Andrés Manuel López Obrador was elected president on 1 July 2018 and will take office on 1 December 2018. Not only did López Obrador obtain more than 50% of the votes (approximately 30 million), his party and coalition also won an absolute majority in both the House of Representatives and the Senate. This is the first time in 20 years that a president will govern with this level of power. But what will this mean for the banking sector?
López Obrador and his party are known to be leftists. However, during López Obrador's latest campaign (this was his third time running for president), his speech was more moderate and centrist. His campaign dealt mainly with fighting corruption and instituting austerity to the government and he tried to avoid discussing radical economic changes. On his election and preliminary confirmation (he still needs to be formally ratified as the winning candidate, but there is little doubt that this will occur), he delivered a speech confirming that he will:
- work with businesses and businesspeople;
- not increase the country's debt or fiscal deficit;
- not increase taxes; and
- respect the Mexican Central Bank's autonomy to control inflation.
In the days following the election, López Obrador's most trusted economic advisers and the person rumoured to be the future ministry of finance reaffirmed this approach, which is good news from a macroeconomic perspective.
However, López Obrador's position towards banks is unclear: he has not identified banks or bankers as culprits of Mexican corruption or acknowledged them as belonging to the 'power mob', a term he coined to refer to those responsible for the status quo of corruption and inequality. Further, during his appearance at the March 2018 Banking Convention, López Obrador said little about his views on banks and the financial industry at large. He focused more on his plans to end corruption, and the questions that he faced largely concerned educational reform, the New Mexico City Airport and macroeconomics, rather than industry-specific concerns. However, he did mention during his speech that he wanted a strong banking industry with more reach.
There is also uncertainty with respect to López Obrador's opinion about the 2014 financial reform, which was one of the outgoing government's so-called 'structural reforms'. In a way, the 2014 financial reform can be seen as a centre-right reform that aimed to protect creditors by:
- easing the collection of loans;
- eliminating issues with the reorganisation procedure; and
- lifting restrictions on foreign investment.
However, López Obrador has not focused on the financial reform. Rather, his attention has been on more controversial reforms, such as those concerning energy and education. In his speech at the Banking Convention, López Obrador stated that his government would help banks to collect loans. Therefore, changes to the financial reform enacted in 2014 are not expected to be on his agenda – at least not initially.
Conversely, López Obrador's party was not completely in favour of the FinTech Law, which was enacted in 2018 and is the second most significant change to the financial laws made by the outgoing government. López Obrador's party has questioned the FinTech Law on the basis that it does not afford enough protection to financial consumers or prevent money laundering. However, as the FinTech Law is a principle-based law whose main principles include financial consumer protection and anti-money laundering, these comments may be irrelevant and any deficiency that López Obrador's party has discovered in the law may be easily corrected through secondary regulation, which is still not in place. Moreover, the FinTech Law may be easily identified with the values of a leftist government because it favours small players and fosters financial inclusion and competition in the financial sector. López Obrador and his economic advisers have remained quiet about their plans regarding financial inclusion, but it is likely that they will keep this on the agenda since it is a key factor for fostering development. Although López Obrador acknowledged in his speech at the recent Banking Convention that too many municipalities are without banking services, he quickly changed the subject to telecoms penetration and other social development programmes.
Another proposal that should be carefully monitored is the formation of a fund for infrastructure projects. It is not clear how this fund will be structured, but López Obrador has mentioned that it will include public and private funds. Some concerns have been raised about laws mandating banks to invest in this fund, but no specific plan mentioning this requirement has come to light.
Finally, Abel Mauro Hibert has been touted for the role of chair of the Banking and Securities Commission. Hibert is one of López Obrador's trusted economic advisers and is allegedly close to his main economic adviser, businessperson Alfonso Romo, who helped López Obrador to form relationships with Mexico's business class. Although Hibert has not occupied government offices recently, he does have experience in this field: he worked at the Budget and Programming Ministry when former President Carlos Salinas was minister. Further, Hilbert is known as a liberal technocrat who was educated in one of Mexico's most prestigious liberal universities, the Autonomous Technological Institute of Mexico. This is arguably a positive sign.
Based on the above, banks arguably need not be concerned about López Obrador's election and the new government. If he follows through on his recent statements regarding fiscal deficit, the Mexican Central Bank's autonomy and the free-floating of the Mexican peso and continues to foster financial inclusion, banks should not feel threatened and their business should remain stable. However, there are two matters of which banks should remain cautious. First, López Obrador has accumulated unprecedented power over the past few decades. As such, he may be tempted to make changes and has the power to do so. Second, to accumulate this power, López Obrador has made alliances with more radical leftists who may push their own agenda.
For further information on this topic please contact Federico de Noriega at Hogan Lovells BSTL by telephone (+52 55 5091 0000) or email ([email protected]). The Hogan Lovells website can be accessed at www.hoganlovells.com.
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