AMLO’s electricity reform, “an indirect expropriation of assets”: Bank of America

Bank of America described as “an indirect expropriation of assets” the reform to the Electricity Industry Law approved by the Mexican Congress and promoted by the government of leftist Andrés Manuel López Obrador.

MEXICO CITY (March 18, 2021) .- Bank of America (BofA) described as “an indirect expropriation of assets” the reform to the Electricity Industry Law (LIE) approved by Congress and promoted by the government of Andrés Manuel López Obrador.

“The damage has already been done,” said the US firm in a report, and warned that this law will be fought by the companies involved in national and international courts.

“The political uncertainty has reduced investment and has produced a loss of dead weight and both have reduced productivity and, therefore, growth,” said Bank of America in a statement.

But, in addition, the investment bank flatly ruled that this type of policies promoted by the administration of President Andrés Manuel López Obrador will affect the recovery of Mexico since it is not in sync with the performance of the United States.

Due to the above, the strong growth expected from its main commercial partner will not benefit our country as in the past.

In fact, BofA predicted growth for the United States economy of 6.5% in 2021, which will offset the 3.5% drop in 2020, while the forecast for Mexico is 4%, “which will not offset the drop of 8.5%. % from 2020 ”.

“The growth of Mexico’s Gross Domestic Product has been linked to that of the United States since the North American Free Trade Agreement entered into force in the mid-1990s,” the report noted.

Therefore, he said, it is natural to expect that a booming US economy will pull the Mexican economy out of the big hole it currently finds itself in.

“But domestic policies are out of sync and Mexico continues to apply a very strict fiscal policy that will continue to be a major obstacle to the economy. Both economies seem to have dissociated since the end of 2018 and we believe that the separation will continue during the recovery ”, predicted the financial group.

Bank of America affirmed that the Mexican and US economies have decoupled, at least in the frequency of the economic cycle, mainly due to the internal policies of each country.

“This is clear in 2020, when in response to the pandemic the United States embarked on very decisive countercyclical fiscal and monetary policies, while Mexico opted for procyclical policies, amplifying the negative impact of the pandemic on the economy,” the firm added.

Bank of America concluded that the fiscal policy adopted by Mexico was the main reason why the economy fell five percentage points more than the US economy last year.

“Both consumption and investment have not been able to recover since the pandemic hit and we believe that high political uncertainty and strict fiscal policy have a lot to do with that,” the statement concluded.