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Natixis Says Not Clear Whether Fiscal Anchor At Risk

MEXICO
  • Natixis believe the political risk premium in Mexican asset prices, especially USDMXN, will remain high but will not explode as long as AMLO and Sheinbaum convey a sense of pragmatism.
  • In their opinion, democratic institutions are likely to be eroded, and property and investment rights in the energy sector could also be adversely affected. However, it is not clear that central bank independence and the fiscal anchor are at risk in the short term.
  • Going forward, the political risk premium will increase if President AMLO passes his 20-point agenda, which includes weakening the INE, eliminating independent regulators and taking control of the Supreme Court, and approving anti-market constitutional changes in the electricity sector.
  • However, the risk premium will compress and the MXN will rally if AMLO does not use his new supermajority in Congress to pass new constitutional changes, and if President-elect Claudia Sheinbaum appoints a pragmatic cabinet, appoints qualified members to Banxico's board, announces a tax reform to increase tax revenues, and opts for a drastic reduction in the budget deficit in 2025.
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