For Mexico and the United States 2018 will be a crucial political year, notwithstanding the impact that the global economy will have on the lives on citizens of both countries. In the U.S., 2018 will feature congressional mid-term elections in which the composition of the U.S. Congress, and in particular the U.S. Senate, will be hotly contested. The current majority held in the Senate by the Republican Party could change if enough Democrats are elected to wipe out the small majority currently held by Republicans.Mexico will hold its presidential elections this year and will vote on a completely new federal Congress. The 2018 Mexican election will feature 128 Senate contests, consisting of three senators from each state (96 in total), along with 32 senators elected on an at-large basis. The Mexican lower Chamber of Deputies will see 500 new members elected, with 300 being elected by a majority and 200 through proportional representation. At the state level, nine new governors will be elected, including important state elections in Veracruz, Jalisco, Guanajuato and Puebla, all four of which hold enormous political and economic weight. This year will also see the election of governors and congressional seats in the states of Tabasco, Yucatan, Morelos and Chiapas. Finally, the 2018 election will feature the first electoral contest to choose Mexico City’s (CDMX) Head of Government (“Jefe de Gobierno”) in conformity with the capital city’s new constitution.While the magnitude of the 2018 elections is notable for its wide scope, the interest of Mexico’s citizenry will be fundamentally focused on the presidential contest. Such focus is based not only on Mexico’s “Presidentialist” System, but also on the historic influence the Mexican president has on federal institutions and agencies. At this point, the contenders of Mexico’s main political parties have been defined, with Jose Antonio Meade running on behalf of the Institutional Revolutionary Party (PRI), which will seek to keep its hold on executive power. Andres Manuel Lopez Obrador (AMLO) will represent the MORENA Party, and, according to recent polling, appears to lead the race. The “Coalition for Mexico First” (Coalición por México al Frente), which is also known as the Citizens Front for Mexico, will be led by Ricardo Anaya on behalf of a coalition comprised of the PAN, PRD and Citizens Movement (Movimiento Ciudadano or MC) parties. It is also likely that one or more additional independent candidates will seek to qualify their candidacies by demonstrating the legally required level of public support for their presidential bids.The upcoming months will be crucial and will surely highlight a struggle by the presidential contenders to capture the support of voters who remain undecided. Each one of such contenders has a solid base of unconditional supporters - even if the election is still months away - and their respective campaigns, debates and proposals still must be considered by Mexican voters. Final results will not be known until official tallies have been verified of the voting that will take place on Sunday, July 1st. One thing is certain: the political temperature in Mexico will continue to rise throughout 2018.
The New Year began with several notable developments regarding the Mexican economy’s potential outlook for the medium term, and particularly for the remainder of 2018. At the end of 2017, the peso suffered a significant depreciation against the dollar, which required the Mexican Central bank, Banco de México, to take affirmative measures to prevent an even greater fall in Mexico’s currency.The “mini-devaluation” likely occurred as a result of the Trump’s administration’s tax plan, which was approved in December by the U.S. Congress and signed into law by President Donald Trump. The plan sought to lower taxes and generate higher consumption on the part of consumers and increased investment by producers. Such new tax law would have the effect, according to the logic of tax reform supporters, of increasing U.S. production and employment, which would raise taxable income and bring in the additional tax revenue required to make up for the lowering tax rates, without the need for the U.S. to seek other sources of revenue. In theory, all of this would have the effect of lowering the U.S. budget deficit.While U.S. tax plan described above has a certain conceptual logic behind it, the new law caused concern in Mexico that U.S. companies would reduce their spending abroad, particularly given that lower marginal tax rates in the U.S. would make domestic investment more convenient than making investments in other countries.Similarly, under the new law, U.S. companies were granted preferential tax treatment to repatriate profits held abroad. In this regard, experts estimated that between 2010 and 2017 U.S. companies had generated 40 billion dollars in profits in Mexico. For its part, the Mexican government has reviewed potential measures to avoid a potential decrease in investment or repatriation of profits earned in Mexico to the U.S. by contemplating a reduction in Mexican marginal tax rates. Such a move is not as simple as it sounds, given that the Mexican government is operating on a relatively tight margin under current tax rates and owing to a lack of effective tax collection necessary to meet Mexico’s spending needs.However, a certain optimism continues to exist that notwithstanding the reduction in U.S. tax rates, U.S. companies will continue to be subject to U.S. state income taxes. These state income taxes could continue to make Mexico a good option for U.S. companies seeking to invest or expand operations in Mexico. In addition, behind all of these considerations, the continued uncertainty regarding the final conclusion of NAFTA negotiations continues to undermine business confidence. The past year of uncertainty has placed the bilateral relationship, along with the productive capacity and strength of both economies, at risk.
On January 11, 2018, updated financial indicators reflected:
Peso/Dollar Exchange Rate:
$ 19.3433 pesos per Dollar.
Mexican Stock Exchange:
The Mexican Stock Exchange (BMV) closed at 48,799.39 points.
The Average Interbank Rate (TIIE) for a 28-day period was at 7.6299%