Mexican peso falls due to possible approval of judicial reform and economic pessimism in the US

The Mexican peso opened Wednesday as the weakest among the world's major currencies after electoral authorities proposed a 73 percent representation in Congress for the ruling party and its allies and the United States reported lower employment than expected. In addition, global investment banks have begun to sound the alarm about the deterioration in Mexico's business outlook due to the president's initiative to reform the judiciary. The exchange rate fell from 19.00 pesos per dollar at the opening of the markets on Wednesday to 19.35. By midday, the currency fell 1.75%. This has to do with two unrelated factors. First, the U.S. Department of Labor said a previous estimate underestimated job growth by about 818,000 jobs in the 12 months ending in March, representing the most dramatic downward revision since 1991. Investors reacted by eliminating positions in dollars and Mexican pesos, as an economic slowdown in the U.S. directly impacts Mexico, its main trading partner. Second, investors reacted to the proposal by Mexico's National Electoral Institute (INE) to distribute seats in the Chamber of Deputies so that the ruling party and its allies will have a supermajority. In the Senate, they will be just three votes short of a supermajority. The controversy, which will be discussed by the electoral body before the corresponding court issues a ruling, has to do with the limit of overrepresentation as defined by the Constitution. With a total of 364 deputies, Morena and its allies have an overrepresentation of 18%, ten points above the 8% that the Constitution establishes for each party. This implies that they could approve a controversial reform to the Judicial Branch proposed by López Obrador, which proposes changing all judges and magistrates and electing them by popular vote in a calendar synchronized with that of government positions. The initiative has markets and businessmen nervous, since it represents an elimination of guarantees for their investments. «We have reduced our exposure to Mexican stocks after the judicial reform proposal that the Executive sent to Congress,» wrote analysts at Morgan Stanley in a report to their clients on Wednesday in which they recommend selling certain shares of Mexican companies. «We believe that replacing the judicial system should increase risk, Mexico's risk premiums and limit capital spending,» they said. For its part, Citibanamex warned in a note published on Tuesday that the markets are underestimating the «serious implications» of López Obrador's initiative. “If the overrepresentation of the Morena coalition is approved, the legitimacy of the ballot box would serve to cement in the constitution a new configuration of the rules of social, economic and political exchange, a new regime,” wrote analysts at the bank in reference to the ruling of the Electoral Tribunal of the Judicial Branch of the Federation (TEPJF) expected before August 30. “The contours of this, which are already evident, could mean the cancellation of liberal democracy, based on the rule of law and governed by the periodic electoral change of majority and solidly counterbalanced governments,” concluded the Citibanamex specialists. Sign up for free for the EL PAÍS México newsletter and the WhatsApp channel and receive all the key information on current events in this country.