“We have downgraded Mexico’s rating to UW following the executive branch’s judicial reform proposal to Congress. We believe that replacing the judicial system would increase Mexico’s risk premiums and limit capital spending. This is problematic, as nearshoring is already reaching bottlenecks,” Morgan Stanley said in a report.
President Andrés Manuel López Obrador’s judicial reform proposal seeks to completely remove the Supreme Court of Justice of the Nation (SCJN) so that new justices can be elected at the polls next year; in addition, judges and magistrates will be relieved in a staggered and gradual manner: half in 2025 and a raffle will decide whether their position will be put to the polls or not.
This situation will cause delays in the resolution of lawsuits while the new system is being implemented, and inexperienced or unfamiliar people may be able to make decisions on energy or telecommunications matters, according to specialists from Mexico Evalúa.
Warnings about the economy and foreign investment
“If we look at the economic field, we see certain effects that could jeopardize the primary sources of employment for Mexicans, the main drivers of economic growth, the generation of foreign currency, and of course the stability of the system in order to attract investments, to be able to generate a vision of growth and attraction of talent, and retention of investments,” explained Ana Lilia Moreno, coordinator of the Regulation and Competition Program of México Evalúa.
With the approval of the reform, all types of trials, labor and commercial, can be stopped or slowed down, which implies less growth for the economy. Banco de México reports that with a reduction of 100 days in the resolution of commercial trials, the economies of the federative entities have grown on average 0.6%.
Mariana Campos, director of México Evalúa, highlighted that the better the contract resolution and judicial independence, the greater the flows of Foreign Direct Investment (FDI).
The situation is raising alarm bells, as a decrease in new investments is observed. According to figures from the Ministry of Economy, in 2022, 46% of FDI was reinvestment, while at the end of the first half of 2024 it was 97.4%. “This means that although this investment is growing, new investment is not coming in, which means that we are not taking advantage of the opportunity of relocation,” Campos said.
T-MEC, among those affected
The reform aims to orient the economic structure towards greater government control of priority and strategic activities, which “may call into question how market-based our economy is,” Moreno explained.
According to the WTO and UNCTAD, market economies are those where economic activities are determined by the forces of supply and demand, the free determination of prices, a regulatory State for consumer safety, and legal security for investors.
“When government intervention in economic activity (…) is excessive, it could be interpreted as an important factor of state intervention that could categorize our country as a non-market economy. The situation is serious, because the USMCA clearly specifies that partners cannot generate transactions or trade agreements with non-market economies,” said Moreno, from México Evalúa.
Furthermore, the proposed reform directly affects three chapters of this Treaty: Chapter 14, which states that investment must be treated equitably; Chapter 23, which relates to labour; and Chapter 27, which refers to anti-corruption policies.
“These three chapters require independent and impartial courts, and this reform undermines independence because it breaks the three guarantees that judges need to be independent (…) the popular vote will not guarantee that. The requirements that are being set in the reform to be a judge are completely insufficient for us to have judges with knowledge and independent criteria,” said Mariana Campos.
