AMLO's first weeks underscore policy risks in Mexico
On December 1, President Andres Manuel Lopez Obrador (AMLO) began his term with a level of power over the political system not seen in recent decades. His coalition controls comfortable majorities in both houses of congress, and with allies, could easily reach the two thirds majority to reform the constitution.
Eurasia Group's indices show that Mexico's overall level of political capacity is on par with the average for emerging markets. However, its government strength score—our measure that attempts to capture the cyclical variations in a government's power—is the highest in Latin America.
AMLO' ambitious agenda of infrastructure and social spending will put Mexico's fiscal balance at risk. The main challenge to the 2019 budget will come on the revenue side, as the government will struggle to find the resources to fund AMLO's programs.
Early signs of trouble
AMLO's early days in office have been tumultuous. A poorly managed strategy to combat the growing problem of fuel theft of state-owned company Pemex's pipelines has led to a shortage of gasoline in many parts of the country. The crisis highlights critical weaknesses of the administration—an inexperienced team combined with AMLO's centralized and instinctive decision-making style.
AMLO regards the anti-theft strategy as a key component of reinforcing the role of Pemex at the expense of private participation. He has an ambitious target to increase oil production by nearly 50% by 2024 through increased funding to Pemex for exploration of shallow-water fields and onshore conventional areas.
The fuel theft strategy is also key to addressing Mexico's security challenges. Conflict between cartels for control over illegal fuel has significantly contributed to the rise of the homicide rate in recent years.
AMLO's fuel policy remains popular and he has doubled down on his plan for now. However, the lack of a clear overall security strategy means that security conditions will remain challenging this year.
