Moves by the New Leftist Government in Mexico to Remove Judiciary Powers and Regulatory Oversight Potentially Represent a Threat to Current Airport Concessions.

The supermajority Mexican Morena party government have cast a legitimate pall upon any Mexican business operating with a government granted concession.

A 2/3 elected majority are highly likely to push through sweeping revisions to the Mexican constitution. Among the constitutional powers that are planned are the removal of appointed supreme court justices as well as in lower courts, to be replaced by popularly elected justices operating fully in support of the party. Of equal concern to the capital markets are the probable elimination of most regulatory agencies in Mexico.

A prospective removal of an independent court system, to be replaced by a fully partisan judiciary, as well as the consolidation of all independent regulators in Mexico, will place 100% control of all aspects of the Mexican economy directly in the hands of the heavily populist government.

Capital stability in any economy relies upon a carefully managed system of checks and balances.

Under the prior Morena government of AMLO, Mexican business operated under periodic threats to business concessions, specifically in mining as well as the publicly traded airports. His government would regularly seek to change legal frameworks as he wished, with regulatory agencies and the judiciary representing the only mechanisms for corporations to push-back against cash grabs made via edict.

The newly elected President, sitting atop the leftist Morena party, has stated that she intends to continue with broad constitutional overhauls. Her carrot, to encourage this total centralization of power in Mexico, is by offering some boosting of social benefits for the public, the standard playbook of any leftist government.

International markets are spooked, and have every right to be.

Democracies require independence of regulators as well as the judiciary; this blatant power-play to remove both, simultaneously, may leave business operating exclusively at the whims of an elected party which thinks nothing of nationalizing assets.

Publicly traded airport operators, most specifically, sit squarely in the cross-hairs of the Mexican army and navy business divisions that have assumed control over 2 major international airport concessions in Mexico, have subsequently built and are presently operating the new Tulum International Airport, and aspire for more revenue. It can be assumed that the Mexican armed forces, akin to a model similar to that employed in Cuba, would love to earn the high capital returns on the remaining airport concessions, now being earned privately.

The present discounting of Mexican equities, most specifically to those operating with government granted concessions, implies that negative revisions to the prior, contractual, frameworks are coming.

The only legitimate rationale for removing independent control by the judiciary and regulators is to force changes, changes detrimental to capital investment, completely unopposed.

Equity markets have decided this to be a meaningful risk and have devalued the Mexican pesos, by an extremely quick 11%, in less than one month.

AMLO, still in power for several more months, remains undeterred. Mexican mining companies, railroads, airports, telcos and other large conglomerates will be spending heavily, to lobby in defense of regulators and an appointed judiciary, so as to better defend their concession rights in the near term. Whether they can successfully maintain a pro-business operating framework, that remains to be seen.

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