What the f-ck is going on in Mexico?

Mexico After AMLO: A One-Party State?

For six years, other institutions have limited the socialist president’s damage.

By Mary Anastasia O’Grady, WSJ

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June 2, 2024 1:00 pm ET

Mexicans vote in presidential and legislative elections Sunday. Eight Mexican states, plus Mexico City, hold gubernatorial contests. We may not know the results until late in the evening. But it isn’t too early to consider the economic and political challenges the nation will face under a new federal government.

President Andrés Manuel López Obrador’s successor will inherit a stable economy where firms are profitable and manufacturing is expanding. Mexico has a rising middle class and its enviable demographics, with a median age of 30, are a plus. A nearshoring trend and the wide interest-rate spread between the dollar and the peso have helped strengthen the Mexican currency to levels not seen in a decade.

But warning lights are also flashing. Among the biggest challenges is a weak rule of law. Cartel terror, extortion and human trafficking have grown worse during Mr. López Obrador’s government, and public trust in institutions, including the military, has deteriorated. Political violence is also on the rise. The new president will be under pressure to confront criminality. It could get bloody.

Claudia Sheinbaum, a former head of the Mexico City government and a member of Mr. López Obrador’s Morena party, is the favorite to become the next president. Her victory would suggest further deepening of AMLO’s vision for the country. Here it’s important to note that Mexico’s economic gains in the past six years have come despite AMLO, not because of him. He opposes free-market economics. During his presidency he’s been beavering away at what he calls the “fourth transformation,” which would give the Mexican state a large role in the economy and consolidate power in the executive. Think the heyday of the Institutional Revolutionary Party 50 years ago.

That Mr. López Obrador wasn’t able to return Mexico to the authoritarianism of the 1970s is a credit to competing institutions. The Supreme Court and the National Electoral Institute defended pluralism and blocked AMLO’s most egregious attempts to grab power. It’s also a credit to those who opened the economy. He could hardly afford to strangle democratic capitalism before he changed the rules of the game. His surrogate would have to win the next election.

The socialist Ms. Sheinbaum, if she wins, is expected to champion the constitutional reforms that AMLO has articulated as necessary to achieve his back-to-the-future Mexico. These include the direct election of Supreme Court justices, the end of proportional representation for congressional seats, and the elimination of the Federal Economic Competition Commission and the National Institute for Transparency, Access to Information, and Protection of Personal Information.

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A President Sheinbaum would need two-third majorities in both chambers to pass those amendments, which means that there’s a lot at stake in the congressional races. If Morena gets close to the number of seats it needs, Ms. Sheinbaum might try to negotiate with another party for the rest of the votes.

The reforms would be bad for Mexico, although in the short run things might not change much. The frog would boil slowly.

Opposition candidate Xochitl Gálvez ran against dismantling institutional checks and balances. If she wins, she has promised to govern with republican values. If she loses but makes it a close race, it will be more difficult for Morena to create a one-party state.

During the campaign both candidates made entitlement promises that will be a drag on growth. But the new president and Congress won’t have it easy because Mr. López Obrador, with Morena coalition majorities in Congress, ran up spending ahead of the election. Total government spending will be 27% of gross domestic product this year, the highest since President José López Portillo (1976-82). AMLO’s treasury says there will be a 5.9% fiscal deficit, which would be the largest since 1990, the earliest year for which the treasury provides the data. The treasury forecasts a return to a 3% fiscal deficit in 2025 but that depends on a combination of austerity and growth. The new president will have to tighten belts to reverse the worsening trend.

Last month Francisco Monaldi, director of the Latin American energy program at the Baker Institute, tweeted that Mr. López Obrador’s Dos Bocas refinery project “will go down in the annals of the oil industry as one of the most disastrous investment decisions in history. The cost is already $17 billion, and it is not yet finished.” Completion of the tourist train on the Yucatán Peninsula is also delayed, and its $28 billion price tag is nearly four times its original budget.

Electricity shortages caused by AMLO’s decision to block new private investment in power could put a damper on the nearshoring boom. Despite its geographical advantage, Mexico won’t be a good destination for capital without cheap, plentiful energy.

The good news is that the new president inherits a democratic republic with lots of potential. The open question is whether Mexicans can keep it.

Write to O’Grady@wsj.com.