Why judicial reform worries foreign investors

In Mexico, the outgoing president has just passed a judicial reform. A law that worries the population and foreign investors.

In Mexico, a constitutional reform has just been approved by the Senate. It makes the country the first in the world to appoint all its judges by popular vote, including those of the Supreme Court. Opponents of the text fear, among other things, that future magistrates will be vulnerable to pressure from organized crime and the government.

In recent weeks, several banks, including Morgan Stanley, have expressed their concerns. The same is true for foreign investors.

“The government could lose two very important years. The impression that the judiciary is not independent will limit investment,” said Luis de la Calle, director of a Mexican economic consulting firm.

Concretely, the fear is that judges will put political or personal considerations before respect for the law.

Analysts estimate that the government could miss out on billions of dollars because of the reform. The Mexican peso has been falling steadily, hitting a two-year low against the dollar last week.

US concerned about future trade relations

Washington deplores “a threat” to bilateral trade relations. Even as Mexico has supplanted China as the main trading partner of its northern neighbor.

The country has been able to take advantage of the rivalry between Beijing and Washington by establishing itself as an intermediary. Since the outbreak of the customs war between the two powers, China has notably accelerated its investments in Mexican industry.

Among the foreign companies that have decided to expand their activities in Mexico are the Taiwanese technology giant Foxconn, a subcontractor of Apple, the Danish toy giant Lego and Mattel.

Foreign investment there hit a record high last year ($36 billion). Mexico also saw the largest increase in its share of U.S. imports between 2016 and 2023.

Following Washington’s comments on the reform, in late August the Mexican government denounced “interference” and suspended relations with the US ambassador in Mexico.

New President Promises to Carry Out Reform

Claudia Sheinbaum shares her predecessor’s vision. They come from the same left-wing party (Morena). The country’s first female president, she is due to take office on October 1 and also wants to continue Andrés Manuel Lopez Obrador’s interventionist policies to support the Mexican economy.

The financial situation of the State remains delicate. Growth, which was 3.3% in 2023, should be around 2.4% this year. Inflation is persistent, like the popular protest that is not running out of steam. Critics of the text are still demonstrating despite the vote on the law. On Tuesday, dozens of them managed to cross the security barriers and enter the chamber, forcing the Senate to relocate for the rest of the debates.

Andrés Manuel Lopez Obrador, who is in the process of consolidating his legacy, defends his reform. He believes that it will help fight corruption. According to NGOs, in Mexico, 90% of crimes go unpunished.