THE ECONOMIC IMPACT OF MEXICO`S AUTOCRATIC DRIFT / PROJECT SYNDICATE

The Economic Impact of Mexico’s Autocratic Drift

Mexican President Claudia Sheinbaum suffered a rare legislative setback in March, one of several early signs that support for her and her predecessor’s political project may be softening. The narrative that Mexico could bend its democratic rules without weakening its economic foundations is now beginning to unravel.

Guillermo Ortiz

MEXICO CITY—For much of the past decade, Mexico has maintained macroeconomic stability, even as the drive to centralize power has eroded democratic institutions. 

Inflation was broadly contained, fiscal deficits remained mostly contained, and financial markets appeared largely untroubled. 

This paradox helped sustain a comforting narrative that Mexico could bend its democratic rules without shattering its economic foundations. 

But that narrative is now beginning to unravel.

Former Mexican President Andrés Manuel López Obrador (widely known as AMLO) led the push for political consolidation. 

After 2018, AMLO weakened autonomous institutions, dismantled checks and balances, and expanded executive control over key sectors. 

In 2024, this process culminated in a controversial constitutional revision, approved by a qualified congressional majority, that triggered a judicial overhaul that essentially concentrated power in the executive branch, reshaping the balance of power within the state.

But while the Mexican economy remained resilient amid this institutional transformation, its performance has been consistently underwhelming. 

Despite favorable external conditions, average GDP growth during AMLO’s tenure (as well as under his handpicked successor, Claudia Sheinbaum) has lagged behind historical trends and that of other emerging markets. 

This is not merely a cyclical slump. 

It reflects deeper structural constraints, including weak investment, declining productivity, and persistent policy uncertainty.

Instead of investing in essential sectors such as health, education, and regulatory capacity, the government has focused fiscal resources on unsustainable social transfers and flagship projects, like the Dos Bocas refinery, the Tren Maya, and the Felipe Ángeles International Airport, despite questionable returns, cost overruns, and limited transparency. 

In an already low-growth environment, this has proved to be a poor strategy.

Sheinbaum has sought to offset the inefficient allocation of scarce public resources with private investment, particularly in infrastructure and energy. 

She recently proposed a bill to promote public and private investment in strategic infrastructure in a bid to unlock capital while preserving fiscal discipline and maintaining the state’s central role.

The problem lies in the underlying framework. 

The government wants to attract private capital at scale while retaining control over strategic sectors and limiting public debt. 

In practice, these objectives are difficult to reconcile. 

Private investors require legal certainty, credible risk-sharing mechanisms, and enforceable contracts. 

Policy reversals, regulatory discretion, and the weakening of independent institutions prevent these conditions from being met. 

As a result, the project pipeline has remained thin.

Nowhere is this more evident than in the energy sector, where the state seeks to preserve operational control while inviting investors to participate under increasingly constrained terms. 

Such an approach will not mobilize private capital, relieve fiscal pressures, or help address increasing electricity demand.

At the same time, the compromised rule of law has become more visible in the security domain. 

Organized-crime groups have expanded their territorial reach, diversified their economic activities, and assumed quasi-governing roles in some parts of the country, shaping markets and labor conditions. 

Mounting evidence of political capture at the local level and overlap between criminal enterprises and public authorities points to a deeper institutional erosion. 

These dynamics distort economic activity, raise the cost of doing business, and undermine confidence in the state.

This is no longer a domestic policy issue. 

The US government increasingly views Mexico through a security prism, with a focus on fentanyl trafficking, migration, and the growing influence of transnational criminal organizations. 

These concerns have started to affect trade and economic cooperation. 

For example, enforcement and security considerations are expected to play a more prominent role in this year’s review of the United States-Mexico-Canada Agreement. 

In that sense, institutional erosion has created twin constraints for Mexico: depressing investment at home while increasing scrutiny abroad.

Against this backdrop, the political landscape is also beginning to shift. 

Sheinbaum, widely expected to consolidate and extend AMLO’s agenda, suffered a setback in March when an electoral reform initiative failed to pass in the lower house of Congress. 

This episode is more than a procedural anomaly. 

It represents a break with the coalition government’s usual practice of near-automatic legislative approval. 

For the first time, the numerical strength of Sheinbaum’s senior Morena party failed to translate into political dominance.

The implications are clear. 

Governing coalitions rely not only on formal majorities but also on perceived cohesion. 

Once that perception weakens, it becomes harder to enforce party discipline, and policy execution becomes more uncertain.

There are other early signs that support for Sheinbaum and Morena may be softening. 

In addition to smaller coalition partners’ unwillingness to align with Morena unconditionally, Sheinbaum’s approval ratings, while still relatively high, no longer show the same upward momentum. 

Taken together, these developments suggest that the system is no longer as frictionless as it once was.

None of this implies an imminent crisis. 

Mexico has important strengths, including deep integration with the US economy. 

But resilience is not immunity. 

The combination of weak growth, failed investment strategies, institutional erosion, and cracks in the ruling coalition is beginning to expose the limits of the current model. 

For years, macroeconomic stability masked Mexico’s autocratic drift. 

Now, it is becoming harder to ignore, and the country’s economic trajectory no longer appears as certain as it once did.

Guillermo Ortiz, a former finance minister of Mexico and governor of Banco de Mexico, is Treasurer of the G-30.