Economics: Reform proposals will not pass in the current Congress but form the key piece of a longer-term political plan by AMLO
As analyzed in last week's Political Outlook, on February 5 President López Obrador unveiled a package of 18 constitutional and two legal reform proposals, ostensibly with the intention of having them discussed and approved in Congress. But as there is no possibility of these initiatives being passed by the current legislature in the terms proposed, their real objective is to impose political costs on the opposition. They are being deployed as part of an electoral campaign narrative by the President himself (going around the law that expressly prohibits him from "campaigning" during the coming months) while also aiming to impose the priorities of the legislative agenda on the next presidential administration.
Some of these initiatives, if approved, would come with considerable fiscal costs and significantly damage public finances for the coming years while others would act as a drag on economic growth by adversely affecting competitiveness, legal certainty and discouraging investments, with all that entails in terms of a profound negative effect on the performance of markets and thus, on end consumers. The first group includes reforms related to the pension system, the senior citizens program and wages (the minimum wage and those of public employees), while the second group includes the elimination of some autonomous agencies, the refusal to grant new water concessions other than for domestic use, the prohibition of open-pit mining and fracking, the prohibition of the use of transgenic corn and the use of 18,000 km of railroad tracks for passenger trains.
This week’s Economic Outlook analyzes some of the reforms that in our opinion would have the greatest economic costs, both in fiscal terms and in terms of economic growth.
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