Sheinbaum Soothes Markets With Slow Drip of Cabinet Picks

(Bloomberg) -- Claudia Sheinbaum, Mexico’s president-elect, has gotten off to a rocky start with investors. The more she’s talked — laying out plans to overhaul the judicial system and have judges be elected by popular vote — in the wake of her party’s landslide victory, the more investors have dumped Mexican assets. The peso is the worst-performing currency in the world over the past month, having plunged 8%.

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Last week, though, 18 days after the election, Sheinbaum notched her first clear victory in markets. The peso soared on Thursday when she tapped Marcelo Ebrard, a deft foreign-policy operator, to oversee the Economy Ministry. It has gained nearly 2% since. For investors, the decision revealed a shrewd, pragmatic side to Sheinbaum, who was willing to put aside her own history with Ebrard — the two had been bitter rivals during last year’s battle for the party nomination — to ensure she had a skilled operator in one of the most important cabinet posts in Mexico.

Long-time Mexico watchers caution they need to see the complete team Sheinbaum puts together — more key nominations are expected to come as soon as Thursday — but for one day, at least, they were encouraged by a move they say could augur a more centrist and less confrontational approach to policymaking.

“She’s got competent people in senior positions and people who have a lot of experience,” said Duncan Wood, Vice President of Strategy and New Initiatives at the Wilson Center. “If she is planning on doing something in the second round that reflects the more radical elements in her party, then it will tone that down.”

Other key cabinet positions announced last week — including former United Nations ambassador Juan Ramon de la Fuente as foreign minister, evolutionary biologist Rosaura Ruiz as science and innovation chief and current cabinet member Alicia Barcena as environmental minister — also suggested that the most die-hard members of the ruling Morena party founded by President Andres Manuel Lopez Obrador aren’t completely having their way. Even so, it’s a cabinet not meant to ruffle feathers.

At least for now, Sheinbaum’s cabinet looks more technical and not populated by the more ideological figures from Morena. That could still change if AMLO, who’s likely to keep exerting influence in national politics, pushes her to reward with government jobs those who have been loyal to him. The appointment of Barcena, who has served as foreign minister, was seen as an acknowledgment of the merits of the cabinet the president had put together, even if she was given a less prominent post than the one she had held before.

Investors are paying special attention to the future energy minister and the chief executive of Petroleo Mexicanos, the highly indebted state-owned oil firm that has weighed on public finances throughout AMLO’s term. Other key positions are the interior minister, whose role includes liaising with congress at a moment the government pushes for reforms, and the head of the state-owned power utility Comision Federal de Electricidad.

Sheinbaum will also need to contemplate the different factions that currently make up Morena if she is to hold the party’s reins. Since its foundation in 2011, Morena has incorporated politicians from various stripes, growing into an amorphous ideological group that has been kept together by the skill and leadership of Lopez Obrador.

Mexico’s Face Abroad

Since her landslide victory on June 2, Sheinbaum has been walking a fine line between trying to reassure investors that her administration will be based on sound economic management and governance, without renouncing the political reforms that AMLO had proposed and she campaigned on. She has added some of her own amendments to the list of proposals, but fundamentally sought to show that she is carrying on the president’s brand.

That strategy failed time and time again until she decided to begin her cabinet announcements with the positions that matter the most for international investors. They have been anxious to see what role private investment will have under a Sheinbaum presidency. Mexico’s relations with the US and other major trade partners also hangs in the balance.

Ebrard, in that context, was a particularly smart choice. As foreign minister under AMLO, who famously avoided international travel to focus mostly on domestic issues, Ebrard became the face of Mexico in international forums, representing the country at Group of 20 summits as well as negotiations with the US.

“He worked on some of the most challenging moments of the Trump administration and then obviously worked very closely with the Biden administration,” said Kimberly Breier, former US Assistant Secretary of State for Western Hemisphere Affairs. “I see this first tranche of cabinet appointments at least partly driven by trying to show a constructive face in key positions that will matter to international investors.”

And despite being a Morena member since 2018, his style never quite matched that of AMLO. While the president insisted on flying economy to show his commitment to austerity, Ebrard often flew first class. After competing and losing Morena’s presidential nomination to Sheinbaum, he claimed irregularities in the process, leading many to believe he would leave the party.

But it was as if they had brushed it all over when he joined the president-elect on stage to be announced as economy minister. She turned over the microphone to him.

“We have all of the possibilities from the trade agreements that we have, the growth of Mexico as the top trade partner of the United States. We’ll have the review of the trade agreement with the US and Canada, another of the tasks that we must take on to follow the instructions of Dr. Sheinbaum,” he said by her side.

--With assistance from Eric Martin.

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