…

Gerónimo Gutiérrez Fernández, is a senior advisor at the firm. He provides strategic advice to businesses and governments on political risk, public affairs, communications, and business development. Gerónimo, a non-lawyer, has over 20 years of experience in senior government positions under five Mexican presidents in the areas of finance, trade, national security and diplomacy. Most recently, he served as Mexico’s Ambassador to the United States. In that position, he played a prominent role in the negotiation of the United States, Mexico and Canada Agreement (USMCA).

He previously served as Managing Director of the North American Development Bank (NADB), Deputy Secretary for Governance and Homeland Security, member of the National Security Council’s Executive Committee and, in the Foreign Ministry, as Under Secretary for Latin America and the Caribbean and Under Secretary for North America. In the latter capacity, he coordinated day-to-day trilateral and bilateral affairs with the United States and Canada. He also led negotiations for the creation of the Security and Prosperity Partnership for North America (SPP) – prelude to the present day North American Leaders Summit.

Gerónimo has also held other Mexican federal government positions in the Ministries of Economy and Treasury, the Office of the President, and Banobras.

Lorena Montes de Oca

Lorena Montes de Oca is a policy advisor in Covington’s Public Policy Practice-Latin America through which she provides strategic advisory and regulatory advice to clients doing business across Latin America.

Lorena, a non-lawyer, has over a decade of experience in public policy and…

Lorena Montes de Oca is a policy advisor in Covington’s Public Policy Practice-Latin America through which she provides strategic advisory and regulatory advice to clients doing business across Latin America.

Lorena, a non-lawyer, has over a decade of experience in public policy and international trade. During this time, she has supported private sector companies and policymakers on a broad range of sectors such as energy, trade and investment, technology, policymaking and economic development.

In addition, Lorena has particular experience in supporting companies with complex cross border projects between the U.S. and Mexico.