The bank points out that Morena has been losing competitiveness, which is why it considered that this political body could win 6 governorships.
MÈXICO, May 21, 2021, (FORBES).- Three weeks before the June 6 elections, Citibanamex (National Bank of Mèxico), considered that if Morena and his allies win the qualified majority (334 seats, which are necessary for constitutional reforms) in the Chamber of Representatives, there could be a depreciation of the Mexican peso.
“We could see abrupt adjustments in local markets if Morena controls the Chamber of Representatives (…) A significant depreciation of the peso could be seen in the short-term given the situation, it’s not pessimism but local investors could sell Mexican assets for fear of a gradual macroeconomic and institutional deterioration”, ponders a study by the bank.
Citibabanamex adds: “Before turning very negative towards Mexico, we think that foreign investors would need to see signs of abandonment of fiscal prudence or a sustained radicalization of AMLO, with an evident loss of checks and balances. In the end, we think that most of the reaction will ultimately depend on the external environment. “
In the document titled Navigating the midterm elections of 2021: Is there a financial strategy against the midterms? It is emphasized that the worst scenario for Mexico is where the world front is unstable, the Federal Reserve raises rates earlier than the market expects and investors move away from emerging markets.
“In this environment, local investors, who could react more strongly to fears of a radical administration, possibly add to the negativity in the event of an unfavorable electoral result,” the document indicates.
Citibanamex commented that President Andrés Manuel López Obrador and Morena have been radicalized, as it recalls that since November 2020, the federal president and his political party have presented in the Congress of the Union a series of controversial reforms “that raised strong reactions in the private sector, analysts and the international community ”.
He recalled that the reforms promoted by Morena were the Bank of Mexico Law, which obliges the central bank to buy “surplus” cash in US dollars in the local financial system; the elimination of the subcontracting regime from labor laws; the revocation of the energy reforms in electricity and hydrocarbons approved in 2013, and that of the Judiciary.
“In our opinion, several of the proposed changes reveal a more radical position in the Executive’s determination to transform the prospects for the country. Not only do they challenge the economic and institutional status quo, but they also endanger core elements of Mexico’s democratic transition and macro-financial stability, ” the study noted.
The bank mentions that Morena has been losing competitiveness since polls on the governor’s race show that the party’s advantage has been gradually but consistently reduced, so Citibanamex considered that this political body wins six states and not nine as indicated before.
As for the Chamber of Representatives, the banking group maintains its forecast that the Morenista coalition could go from its current 66% of seats to between 53 and 56% ; that is, only have a simple majority, which is used to approve reforms to secondary laws, but not to constitutional changes.