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IN TODAY’S EDITION
1️⃣ Why investors are spooked about Mexico |
2️⃣ Belarus calls Pokémon a spy |
3️⃣ Ex-embassy of the day |
Hi Intriguer. When I served in Mexico City as a baby diplomat, one of the first quotes I learned was this rueful ol’ classic from the 19th century leader, Porfirio Diaz:
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“Poor Mexico. So far from God and so close to the United States.”
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It’s widely known in Mexico, and captures some of the country’s mixed feelings towards its superpower neighbour. But I confess I chuckled when Israel’s then ambassador to Mexico quipped to me how he thought it was kinda the opposite for his own country:
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“Poor Israel. So close to God and so far from the United States.”
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Anyway, now that Mexico’s congress has passed historic judicial reforms, it’s time we take a look at why so many investors are so spooked. ¡Vámonos!
THE HEADLINES
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Blinken hints US will lift restrictions on Ukraine long-range weapons.
The US Secretary of State made the comments during his latest visit to Kyiv, where he pledged Washington would continue to adapt its policy in response to changes on the ground. The UK government has reportedly already decided to allow Ukraine to use its long-range missiles to hit targets within Russian territory, with a formal announcement expected tomorrow (Friday).
Top Chinese general to visit US.
FT is reporting that one of China’s top generals will attend a conference hosted by US Indo-Pacific Command in Hawaii next week as the two powers attempt to keep lines of communication open. General Wu Yanan leads the People’s Liberation Army Southern Theatre Command, which covers flashpoints including the South China Sea.
China confiscates investment banker passports.
Bloomberg is reporting that major brokerages in China have asked many of their investment bankers to hand in their passports, as regulators scrutinise IPOs and other capital-raising activities. At least three top investment bankers have also been detained since August. It’s seemingly part of a broader crackdown on China’s financial sector, which is already in a slump – hundreds of companies have scrapped their IPO plans recently, as the economy continues to sputter.
Former Peruvian leader Fujimori dies.
Alberto Fujimori, who governed the country between 1990 and 2000, has died at the age of 86. His supporters will remember him as the leader who saved Peru from terrorism and economic collapse. He’ll also be remembered as the leader sentenced to 25 years in prison for human rights abuses.
TOP STORY
Why investors are getting spooked by a Mexican judicial reform
Left, President Andrés Manuel López Obrador; right, his successor Claudia Sheinbaum.
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Mexico’s senate passed controversial judicial reforms yesterday (Wednesday) after angry demonstrators burst in during the session. The package ended up passing by just one vote, after an opposition senator switched sides dramatically (critics allege he did a deal to get criminal investigations into his family dropped).
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Here’s what you need to know.
The reform package is making waves due to its content, timing, and implications, so let’s dive in:
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First, on content, the biggest change is a provision that’ll have judges elected rather than appointed. This means 1,700 supreme court, federal, electoral, state, and appeal court judges will have to run electoral campaigns rather than work their way up.
Second, on the timing, this is all a parting gift from President Andrés Manuel López Obrador (‘AMLO’), who hands the reins to his protégé on October 1: president-elect Claudia Sheinbaum. In Mexico, new senators and deputies take office a month before the president, so that’s given AMLO a brief window (September) to push the reforms through with his party’s expanded majority.
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Then third, on the implications: AMLO argues the changes are necessary to free the judiciary from elites and corruption, and make it more accountable to the people. He’s dismissed protestors, including much of Mexico’s judiciary, as simply wanting to cling to their privileges or serve the interests of the elite.
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But he’s copping criticism from all quarters.
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i. Legal eagles (such as the relevant UN special rapporteur) have flagged concerns that this will undermine the independence of Mexico’s courts: judges might have an incentive to make decisions that are popular rather than right.
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And Mexico’s chief justice has warned the reforms could leave judges more vulnerable to organised crime and even violate the US-Mexico-Canada trade treaty, spooking US lawmakers in the process. Which takes us to…
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ii. The US and Canada have voiced concerns around what this means for Mexico’s democracy: AMLO has consistently bristled at the way Mexico’s courts have blocked his moves, so his reforms look to many like an attempt to just remove those checks and balances altogether.
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But in response to these criticisms, AMLO has simply announced a ‘pause’ on dealing with the US and Canadian embassies, while his supporters point out that many judges are also elected in the US (at the state level). Meanwhile…
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iii. Mexico’s top businesses are warning these reforms “send a worrying signal about Mexico’s institutional fragility, putting at risk our trade relationships plus the flow of capital and economic growth.” 🔥🔥🔥
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And that takes us back to one of the points we made up top: timing. These reforms are happening just as US and other businesses look for ways to ‘friend-shore’ production and de-risk their supply chains away from China. So the fear is Mexico could miss a generational opportunity as a result.
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Anyway, for now, the president-elect is sticking to the party line and trying to assure investors it’ll all be fine. But the markets are already speaking:
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The peso has lost ~18% of its value against the dollar since the June elections, and
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Analysts told the WSJ foreign investors are now holding back ~$35B while they wait to see how this all plays out.
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That’s a year’s worth of inbound investment. And Mexico’s inaugural judge elections won’t take place until 2025 and 2027.
INTRIGUE’S TAKE
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Folks investing in Mexico (whether locals or foreigners) want to know that if something goes down, they can get a fair hearing from a professional and independent court, rather than (say) someone with a few years experience who got elected to the supreme court by promising to go full Robin Hood.
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So when Mexico’s entire judiciary can flip on an election or two (apparently the only such country in the world), that adds a serious splash of uncertainty, which is really what spooks investors the most.
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As for Mexico’s citizens, they obviously have concerns of their own, with many fearing this package will take their country back to the days of one-party rule that characterised so much of the 20th century.
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Also worth noting:
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As of this morning (Thursday), 17 of Mexico’s 31 state legislatures have now backed the reform, meaning it’ll now be signed into law.
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In his final month, AMLO still enjoys high approval ratings (65%+).
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Mexico is America’s top trading partner, and vice versa.
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AMLO has significantly expanded the state’s role in Mexico’s economy, with the armed forces now running dozens of airports, trains, hotels, tourist parks, and even an airline.
A MESSAGE FROM SEMAFOR
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MEANWHILE, ELSEWHERE…
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🇺🇿 Uzbekistan: The prime minister of Russia (Mikhail Mishustin) has wrapped a two-day trip to Uzbekistan exploring the production of ‘civilian’ drones. It comes after the US recently imposed sanctions on a Kazakh company that reportedly helped Moscow evade tech sanctions.
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🇧🇾 Belarus: A defence ministry official has accused the hit video game Pokémon of being an instrument of Western intelligence. Back in 2016 when Pokémon Go exploded in popularity, Russian media claimed the game was a CIA espionage tool, prompting a denial from the US developer.
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🇮🇩 Indonesia: Jakarta has announced plans to suspend the construction of new hotels, resorts, and nightclubs in Bali, Indonesia’s ultra-popular tourist destination. The government hasn’t clarified how long the suspension will last, but officials are saying it could be up to ten years.
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🇨🇱 Chile: President Gabriel Boric has vowed to push for the passage of a bill that would revoke amnesty granted to military officers under Augusto Pinochet’s dictatorship (1973-1990). Boric’s pledge, on the 51st anniversary of the coup that brought Pinochet to power, will be hard to deliver through a divided legislature.
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🇺🇬 Uganda: Uganda’s finance minister has announced plans to issue new oil and gas exploration licences in the 2025-2026 fiscal year to help boost economic growth. The government says only a fraction of the country’s western Albertine Graben basin has been explored so far.
EXTRA INTRIGUE
Meanwhile, in other worlds…
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Space: A record 19 people are currently orbiting space, after three astronauts departed for the International Space Station aboard a Russian capsule.
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Tech: AI chatbots apparently don’t know how to spell strawberry, insisting the word only has two of the letter ‘r’.
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Art: A bronze statue of the late Queen Elizabeth II has caused a stir in the UK, with critics insisting it bears no resemblance to the monarch.
EX-EMBASSY OF THE DAY
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Afghanistan’s embassy in London will officially cease operations on September 27. The announcement, which Ambassador Zalmai Rassoul just dropped on X, comes two months after the ruling Taliban said it won’t recognise embassies set up by the previous Western-backed government.
DAILY POLL
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What do you think about Mexico’s judicial reform? |
Yesterday’s poll: Less than two months out from the US presidential election, who do you think will win?
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We’ll share some of your responses in the next edition of Election Intrigue! It’s our weekly briefing on what the US election means for the world (and vice versa) – free to subscribe here!
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