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Former President Andrés Manuel López Obrador celebrates with his successor Claudia Sheumbaum
After handing over the reins of power to Claudia Sheinbaum on October 1, Mexico's outgoing President Andrés Manuel López Obrador raised his arm in the air in a joint display of victory.
López Obrador – a hugely popular but controversial figure in Mexico – bequeathed much more than the presidential sash to his political protégé.
She inherits a nation and an economy that functions well in some areas and faces significant challenges in others.
The good news from his government's perspective is that Mexico has strengthened its trade position with its northern neighbor, supplanting China as the United States' largest trading partner.
Mexico has benefited from “Nearshoring”, that is to say the relocation of American and Asian companies from China to northern Mexico to circumvent punitive American customs tariffs on Chinese exports.
“Mexico has always been attractive for capital flows because of our geographic location, our free trade agreements with North America and our workforce,” the former negotiator told me Mexican trader Juan Carlos Baker Pineda before the elections.
“But in recent years it seems more and more that if you (a foreign company) want to do business with the United States, you need some sort of foothold in Mexico.”
The outlook is optimistic, he believes, pointing to Amazon's recent announcement that it will invest $5bn (£3.8bn) in Mexico over the next 15 years, as well as an investment additional $1 billion from German automaker Volkswagen. Mr. Baker Pineda also cites promising projects from South African, Japanese and Chinese companies.
Critics are less convinced that the relocation of manufacturing from Asia to northern Mexico benefits the Mexican economy rather than simply boosting the companies involved. The key, Mr. Baker Pineda believes, lies in making “good decisions within business and government in this country to support this long-term trend.”
As for the immediate economic problems facing President Sheinbaum, the most pressing is that of the state-owned energy company Pemex. It has debts of around $100 billion, making it the most indebted oil company in the world.
“Debt is a problem not only for Pemex but also for Mexico,” says Fernanda Ballesteros, Mexico country manager for the Natural Resource Governance Institute.
In recent years, López Obrador's administration reduced the amount of taxes Pemex had to pay to the government. This amount was reduced from 60 to 30%.
At the same time, the outgoing government has granted Pemex a number of cash injections, which López Obrador wants to see continue.
However, the steady decline in productivity at Pemex in recent years has further complicated financing for the state-owned energy giant, which employs around 1.3 million people according to the government's own statistics.
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State oil company Pemex struggles under a mountain of debt
“President López Obrador's policies and priorities included doubling down on fossil fuels and providing unconditional support for Pemex,” says Ballesteros. The company is now poorly positioned, she says, for the necessary transition to cleaner, more efficient energy in the decades to come.
“Over the past six years, 90% of Pemex's infrastructure investments have gone toward a new refinery in Dos Bocas, Tabasco, and the acquisition of a refinery in Deer Park, Texas.
The government says it is on track to meet its goal of total fuel self-sufficiency by the first quarter of 2025. However, Pemex's ongoing economic woes mean the Sheinbaum administration's hands are tied in providing service. colossal debt.
Environmental expert Eugenio Fernández Vázquez says Pemex poses a “big challenge” for Sheinbaum. “Not just by dealing with the oil industry, which represents a huge weight in terms of Mexico's GDP, but also by lifting Pemex's massive debt burden off the shoulders of the public,” he explains.
Sheinbaum must strike a difficult balance, he adds, to get Pemex to sell more of its products “which are obviously fossil fuels and oil-based, while also addressing Mexico's responsibilities on climate change and addressing pressing issues in our cities, like air pollution.”
For a president touted as Mexico's most environmentally conscious leader – before entering politics, Sheinbaum was an accomplished environmental engineer – this must be irritating. Especially by spending billions of public money to support a giant greenhouse gas emitter.
Back in the realm of Mexico's complex relationship with its northern neighbor, President Sheinbaum faces two very different potential partners in Washington: either the first female president of the United States, Kamala Harris, or a second Trump presidency.
Whoever wins in November, there are still difficult cross-border issues to resolve, from illegal trade and immigration to illegal gun trafficking into Mexico and fentanyl into the United States. United.
Additionally, the United States-Mexico-Canada Free Trade Agreement (USMCA) is due to be renegotiated in 2026, with minor changes or major rewrites possible.
The USMCA was introduced in 2020, when it replaced the previous North American Free Trade Agreement between the three countries.
Sheinbaum also needs to watch the peso. In the days following his election victory in June, the currency fell against the dollar.
This was largely in response to the outgoing president's decision to pursue a comprehensive reform of the country's justice system, under which Mexico's 7,000 judges and magistrates will be chosen by popular vote. The plan is also supported by Sheinbaum.
Washington's disapproval of this measure, expressed publicly by the US ambassador to Mexico, Ken Salazar, suggests that it could complicate, or even compromise, parts of the USMCA renegotiation. Relations between Ambassador Salazar and the new administration are already much more frosty.
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The peso is under pressure this year
Diplomatic wrangling aside, marrying the new constitutional rules with the legal requirements of the free trade agreement could prove far trickier than expected.
Yet we are in the very early days of President Sheinbaum's administration. As part of her predecessor's legacy, she enjoys an almost unprecedented level of support among the ruling party, in an unassailable position across the country.
Her main electoral promise – to expand López Obrador's social programs in pensions, family allowances and scholarships, and to build what she calls the “second floor” of his political project – ensured him support millions of Mexicans.
It can also count on a loyal Congress and, after reform, potentially on control of the judiciary.
Taking office in such a powerful position is a luxury, one that her supporters and critics expect her to use to properly overcome some of Mexico's major economic obstacles.
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