Deep Dive | Episode 8 | Mexico on the brink of a new 'December mistake'

El Reportero

Nobody in the world wants to see a Tequila Effect again—except Morena.

It seems that Claudia Sheinbaum is steering Mexico towards a new global economic crisis with their modifications to the Constitution regarding the judiciary.

In 1994, the world witnessed the Tequila Effect—domestically, we called it "the December mistake." We must remember that in that year, Ernesto Zedillo inherited a country with an economy hanging by a thread, and he made the mistake of warning investors and businesses that the currency would be devalued. This warning worsened the situation. Additionally, the dollar was floated, meaning it was no longer controlled against the peso. This triggered chaos with well-known consequences.

There are significant differences between the current situation and 1994, as back then, Mexico had no reserves and was practically without funds, exacerbating the crisis. Today, Mexico has reserves, which offers some reassurance, but there are still worrying signs.

Despite these reserves, many around the world are alarmed by the situation in Mexico, which appears to be taking a risky path in the consolidation of power. U.S. Trade Representative Katherine Tai has already expressed concern about the reforms, diplomatically stating that they raise many questions about the U.S.-Mexico relationship.

Tai also mentioned that this reform is one of the key issues guiding Washington’s policy towards the administration of Claudia Sheinbaum.

Furthermore, several U.S. officials and business leaders have warned that the reform is eroding the checks and balances on the ruling party's power and putting the rule of law at risk.

Ambassador Ken Salazar has essentially been sent to wait his turn at Mexico’s Foreign Ministry for consultations. While it was proper for Mexico to instruct the ambassador to follow protocol, the mistake was making it public, which ridicules the U.S. government, something that country detests on the international stage. Meanwhile, experts point out that politicizing the judiciary, subjecting judges to political pressure or influence from interest groups, severely weakens the rule of law in Mexico.

Such pressures can lead judges to issue rulings in favor of those who elected them, instead of applying the law impartially. Typically, those with the economic power to influence these decisions are drug traffickers and businesspeople. So, that populist argument that "there will no longer be corruption" is a ridiculous fallacy. In reality, a politicized judiciary will also discourage foreign investment, as businesses will fear their rights won’t be protected.

It’s logical. If a company invests in Mexico and faces a conflict with the government, and judges side with the state, the investment is at risk. This could lead many to avoid investing in a country where they could lose their capital.

This situation will also affect the already precarious quality of the judicial system. Disregarding the experience of trained judges will dissuade young people from pursuing a judicial career. All of this is creating fear in the international community that a Tequila Effect could be repeated, undermining confidence in the country and damaging Mexico's credit rating, which would make international loans even more expensive—aggravating the deficit, which is already at 6% of GDP. It’s worth noting that during the Tequila Effect, the deficit rose to 7%.

It is alarming that, 30 years later, we are making the same mistakes that led to the 1994 crisis. Today, it seems we’ve learned nothing, and we are heading toward another economic crisis.

What’s most worrying is that while some celebrate these changes, the ones who will bear the consequences will not be the wealthy or the government, but the workers and the middle class. The international community is concerned because a new Tequila Effect would have disastrous consequences, not only for Mexico but also for the global economy, which is still in a post-pandemic situation.