MEXICO CITY (Reuters) – Claudia Sheinbaum will make history on Tuesday when she is sworn in as Mexico’s first woman president, while inheriting challenges to quell violence from organized crime and reduce a hefty deficit in Latin America’s No. 2 economy.
Sheinbaum, the 62-year-old scientist and former mayor of Mexico City, will be inaugurated at a ceremony in Mexico’s Congress for a six-year term lasting until 2030.
Political watchers and analysts predict she will urgently look to calm investors since the passing of a controversial judicial reform pushed by outgoing President Andres Manuel Lopez Obrador.
Markets will be looking to Sheinbaum for “a predictable and investment-friendly policy and regulatory framework,” said Alberto Ramos, head of Goldman Sachs Latin American economic research.
“Disciplined management of the budget and of state-owned enterprises, progress on public security, and safe-guarding the integrity of key institutions will be key to preserving market sentiment and sovereign debt ratings,” Ramos said, emphasizing the importance of state energy firm Petroleos Mexicanos (Pemex).
The November presidential elections in the United States, Mexico’s largest trading partner, could add to market volatility, especially if former President Donald Trump, who has vowed to increase tariffs on Mexican goods, wins.
Sheinbaum’s government will also present its first budget before Nov. 15, which is expected to be highly scrutinized for clues on whether Sheinbaum will make good on commitments to reduce the fiscal deficit to 3.5% of gross domestic product from 5.9%, where it is predicted to close the year.
CONTINUITY WITH CHANGE?
Lopez Obrador, whose six-year term began in 2018, managed to double Mexico’s minimum wage, reduce poverty and unemployment, broaden the base of social programs and oversee a previous strengthening of the peso. Touting these successes boosted his popularity and helped usher Sheinbaum, his protégé, to a landslide victory in the June elections.
Sheinbaum, however, who has promised “continuity with change,” will inherit the largest budget deficit since the 1980s and lagging economic growth.
Experts have said Mexico’s economy will require a tax reform to increase revenues, though Sheinbaum has said publicly she does not plan a sweeping tax overhaul.
Instead, she has said she will pursue other options, including improving the efficiency of tax collection at customs.
Sheinbaum “will have to deliver an important fiscal consolidation if she wants to keep the positive view that markets have today towards her,” said Bernardo Keiserman, an economist at investment bank Bradesco BBI.
“We believe the government is committed to an adjustment, but delivering one sizable enough is not going to be an easy feat. The economy is weaker and likely weakening further,” Keiserman said.
Recently, the central bank cut its GDP growth forecast for this year to 1.5% from the previous 2.4% and lowered its estimate for 2025 to 1.2%.
The incoming administration will also inherit a heavy financial burden from state-owned Pemex, one of the most indebted oil companies in the world.
Nearshoring, the trend of companies moving production closer to their main market, has helped Mexico attract investment, but Sheinbaum will face a challenge to increase foreign direct investment while implementing the controversial judicial reform passed in the dying days of Lopez Obrador’s presidency. The judicial reform, under which judges will be elected by popular vote, has scared investors and drawn criticism from the U.S. ambassador to Mexico who said it threatened the rule of law.
Source: Economy - investing.com
