(Bloomberg) -- Outgoing President Andres Manuel Lopez Obrador is upending the Mexican political landscape one more time, pushing to pass a controversial reform that would deeply transform the country’s judiciary.
Foreign governments, a weakened opposition party as well as local and international companies operating in Mexico have come out against the proposed reform, warning of threats to democracy and even drug cartels infiltrating the courts.
AMLO, as the president is known, leaves office Oct. 1. His party, Morena, fell just short of winning a supermajority in both houses of Congress in the June 2 election, but was close enough that there’s little need to compromise with the opposition. President-elect Claudia Sheinbaum, AMLO’s protégé, has backed the reform.
1. Why don’t critics like the judicial reform?
AMLO wants all judges, including those on the Supreme Court, to be elected by popular vote, something few other countries do. He has also proposed reducing judge’s terms, capping their salaries and creating a judiciary disciplinary body whose members would also be elected by popular vote.
The reform lowers the requirements for judges, making it possible for someone with a law degree but little experience beyond that to be elected judge.
There are also fears that the reform will open the door for cartels to influence the judicial system by placing their own candidates for election, or by pressuring inexperienced judges. Given Morena’s popularity and the likelihood its candidates will win many elections for judgeships, critics worry that the changes would eliminate a check on the dominant party’s power.
2. Who has come out against it?
Some of Mexico’s biggest trade partners. US Ambassador to Mexico Ken Salazar said the proposal would weaken the country’s rule of law and in turn drive away investors who need certainty. He also cited concerns about cartel influence and corruption. Mexico needs capable judges to deal with complex litigation surrounding extraditions and commercial disputes, he said.
His Canadian counterpart said he’s heard from investors who worry the reform could hurt their trust in the Mexican government.
Global Companies in Mexico, a group that includes Nestle SA, AT&T Inc. and MetLife Inc. among many others, said the bill being discussed by authorities could discourage investment. The group urged the government to amend the bill so it guarantees judicial independence and adheres to international trade regulations. The group is composed of more than 60 companies whose activities represent 10% of Mexico’s GDP, according to its website.
Employees of the court system have also rallied against the measure. During a nationwide strike on Aug. 20, workers said the reform has “serious implications” for the judiciary’s independence and Mexican democracy.
3. How has the market reacted?
The Mexican peso depreciated as much as 10% against the dollar right after the election as the market digested the news of Morena’s win. It remains among the worst-performing currencies this year, with anxiety over the reform compounded by the unwinding of a popular trade involving the Japanese yen. Traders see the reform potentially eroding limits on Morena’s power.
Morgan Stanley downgraded Mexican stocks to underweight after the proposal was sent to Congress. Citigroup recommended closing peso overweight positions due to both yen gains and the reform’s advance.
In July, Fitch Ratings said the reform could negatively affect the investment appetite and business environment of non-financial companies.
4. Has the next president weighed in?
Sheinbaum has tried to calm concerns about the reform, saying that the election of judges won’t mean that they will be aligned with the president, and that the main objective of the changes is to end long-standing corruption in the judiciary.
Sheinbaum has also denied that the vote will lead to the election of partisan and unqualified judges, and has said that various expert committees will evaluate the suitability of the candidates before the popular vote takes place. The president won’t appoint Supreme Court judges, which will guarantee the autonomy of the judicial system, she added.
She has also said investors shouldn’t be concerned about the reform because it will allow Mexico to have a better justice system. “Those who know the judiciary, including investors, know about the corruption there,” she said.
5. Will Congress easily pass this reform?
Since the reform seeks to change the constitution, it requires a two-thirds majority in both houses of Congress to be approved. The ruling Morena party and its allies won supermajority control of the lower house in the June vote, and fell just two seats shy of also winning two-thirds of the Senate, according to the country’s electoral institute.
However, opposition parties have challenged the numbers, saying they over represent Morena and its allies. The electoral court will have the final word. The most likely outcome is that the ruling coalition will maintain its supermajority in the lower house and will come close to having it in the Senate too.
Lawmakers from the government coalition are confident they will get the votes they need, “and many more,” to approve the reform, said lawmaker Juan Ramiro Robledo Ruiz, head of the lower house constitution committee. His group must approve the reform before it goes to both houses of Congress in September.
6. What are some key dates to remember?
On Aug. 26, the lower house’s constitution committee will discuss, and most likely approve, the final draft of the judicial reform proposal, after lawmakers added more than 100 changes that arose in several public forums.
On Sept. 1, the new Congress will be installed, and the lower house may decide which of AMLO’s constitutional reform proposals will be discussed first. The judicial reform will surely be a priority and could be discussed in the lower house as soon as Sept. 2.
7. What other key reforms are being proposed?
In addition to the judicial reform, there are other proposals presented by AMLO that have worried investors. There’s one seeking to eliminate autonomous regulatory bodies, such as the antitrust regulator and the transparency institute. An energy bill plans to diminish the role of private companies in the energy sector in favor of increasing the power of state agency Comisión Federal de Electricidad.
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